Court Opinion

ID: 9480904
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:02:36.135834+00
Date Added: 2024-06-11T17:47:59.898980
License: Public Domain

K.K. HALL, Circuit Judge,
dissenting:
I believe that the Tax Court misapplied the Virginia apportionment statute. Accordingly, I would reverse.
I.
I agree that Reno’s will manifests an intent to shield the Kentucky property from the burden of estate tax.1 Nonetheless, a testator’s intent can be carried out only if it is legal and the structure of his estate at the time of his death permits. If, when Reno died, his estate had consisted solely of the Kentucky realty, his direction that “other assets” be used to pay estate taxes would necessarily have been ineffective. The same result would occur if the “other assets” were insufficient to pay the estate tax.
The Tax Court’s decision is necessarily premised on its reading of “the assets of my estate other than Kentucky real estate” as being coextensive with the definition of “gross estate” in federal estate tax law. However, it does not necessarily follow that, simply because property falls within the federal definition of gross estate, a decedent may place burdens on that property that are inconsistent with the rights of others. During his lifetime, Reno was powerless to impair his wife’s interest in property held by the entireties without her consent. The majority’s endorsement of the Tax Court’s decision allows a massive impairment of that interest at Reno’s death. I believe that this result was not intended by the testator, and contravenes the wife’s state-law property rights to a greater extent than is contemplated by either the state or federal statutes.
II.
The Internal Revenue Code definition of “gross estate” does not preempt state law regarding apportionment of estate tax among assets of that estate. Riggs v. Del Drago, 317 U.S. 95, 97-98, 63 S.Ct. 109, 110, 87 L.Ed. 106. Though federal law determines the extent of the “estate” and the rate at which the estate is taxed, the states are free to provide for any appor*969tionment scheme they deem best for their respective residents. Virginia’s scheme is simple: each beneficiary bears tax in proportion to the value of the property he has received. However, each may take full advantage of all exemptions, deductions and exclusions available under federal law. Va.Code Ann. § 64.1-161. As the majority acknowledges, in the absence of a will, property held by the entireties in Virginia passes free of federal estate tax.
I part company with the majority in its reading of Va.Code Ann. § 64.1-165. Though that section generally gives a testator the right to designate a particular fund or funds out of which estate taxes are to be paid, I do not believe that it bestows a power to disproportionally impair a surviving spouse’s interest in property held by the entireties. Section 64.1-165 allows the testator to override the default apportionment scheme of § 64.1-161. It does not permit him to override the property rights of others.
Unlike some other states, Virginia permits married couples to hold property by the entireties. Vasilion v. Vasilion, 192 Va. 735, 740, 66 S.E.2d 599, 602 (1951). A husband may not obligate entireties property or subject it to his debts without the consent of his wife. Id.; In re Bishop, 482 F.2d 381, 383 (4th Cir.1973); In re Saunders, 365 F.Supp. 1351, 1352-53 (W.D.Va.1973). Consequently, a purported sale or mortgage of the property to which the wife does not consent is ineffective. Johnson v. McCarty, 202 Va. 49, 55-56, 115 S.E.2d 915, 920 (1960). Furthermore, and most importantly for this ease, upon the death of one spouse, fee title simply remains in the other by operation of law. Vasilion, 192 Va. at 740, 66 S.E.2d at 602. No will is necessary; no reference to the law of intestate succession is necessary. A testator is absolutely powerless to alienate the property from his spouse. Any provisions in the will purporting to do so are necessarily inoperative. “This is so ... because in the first instance [the survivor] took the entirety....” Id.
Of course, by including property held by the entireties in a decedent’s “gross estate,” the federal tax code has partially overridden the property rights of Virginians who hold property in that manner. The purpose of this inclusion is plain — if property held by the entireties were suddenly excluded from calculation of federal estate tax, there would doubtless be an avalanche of straw party deeds descending upon Virginia county courthouses. Nonetheless, I am unwilling to extend a provision designed to make the federal estate tax responsive to the actual amount of wealth passing from one generation to another so as to do such violence to state-law property rights.
First of all, Congress provided a marital deduction that would effectively exempt entireties property from estate tax, and deferred apportionment of tax to the states. These actions strongly evince a Congressional intent to make the estate tax’s intrusion into state property law as limited as necessary to effect the purpose of the tax.
Second, we should not read two laws of Virginia in such a manner that they irreconcilably collide. The majority holds that Va.Code Ann. § 64.1-165 permits a testator to designate entireties property as a fund from which estate tax should be disproportionally paid. Though a testator is unequivocally forbidden to alienate entireties property by his will, the majority’s construction of § 64.1-165 would permit a testator to do the functional equivalent by simply designating his entireties property as the fund from which all estate taxes are to be paid.2 A surviving spouse who must sell her property to pay estate taxes gener*970ated by property devised to others will take no solace in her husband’s inability to directly alienate the property. I cannot accept that the Virginia legislature intended to abrogate longstanding property law by enacting a tax apportionment statute. Therefore, I would reverse the decision of the Tax Court.
I respectfully dissent.
On Petition for Rehearing with Suggestion for Rehearing In Banc Jan. 4, 1991.
The appellants’ petition for rehearing and suggestion for rehearing in banc were submitted to the Court. A majority of judges having voted in a requested poll of the Court to grant rehearing in banc,
IT IS ORDERED that the rehearing in banc is granted.
IT IS FURTHER ORDERED that this ease shall be calendared for argument at the April, 1991 session of Court. Within ten days of the date of this order 5 additional copies of appellant’s brief and reply brief and 5 additional copies of appellees brief shall be filed and appellant will file 10 additional copies of the joint appendix.

. I disagree, however, that Dr. Reno had any intention of subjecting the entireties property to estate tax. At footnote 4, the majority posits a plausible theory that he so intended, but I think it far more likely that the testator expected his probate assets other than the Kentucky real estate to satisfy estate tax, especially inasmuch as those assets would have been sufficient when the will was executed.
Moreover, because property held by the en-tireties passes outside of a testator's will in Virginia, I would not assume that the entireties property was an “asset” of Reno’s "estate" to which he referred when attempting to shield the Kentucky realty from estate tax.

. Baylor v. National Bank of Commerce of Norfolk, 194 Va. 1, 72 S.E.2d 282 (1952), upon which the majority relies, is inapposite. The issue in Baylor was whether a testator could force property he devised to his spouse by will to bear estate tax. Inasmuch as the testator had the power to give the property, he had the power to limit the gift. Unlike the testator in Baylor, Dr. Reno had no testamentary power whatsoever over the disposition of the entireties property. Of identical import is this court’s decision in Wisely v. United States, 893 F.2d 660 (4th Cir.1990). The owner of the cookie jar may dole out his treats as he wishes, but it does not follow that he may raid someone else’s jar to feed a hungry tax collector, even if that be his desire and intent.