Court Opinion

ID: 4250326
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:24:42.544865+00
Date Added: 2024-06-11T14:44:12.491914
License: Public Domain

IN THE SUPREME COURT OF IOWA

                              No. 10 / 04-0305

                             Filed March 3, 2006

IN THE MATTER OF THE ESTATE OF MELBA N. MARTIN, Deceased.

DOYLE D. SANDERS, Individually, and as Attorney for Executor, Bankers  Trust
Company, N.A.,

      Appellant.

      Appeal from the Iowa District Court for Polk County,  Ruth  B.  Klotz,
Judge.

      Attorney for executor of  estate  appeals  from  order  setting  fees.
REVERSED AND REMANDED.

      Michael A. Wunn and Doyle D. Sanders of  Beving,  Swanson  &  Forrest,
P.C., Des Moines, and Steven W. Hendricks  of  Kersten  Brownlee  Hendricks,
LLP, Fort Dodge, for appellant.

      C. Kevin McCrindle, Waterloo, and Paul  P.  Morf,  Cedar  Rapids,  for
amicus curiae Iowa State Bar Association.
      Thomas  J.  Miller,  Attorney  General,  and  Valencia  Voyd   McCown,
Assistant Attorney General, for amicus curiae  Iowa  Department  of  Revenue
and Finance.

      Everett H. Albers, Des Moines, for Blake Nex.

CARTER, Justice.
      Doyle B. Sanders, the attorney for  the  executor  of  the  estate  of
Melba N. Martin, appeals from an order  setting  the  maximum  attorney  fee
that could be allowed the attorneys for the executor.  Although the  maximum
fee for the executor, Bankers Trust Co., was calculated on the  same  basis,
the executor has chosen not to appeal the determination of its fee.[1]
      The executor takes no position on the merits of Sanders’ appeal.   The
Iowa Department of Revenue and Finance (IDRF)  has  filed  an  amicus  brief
that favors upholding the district court’s fee  order.[2]   The  Iowa  State
Bar Association has filed an amicus brief urging  reversal  of  that  order.
After reviewing the record  and  considering  the  arguments  presented,  we
conclude that the district court erred in  computing  the  maximum  attorney
fee payable to the executor’s attorneys.  We reverse  the  order  challenged
on appeal and remand the case to the district court for a revised fee  order
consistent with this opinion.
      The inventory in  the  estate  was  filed  on  October 22,  2003.   On
November 17, 2003, attorney Sanders appeared before  the  associate  probate
judge for an  order  setting  fees  for  the  executor  and  the  executor’s
attorneys. At  this  time,  the  recapitulation  summary  contained  in  the
inventory showed a gross estate  value  of  $747,594,  which  included  401k
retirement  annuities  valued  at  $521,389  and  payable  to  a  designated
beneficiary.
      Based on  the  values  shown  in  the  inventory  recapitulation,  the
associate probate judge fixed the maximum attorney fee  for  the  executor’s
attorney at $15,072. [3]  The court also examined time sheets  presented  by
the attorney and concluded that the maximum fee should be the  fee  allowed.
A similar fee was allowed to the executor.
      When IDRF reviewed the  Iowa  inheritance  tax  return  filed  by  the
executor,  it  concluded  that  a  substantial  portion  of  the  retirement
annuities owned by the decedent and payable to a designated  beneficiary  on
death were not subject to the inheritance tax.  The  annuities  not  subject
to tax were those providing for installment payments to  beneficiaries  upon
the decedent’s death that would be subject to income  taxation.   The  value
of  these  annuities  was  approximately  $537,500.   As  a  result  of  its
conclusion that a large portion of the value attributed to the annuities  is
not subject to inheritance tax,  IDRF  determined  that  the  deduction  for
attorney fees claimed by the executor should be  reduced.   IDRF  recomputed
the allowable attorney-fee deduction by computing the  maximum  fee  allowed
under Iowa Code sections 633.197 and 633.198 (2001),  without  consideration
of the value of the retirement annuities not subject to inheritance tax.
      IDRF subsequently advised the associate probate judge  of  the  action
it had taken with respect  to  the  deduction  claimed  for  the  executor’s
attorney fees.  Upon receipt of  that  information,  the  associate  probate
judge revised its  fee  order  of  November 17,  2003,  and  recomputed  the
maximum fee for both the executor and the executor’s counsel  based  on  the
maximum fee that  would  have  been  allowable  under  section  633.197  and
633.198 if the value of the retirement annuities not subject to  inheritance
tax was not considered in the fee  calculation.   This  ruling  resulted  in
both the executor and its counsel receiving approximately one-third  of  the
fee originally approved by the  court.   Only  the  executor’s  counsel  has
appealed from this ruling.
      I.  Scope of Review.
      Factual issues  in  appeals  from  probate  fee  orders  are  reviewed
de novo under Iowa Code section 633.33.  Bass v. Bass, 196 N.W.2d 433,  435
(Iowa 1972); In re Estate of Cory, 184 N.W.2d 693, 696-97 (Iowa  1971).   In
interpreting the controlling statutory law pertaining to  the  allowance  of
attorney fees, we review the district court’s ruling  to  determine  whether
its interpretation is in accord with ours.  In re Estate  of  Engelkes,  256
Iowa 213, 218-19, 127 N.W.2d 111, 114 (1964).
      II.  The Probate Court’s Ruling.
      In fixing the maximum attorney fee allowable  under  sections  633.197
and 633.198, the associate probate judge concluded that, in determining  the
maximum fee  for  an  executor  or  attorney,  that  fee  is  limited  by  a
percentage of the value of “those assets taxable for Iowa inheritance  tax.”
  The  statutory  provision  that  the  court  applied  to  reduce  the  fee
previously approved was the following:

