Estate of Detlefs, In re

• Decision Date: 05 February 1988
• Docket Number: No. 86-224,86-224
• Citation: 227 Neb. 531,418 N.W.2d 571
• Parties: In re ESTATE OF Herman F. DETLEFS, Deceased. LaVerne QUADHAMER et al., Appellants and Cross-Appellees, v. John L. CRAIG, Personal Representative of the Estate of Herman F. Detlefs, Deceased, et al., Appellees and Cross-Appellants.
• Court: Nebraska Supreme Court

Page 571

418 N.W.2d 571

227 Neb. 531

In re ESTATE OF Herman F. DETLEFS, Deceased.

LaVerne QUADHAMER et al., Appellants and Cross-Appellees, v. John L. CRAIG, Personal Representative of the Estate of Herman F. Detlefs, Deceased, et al., Appellees and Cross-Appellants.

No. 86-224.

Supreme Court of Nebraska.

Feb. 5, 1988.

Syllabus by the Court

1. Decedents' Estates: Taxation: Appeal and Error. Supreme Court review of apportionment proceedings under Neb.Rev.Stat. §§ 77-2108 et seq. (Reissue 1986) is de novo on the record.

2. Decedents' Estates: Taxation. Neb.Rev.Stat. § 77-2108 (Reissue 1986) does not require that allowances be made for credits given by the IRS against estate and gift taxes.

3. Decedents' Estates: Taxation: Interest. Interest imposed by the IRS on estate tax is part of the "tax" to be apportioned pursuant to Neb.Rev.Stat. § 77-2108 (Reissue 1986).

4. Equity: Decedents' Estates: Taxation: Interest. Principles of equity require that if the county court finds that it is inequitable to apportion interest and penalties because of special circumstances, it may direct apportionment thereon in the manner it finds equitable.

5. Decedents' Estates: Taxation: Interest: Negligence. If the countycourt finds that the assessment of penalties and interest assessed in relation to the tax is due to delay caused by negligence of the personal representative, the court may charge the personal representative with the amount of the assessed penalty and interest.

6. Decedents' Estates: Taxation: Final Orders: Appeal and Error. County court apportionment orders entered pursuant to Neb.Rev.Stat. §§ 77-2108 and 77-2112 (Reissue 1986) are final, appealable orders.

7. Decedents' Estates: Taxation: Interest. County courts may allow interest on each apportioned share as established by Neb.Rev.Stat. § 77-2108 (Reissue 1986), as may be equitable and just under all the circumstances of the case. Such interest may be charged from the date the apportionment order is entered by the county court.

Patrick J. Nelson of Jacobsen, Orr, Nelson & Wright, P.C., Kearney, and Douglas M. Deitchler of Baylor, Evnen, Grimit & Witt, Lincoln, for appellants and cross-appellees.

Charles E. Wright of Cline, Williams, Wright, Johnson & Oldfather, Lincoln, Jesse T. Adkins of Adkins and Wondra, Minden, and Rodney A. Osborn of Person, Dier, Person & Osborn, Holdrege, for appellees and cross-appellants Craig and University of Nebraska Foundation.

BOSLAUGH, WHITE, CAPORALE, SHANAHAN, and GRANT, JJ., and COLWELL, District Judge, Retired.

WHITE, Justice.

This is an appeal from the district court for Franklin County. The district court upheld an order of the county court for Franklin County which apportioned federal estate taxes, and interest thereon, among persons interested in the estate of Herman F. Detlefs.

Appellants, LaVerne Quadhamer, Shirley Quadhamer, and Wayne Kile, assign three errors. First, appellants challenge the method used by the trial court to compute apportionment shares of the estate tax. Second, it is alleged that the trial court erred in apportioning interest due on the federal estate tax among the interested parties. Finally, appellants allege that the county court lacked jurisdiction to enter a money judgment, with interest thereon, for the amounts of federal estate tax and interest apportioned to each interested party.

