Estate of Brown, Matter of, 960023

Decision Date03 February 1997
Docket NumberNo. 960023,960023
Citation559 N.W.2d 818
PartiesIn the Matter of the ESTATE OF Fern L. BROWN, Deceased. AMERICAN CANCER SOCIETY, Minnesota Division, and the American Heart Association, Minnesota Affiliate, Inc., Petitioners and Appellants, v. Shirley UNRUH, Personal Representative of the Estate of Fern L. Brown; and Shirley Unruh in her individual capacity as an heir, Jacqueline From, Dennis Cofell, Mary Ann Toevs, William Cofell, Elizabeth Wold, Eugene Cofell, Carolyn Cofell, Donna Woodward, Shelle Litterer, Beverly Rathbun, Loin Scouten, Mark Siemers, Scott Siemers, Ann McKinnon, and Nancy McKinnon, Respondents and Appellees. Civil
CourtNorth Dakota Supreme Court

Stringer & Rohleder, St. Paul, MN, for petitioner and appellant American Cancer Society; argued by Harry T. Neimeyer; Ottmar & Ottmar, Jamestown, for petitioners and appellants.

Appearance by Timothy J. Ottmar; Martin H. Fisk of Briggs & Morgan, St. Paul, MN, for petitioner and appellant American Heart Association, on brief.

Larson Law Firm, Jamestown, for respondent and appellee Shirley Unruh; argued by Joseph F. Larson II.

Wheeler Wolf, Bismarck, for respondents and appellees heirs; argued by Michael L. Wagner.

MESCHKE, Justice.

¶1 The American Cancer Society and the American Heart Association appeal from a judgment that construed Fern L. Brown's will to have made a formula gift of over $450,000 to a group of nineteen persons that resulted in estate taxes of $173,467 and left nothing for the six residual charities. We reverse and remand with instructions.

¶2 To write her will in 1992, Brown met with attorney Mark Scallon, who had not known her before. Brown told him that, after a modest gift to her church, she wanted to give the amount her estate could claim exempt under the unified credit for federal estate taxes to a group of named persons in equal shares, and to give the rest of her substantial estate to six named charities. She discussed minimizing estate taxes that way.

¶3 Scallon explained to Brown the unified credit's exemption equivalent of $600,000 would be reduced in her probate estate by her non-probate transfers outside her will, including all lifetime gifts above $10,000 annually, accounts paid on death, and jointly held property. Unaccountably, Brown told Scallon that she had made no prior taxable gifts and did not have accounts payable on her death, but that she did hold some joint property.

¶4 Scallon's then partner, Dan Diemert, drafted the will with a formula group gift that was defined by what her estate "may claim" under the unified credit, but that referred expressly only to joint property, since that was the only non-probate transfer by Brown the lawyers expected. Deimert drafted the group gift in Article IV.B. to say:

To the individuals herein listed, I specifically devise the amount of monies my estate may claim under the Unified Credit of Section 2010 of the Internal Revenue Code. Any properties jointly held by me and another individual shall be included in this amount up to the actual value of my interest at the date of my death. The individuals to whom I give this devise are as follows: [twenty-two persons listed]. Should any of these individuals fail to survive me, then it is my direction that such person's share shall be divided equally amongst those listed persons who still survive me at the date of my death.

(emphasis added). As Brown wished, Diemert drafted Article V to give the residue equally to six named charitable organizations qualified under the Internal Revenue Code, including the American Cancer Society and the American Heart Association.

¶5 When Scallon reviewed the proposed will with Brown, he explained that it did not express the dollar amount of the group gift to avoid future changes in the will if circumstances affected application of the unified credit. 1 Brown executed the will on September 22, 1992, and later executed a codicil to drop one group beneficiary and to change her personal representative. On January 24, 1994, Brown died.

¶6 The trial court authorized informal probate of Brown's will and appointed the personal representative of her estate. On November 15, 1994, the personal representative petitioned to confirm distribution of $5,000 to the Edgeley Methodist Church and of $23,685 to each of the surviving nineteen persons in the group gift, out of probate assets of $654,052. Brown's probate assets combined with taxable non-probate transfers of $446,337 made her estate nearly $1,050,000 for estate tax purposes (not counting probate expenses of over $50,000).

