Court Opinion

ID: 881800
Source: CourtListenerOpinion
Date Created: 2013-06-05 00:46:31.851404+00
Date Added: 2024-06-11T09:07:40.718481
License: Public Domain

No.    89-605
          IN THE SUPREME COURT OF THE STATE OF MONTANA
                                  1990

IN THE MATTER OF THE
ESTATE OF RALPH M. ELLISON,
     Deceased.

APPEAL FROM:   District Court of the Tenth Judicial District,
               In and for the County of Fergus,
               The Honorable Peter L. Rapkoch, Judge presiding.

COUNSEL OF RECORD:
          For Appellant:
               Carl A. Hatch, Small, Hatch, Doubek   &   Pyfer, Helena,
               Montana
          For Respondent:
               Leonard H. McKinney, Lewistown, Montana
               William E. Berger, Wilkins and Berger, Lewistown,
               Montana

                                            Submitted:   April 5, 1990
                                             Decided:    May 8, 1990
Justice John C. Sheehy delivered the Opinion of the Court.

     Appellants, Nora Jean Scott, Gary Ellison, Larry Ellison,
Scott Ellison and Pat Ellison appeal from an order of the Tenth
Judicial District, Fergus County, construing the terms of the Will
of Ralph M. Ellison. We affirm the District Courtls order.
     Appellants raise one issue on appeal: Whether the District
Court erred in construing the phrase "tax-free municipal bondsv1
found in the decedent's Will?
     Ralph M. Ellison, a resident of Lewistown, Montana, died
August 19, 1988. On August 31, 1988, his Will was admitted to
probate by the Fergus County District Court. The Will provides the
following in Paragraph 11:

     I have invested money in tax-free Municipal Bonds. I
     give, devise and bequeath one-half of all Municipal Bonds
     that I own at the time of my death to SCOTT ELLISON, GARY
     ELLISON, LARRY ELLISON, PAT ELLISON and NORMA JEAN SCOTT,
     in equal shares, share and share alike. I direct that
     any inheritance tax attributable to any of these people
     is to be paid by them from their individual bequests.
     The remaining one-half of the tax-free Municipal Bonds passed
to Erma M. Ellison, his surviving spouse, as part of the rest,
residue and remainder of the estate under Paragraph IV:

     I give, devise and bequeath all of the rest, residue and
     remainder of my property of whatever nature, kind or
     description, whether real, personal or mixed, wheresoever
     situated, belonging to me or in which I am possessed, or
     to which I may have an interest, or to which I may be
     entitled at the time of my death, to my wife, ERMA M.
     ELLISON.
    Ralph Ellison was a knowledgeable investor, with a large
portfolio of municipal bonds, mutual funds and trusts.           The
estate's Schedule B Inventory and Appraisement list sets forth 60
such investments.   The question arises, "What did Ralph Ellison
intend by using the term "tax-free Municipal Bonds?11 Everyone
concerned with the estate agrees that items 1-45 on the estate's
inventory   list   are   tax-free bonds   issued   by   various   local
government units of the state of Montana. However, with regard to
items 50-60 of the estate's inventory list there is no agreement
between the devisees.     Those are securities found with names or
designations other than municipal bonds, but which have some,
though not all, of the characteristics of municipal bonds.        They
represent municipal obligations, but are not free of Montana
inheritance tax, though they are of federal estate tax.
     Accordingly, the personal representative filed a petition
requesting the District Court to construe the language "tax-free
Municipal Bonds.    After a full hearing on the matter, the District
Court issued its order on November 13, 1989, concluding that items
50-60 on the inventory list are not "tax-free Municipal Bondst1to
be distributed under paragraph I1 of the Will.     The beneficiaries
named in paragraph 11, Scott Ellison, Gary Ellison, Larry Ellison,
Pat Ellison and Nora Jean Scott, who under the court's construction
of the Will have been deprived of a total of $125,499.63, appeal
the District Court's order.
                                 I.
     Whether the District Court erred in construing the phrase
"tax-free municipal bondsv1found in the decedentls Will?
     The nieces and nephews contend that items 50-60 in the
inventory list have the character of tax-free municipal bonds, are
for all practical purposes municipal bonds, and therefore, 50
percent of the bonds should pass to them.              In contrast, Erma
Ellison,    feels      that   these   items,      although     having       some
characteristics attributable to tax-free municipal bonds, are in
fact different      from tax-free municipal        bonds     and   should be
distributed according to the Will's residuary clause.
     This Court must determine:        1)    If the items 50-60 on the
inventory list are tax-free; and, 2) whether those securities fall
under the definition of "municipal bonds."
     The testator specifically stated that the securities devised
in paragraph I1 of his Will must be "tax-free."            It is clear from
reviewing the record that items 50-60 of the estate's inventory
list are not tax-free. Larry Van Atta, Ralph Ellison's stockbroker
and investment counselor, testified that these securities were only
partially tax-free.      Unlike the securities in items 1-45, which
were income tax-free both under federal law and Montana law, items
50-60 were exempt only from federal income tax.              The appellants
agree the securities are income tax-free only under federal law,
but continue to argue that the testator still intended items 50-
60 to be devised as tax-free municipal bonds under paragraph I1 of
his Will.   It is well settled that intention of a testator, as
expressed   in   his    Will,   controls    the   legal    effect    of     his
disposition.     Section 72-2-501, MCA; In Re the Estate of DeLong
(Mont. 1990), - P . 2 d I 47 St.Rep. 496, 498; In Re the Estate
of Erdahl   (Mont. 1981), 630 P.2d 230, 231; State Fish                 &   Game
Comm'n. v. Keller, Etc. (1977), 173 Mont. 523, 526, 568 P.2d 166,
168. The facts are inescapable, the Will states tax-free municipal
bonds, not partially tax-free municipal bonds.   Thus, we adopt the
District Court finding that items 50-60 are only partially tax-
free, and therefore fail to meet the intention of the testator as
set forth in Paragraph I1 of his Will.
     Even if we consider fixed items 50-60 as tax-free, the
securities fail to qualify as Municipal Bonds.    Van Atta, at the
hearing, described the following principle characteristics of
municipal bonds.