            The tax imposed by this chapter shall not be collected:

            . . . .

            5.  On the value of that portion of installment  payments  which
      will be includable as net  income  as  defined  in  section  422.7  as
      received by a beneficiary under an annuity which was  purchased  under
      an employee[’]s pension or retirement plan.

Iowa Code § 450.4(5).  This was the statute relied on by IDRF  in  exempting
retirement annuities valued at $537,500 from inheritance tax.
      III.  The Issue on Appeal.
      This appeal requires a search for the meaning of the words “the  gross
assets of the estate listed in the probate inventory  for  Iowa  inheritance
tax purposes,”  contained  in  Iowa  Code  section  633.197.   That  statute
provides:

            Personal representatives shall be allowed such  reasonable  fees
      as may be determined by the court for services rendered,  but  not  in
      excess of the following commissions  upon  the  gross  assets  of  the
      estate listed in  the  probate  inventory  for  Iowa  inheritance  tax
      purposes, which  shall  be  received  as  full  compensation  for  all
      ordinary services:

            For the first one thousand dollars, six percent;

            For the overplus between one and  five  thousand  dollars,  four
      percent;

            For all sums over five thousand dollars, two percent[;]

            For purposes of this section, the gross  assets  of  the  estate
      shall not include life  insurance  proceeds,  unless  payable  to  the
      decedent's estate.

Iowa Code § 633.197  (emphasis  added).   This  statute,  which  applies  to
personal representatives, is also the measure of the maximum  fee  that  may
be  allowed  an  attorney  for  the  personal  representative.   Iowa   Code
§ 633.198.  The application of Iowa Code sections  633.197  and  633.198  in
the computation of the maximum fees to be allowed was considered  by  us  in
In re Estate of Lynch, 491 N.W.2d 157  (Iowa  1992).   In  that  case,  we
stated:

      The maximum fee is calculated by applying the  statutory  schedule  of
      fees to the gross assets of  the  estate  as  listed  in  the  probate
      inventory for Iowa inheritance tax purposes.  The gross assets of  the
      estate listed in the probate inventory for  inheritance  tax  purposes
      include all property passing by any method of  transfer  specified  in
      Iowa  Code  section  450.3,  without  reduction  for  the  liabilities
      specified in Iowa Code section 450.12.