¶7 The proposed distribution of $23,685 each from Brown's probate assets to the nineteen group survivors totaled $450,015. This proposed group gift, when combined with her taxable non-probate transfers of $42,572 in joint property, $117,479 in lifetime taxable gifts, and $286,286 in annuity accounts paid at Brown's death (in varying amounts that averaged $13,633 each to eighteen of the group-gift members and three other beneficiaries), made total taxable transfers of $896,352 that exceeded the $600,000 exemption equivalent of the unified credit by over $296,000.

¶8 The size of the $896,352 taxable estate, including the proposed group gift of $450,015, resulted in payment of a state estate tax of $29,417 and a federal estate tax of $144,050, totaling $173,467 in estate taxes. The taxable effect of more than $700,000 in total transfers to the surviving nineteen persons in the group gift ($450,000 in probate transfers and $250,000 in prior non-probate annuities to the same persons), when combined with other non-probate transfers of nearly $200,000, 2 resulted in a total taxable estate of nearly $900,000 and estate taxes of $173,467. The resulting estate taxes left nothing for the stated residual gift to the six charities.

¶9 For the charities, the American Cancer Society and American Heart Association objected:

In essence, our objection is that the aggregate devises paid pursuant to the provisions of Article IV.B. [group gift] were excessive, resulting in a federal estate tax of $144,050 and a state estate tax of $29,417, and that the amount distributed to said beneficiaries which resulted in said estate taxes should be distributed equally to the charities named in Article V of the decedent's Will and that, further, a refund of said taxes should be obtained and said refunded taxes should be similarly distributed to the charities.

¶10 After a hearing, the trial court construed the will to be ambiguous, reasoning:

Article IV.B reads in part, "... the amount of monies my estate may claim under the Unified Credit of Section 2010 of the Internal Revenue Code." The words "Unified Credit" and "Internal Revenue Code" would certainly imply that Article IV.B relates to estate taxes. The clause does not state how estate taxes are involved. The individual heirs argue that the mention of Unified Credit means they are to get up to $600,000.00, the amount of exemption equivalent associated with the Unified Credit. The charities argue that Article IV.B shows the intention of Fern Brown to zero out taxes. The Court views both of these interpretations as reasonable and, therefore, the clause is ambiguous.

The trial court resolved the perceived ambiguity wholly for the group-gift beneficiaries, although it believed Brown intended the charities to get something. 3

¶11 The trial court reasoned that construing the group gift to be part of a design to minimize estate taxes would conflict with other will clauses that it interpreted to require payment of estate taxes from the residue before the residual charities got anything. The court believed, because the group gift of "the amount of monies my estate may claim under the Unified Credit of Section 2010 of the Internal Revenue Code" seemingly did "not state how estate taxes are involved," Brown's formula group gift intended transfer of the maximum amount possible from her probate estate up to a full $600,000, rather than a transfer of the remaining amount her estate could claim after non-probate transfers had reduced "the amount of monies [her] estate may claim under the Unified Credit."

¶12 On appeal, the charities argue that the trial court's construction of the will was wrong. They contend the will is not ambiguous because the group gift of what Brown's probate estate may claim as exempt under the unified credit and the deductible residual gifts to charities were designed to save federal estate taxes by combining the use of exemptions and deductions in the federal estate tax law. Alternatively, the charities contend the extrinsic evidence at the trial clarified that any possible will ambiguity was part of a plan to minimize estate taxes.

¶13 Not surprisingly, the group beneficiaries also contend that the group gift unambiguously intended to give the maximum amount possible to the group from Brown's probate estate, up to an amount equal to a full $600,000, without intending to minimize estate taxes. We reject this contention and agree with the charities.

¶14 Despite the trial court's belief that the group gift did "not state how estate taxes are involved," Brown's group gift does specify how estate taxes affect the size of the group gift. By using the unified credit in the Internal Revenue Code to define the group gift, Brown's will defined the amount her probate estate "may claim" as exempt under the unified credit to be only what is left after taxable non-probate transfers have reduced the effect of the unified credit for gifts from her probate estate. We conclude the trial court's construction of the will was wrong because, construing the will as a whole, Brown unambiguously intended to benefit the charities with the amount saved in estate taxes after a group gift of only, we emphasize, the "amount of monies my estate may claim under the Unified Credit."

¶15 Courts must construe a will to find the testator's intent from full consideration of the will in light of...

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