     QUESTION: Can you tell me and the Court, what is the
     principle characteristic of a municipal bond?
     ANSWER (MR. VAN ATTA) : A municipal bond would be a bond
     issued by a municipality, it could be a state government
     or it could be I.D.R. bonds, which are things that are
     not allowed by law now. The bonds are an obligation by
     that issuer to pay principal and interest, bank at a
     certain percent, it has a fixed maturity rate, and it has
     a fixed amount that they are to pay you back. So those
     are three characteristics that are very much a part of
     municipal bonds.

     As Mr. Van Atta testified to at the hearing, the securities
found in items 50-60 are not municipal bonds, but mutual funds or
mutual bond trusts. Mr. Van Atta explained the differences between
the municipal bonds and mutual fund or mutual bond trusts.

     QUESTION: Okay.    Items 50-60, are they municipal as
     defined by the term municipal bonds?
     ANSWER (MR. VAN ATTA) :     In my opinion, they're not
     because - the reason being is that you dont have a fixed
                                                t
     interest rate, you dontthave a fixed maturity, and you
     don't have a fixed amount that you're going to get back.
     The only thing you have in common is tax-free from
     federal, and that's the only requirement or the only
     thing that's similar.
        The evidence is overwhelming that     items 50-60 are not
Municipal Bonds but were investments in mutual funds, or municipal
bond trusts.     The only expert called in this case, stockbroker
Larry Van Atta, testified that items 50-60, Schedule B, Inventory
and Appraisement, are not municipal bonds.    It is also undisputed
that the Testator was a shrewd investor and knew the difference
between a municipal bond and mutual fund or mutual trust.   When he
made his Will he chose the words gvmunicipalbonds."         If the
testator had meant to include in his devise to the appellants the
proceeds of the mutual funds or mutual bonds trusts, items 50-60,
he, a knowledgeable investor, could have used other terms, or
simply said mutual funds or mutual bond trusts.
        The testator executed his Will on June 28, 1988, and died
shortly thereafter on August 19, 1988.   The testator at the time
of executing his Will already had his portfolio completed and knew
his investments; he used the words "municipal bondsg1
                                                    knowing he had
items 50-60 which were not municipal bonds.   On June 28, 1988, the
date of the Will, the only conclusion is that he employed the words
vvmunicipal
          bondsvvin their ordinary sense and therefore, did not
intend to include items 50-60 of Schedule B of the Inventory and
Appraisement in paragraph I1 of his Will.      To decide otherwise
would side-step the intent of the testator as set forth in his
Will.
     Accordingly, we affirm the District Court.

                                       U*1Vc PJusticeL k
                                               ..&
We Concur:          ,4

             Justices