Lynch, 491 N.W.2d at 159 (emphasis added).[4]  In Lynch  we  were  concerned
with whether property passing to remaindermen of a trust created  under  the
will of the decedent’s spouse should be considered to  be  property  passing
under any of the methods of transfer specified in Iowa Code  section  450.3.
Based on the determination that IDRF had made in  that  case,  we  concluded
that it did not.[5]
      We are unable to discern any intimation in  the  Lynch  decision  that
the gross assets of the estate that might be considered in  calculating  the
maximum fee for the personal representative  and  attorney  are  limited  to
assets that actually generate a tax.  We expressly stated that all  property
passing by any method of transfer specified in Iowa Code section  450.3  was
to  be  considered  for  fee-calculation  purposes.   At  this   time,   the
administrative  regulation  defining  gross   estate   for   inheritance-tax
purposes similarly included all property passing by any method  of  transfer
specified  in  Iowa  Code  section  450.3.   See   Iowa   Admin.   Code   r.
701—86.1(1)(g) (1990).  The present definition of “gross estate”  in  IDRF’s
administrative  regulations  mirrors  that  which  existed   in   the   1990
regulation.[6]
      There is no dispute that the  retirement  annuities  excluded  by  the
probate court in calculating the maximum attorney fee were property  passing
by a method of transfer specified in subparagraph (3) of Iowa  Code  section
450.3.[7]  As such, it falls within the agency’s  own  definition  of  gross
estate contained in Iowa Administrative  Code  rule  701—86.1(1).   Although
another administrative regulation indicates that  annuities  qualifying  for
an  exemption  under  Iowa  Code  section  450.4(5)  are  exempt  from   the
inheritance tax, see Iowa Admin. Code r. 701—86.5(12),  that  regulation  in
no way declares that the exempted property is not part of the  gross  estate
for Iowa inheritance tax purposes.
       In  describing  another  exemption  contained  in   the   Code,   the
legislature has stated  that  property  passing  to  parents,  grandparents,
great-grandparents and other lineal descendants is  exempt  from  tax  “[i]n
computing the tax on the net estate.”  Iowa Code § 450.9.   If  an  item  is
exempted from tax on the net estate, it must have been  part  of  the  gross
estate.   We  think  this  principle  applies  equally  to  the   exemptions
contained in section 450.4.  We note that some property  passing  under  the
decedent’s will in  the  present  case  was  bequeathed  for  a  charitable,
educational,  or  religious  purpose  and  was  exempted  by  IDRF  in   the
calculation of the inheritance tax pursuant to Iowa Code  section  450.4(2).
Notwithstanding that fact, IDRF did not contend that this property  was  not
part of the gross estate for purposes of computing  maximum  allowable  fees
for the personal representative or attorney.
      Although we have discussed administrative regulations  of  IDRF  that,
in our view, demonstrate that the agency’s definition of  gross  estate  for
inheritance-tax purposes  does  not  materially  vary  from  the  definition
adopted  by  this  court  in  Lynch  for  fee-calculation   purposes,   that
conclusion is not essential to our decision.  IDRF  is  not  entrusted  with
the  responsibility  of  determining  the  correct  application  of  section
633.197.  It could alter its definition of  gross  estate  for  purposes  of
administering the revenue laws without affecting our  determination  of  the
assets to be included  in  the  calculation  of  probate  fees.   Nor  would
legislative amendments of the revenue provisions that do not make  reference
to the fee situation necessarily alter our view  of  the  correct  base  for
calculating the maximum fees under sections 633.197 and 633.198.
      We are confident  that  it  was  the  intent  of  the  legislature  in
enacting section 633.197  that  the  gross  estate  listed  in  the  probate
inventory for Iowa inheritance-tax purposes  include  all  property  passing
under the methods of transfer set forth in section 450.3 without  regard  to
whether the included property is subject to the  inheritance  tax.   At  the
time section 633.197 was enacted, property of  the  type  at  issue  in  the
present case was includable under section 450.3(3) (1958), and this has  not
changed in subsequent versions of the statute.  The  legislature  has  shown
that, if it wishes  to  exclude  for  fee-calculation  purposes  a  type  of
transfer otherwise included under section 450.3, it will do so  by  specific
legislation that speaks to the matter of the fee.  See Iowa  Code  § 633.197
(gross assets used for fee calculation  shall  not  include  life  insurance
proceeds unless payable to decedent’s estate).
      In sum, we hold in the present case that the retirement annuities  not
subject to inheritance tax were nonetheless includable in the  gross  assets
to be considered in the  calculation  of  the  maximum  fees  payable  under
section 633.197 and section 633.198.  The district court’s  order  excluding
those assets from the fee calculation is reversed.  The case is remanded  to
that court for entry of a revised fee order consistent with this opinion.
      REVERSED AND REMANDED.
-----------------------
      [1]Under Iowa law, attorneys are entitled to present fee claims to the
probate court in  their  own  right  and  need  not  rely  on  the  personal
representative to claim the fee on their behalf.  In re Estate of  Leighton,
210 Iowa 913, 915-16, 224 N.W. 543, 545 (1929).  In the original  fee  order
entered in the district court, a small  portion  of  the  attorney  fee  was
allocated to California attorney  Janie  Beach;  however,  the  amended  fee
order from which this appeal is taken only fixes a single attorney  fee  for
the executor’s attorneys.  We conclude that attorney  Sanders  has  standing
to challenge the district court’s fee order on  behalf  of  those  attorneys
entitled to share in the fee and is attempting to do so.

      [2]The validity of IDRF’s adjudication of the  attorney-fee  deduction
is not before us, as any challenge to that determination would  have  to  be
brought as a review of administrative action under Iowa Code chapter 17A.

      [3]In an amended inventory filed after the original fee order  and  in
the Iowa inheritance tax return filed by  the  estate,  the  estate’s  gross
value is shown to be  $778,944,  including  annuities  valued  at  $575,139.
Obviously, the original fee order was based on the  lower  values  contained
in the original inventory.  We are  not  entirely  certain,  however,  which
values were used in the amended fee  order  that  is  the  subject  of  this
appeal.  Because the case is being  remanded,  the  correct  values  can  be
settled by the district court when it revises its fee order pursuant to  our
directions.

      [4]In our  Lynch  decision.  we  referred  to  the  special  treatment
provided in rule 7.2(2) of our probate rules for life insurance  payable  to
a named beneficiary and joint tenancy property.  The  joint  tenancy  matter
involves an issue of valuation, rather than an issue of exclusion  from  the
gross estate.  The provision in the probate rule  excluding  life  insurance
payable to a named beneficiary from the base  for  calculating  the  maximum
executor fee or attorney fee appears  to  have  been  unwarranted  prior  to
July 1, 1994, based on the broad  definition  of  gross  estate  adopted  in
Lynch and approved in the present case.  However, after  July 1,  1994,  the
exclusion of life insurance payable to a named beneficiary  is  mandated  by
Iowa Code section 633.197  as  amended  by  1994  Iowa  Acts  chapter  1153,
section 8; see also Iowa Code § 633.5.

      [5]In allowing a refund of inheritance  tax  previously  paid  by  the
beneficiaries in Lynch, IDRF concluded:

      “The issue is whether or not Kathryn C. Lynch ‘possessed’ the power of
      appointment on her death (or exercised it within the three years prior
      to her death) such that the corpus would pass via her estate either by
      will or by intestate  succession.   In  the  very  narrow  and  unique
      circumstances of this case,  the  Department  concludes  she  did  not
      ‘possess’ the power at death because:  (1) no inter vivos transfer was
      attempted within the three years prior to her death; (2) her will  did
      not act as an exercise of the power; (3) Donald’s will did provide for
      contingent remaindermen in the case of non-exercise of the power;  and
      (4) the corpus was not received by remaindermen under  Kathryn’s  will
      or from Kathryn through  the  laws  of  intestate  succession.   These
      remaindermen received through Donald’s will alone . . . .”

Lynch, 491 N.W.2d at 158-59 (citations omitted).

      [6]The current regulation provides:

            “Gross estate” as used for inheritance tax purposes  as  defined
      in Iowa Code section 450.2 includes all those items, or  interests  in
      property, passing by any method of transfer  specified  in  Iowa  Code
      section 450.3 without reduction for liabilities specified in Iowa Code
      section 450.12.

Iowa Admin. Code r. 701—86.1(1).

      [7]That statute provides:

           The tax hereby imposed shall be collected upon  the  net  market
      value . . . of any property passing as follows:
           . . . .
           3.  By deed, grant, sale, gift or transfer made or  intended  to
      take effect in possession or enjoyment after the death of the  grantor
      or donor.

Iowa Code § 450.3.