This case comes before this court with a 10-year history of conflict involving the parties. Herman Detlefs' attempts to dispose of his estate, by will and through inter vivos land transfers, have been fraught with years of court battles involving several distinct issues. In 1978 Detlefs deeded two parcels of real estate to his friends (appellants in this case) the Quadhamers and Wayne Kile. Detlefs retained a life estate in both parcels of land. Within 2 weeks, on advice of attorneys, Detlefs requested appointment of a conservator. The request was granted, and John L. Craig, Detlefs' banker, was appointed. Within a few months the conservator filed an action in equity in the separate district courts where each parcel of land was located to have the deeds set aside due to undue influence and lack of mental capacity.

Detlefs died on February 4, 1980, prior to any determination on the validity of the land transfers. The actions were revived by John Craig, as personal representative of Detlefs' estate. With the land transfer litigation pending, court battles began, involving the probate of Detlefs' wills. The personal representative attempted to probate Detlefs' 1979 will. Detlefs' heirs, as well as the Quadhamers and Kile in a separate action, objected to the probate of the 1979 will. The Quadhamers and Kile filed for formal probate of Detlefs' 1975 will, which included two codicils. The county court overruled the objections and admitted the 1979 will to formal probate. In July and August of 1980, both Detlefs' heirs and the Quadhamers and Kile, in separate actions, appealed the county court's order to the district court.

On September 25, 1981, the district courts for Kearney and Franklin Counties upheld the land transfers and deeds from Detlefs to the Quadhamers and Kile. The estate's personal representative then appealed to the Supreme Court. This court affirmed the district courts' decisions by upholding the land transfers in Craig v. Kile, 213 Neb. 340, 329 N.W.2d 340 (1983).

Amidst the controversies surrounding Detlefs' land transfers and his will loomed one of the two certainties in life: taxes. Neither Detlefs nor his conservator filed a gift tax return on the land transfers to Quadhamers and Kile during Detlefs' lifetime. After Detlefs' death, the estate and the transferees were at odds over who was liable for payment of gift taxes if, in fact, the inter vivos transfers were upheld.

The facts pertinent to the estate taxes are of particular importance to the case at bar. A federal estate tax return, if required, must be filed within 9 months after death. I.R.C. § 6075 (1982). There are provisions for an extension if such is necessary. I.R.C. § 6081 (1982). The record in this case reveals that the attorney for the estate's personal representative filed a U.S. estate tax return (form 706) in November of 1981, 1 year 9 months after Detlefs' death. The attorney's testimony indicates that two extensions were obtained prior to the filing. The return filed by the estate declared that no estate taxes were due the IRS. According to the testimony, the "return was filed on the basis that the ... transfers [of land to Quadhamers and Kile] would be voided and all of that property would pass to the residuary beneficiaries, being the 11 charities [mentioned in Detlefs' 1979 will]."

Shortly after this court's decision in Craig v. Kile, supra, upholding Detlefs' inter vivos land transfers, the IRS audited the federal estate tax return submitted by the personal representative. In June 1983, the IRS notified John Craig of an adjustment in the estate's tax liability. The audit resulted in an increase from $0 due to $412,487.61 due. The estate was notified of its right to appeal this assessment, either within the IRS or in a court proceeding. The personal representative, along with counsel for one of the charitable residuary beneficiaries, chose to appeal the assessment within the IRS. Pursuant to this reassessment, the estate tax liability decreased to $223,332.25, not including interest. This final assessment was dated October 2, 1984. On October 22, 1984, the estate paid the estate tax, as well as the gift tax due on the land transfers. On or about November 1, 1984, the estate paid the interest due on the gift tax and the estate tax. The final assessments paid by the personal representative amounted to $223,332 in estate tax and $115,163 in interest thereon. The gift tax totaled $98,680, and $68,251 in interest.

The record reveals that shortly after the first IRS audit resulting in an increased estate tax liability, the personal representative petitioned the county court for apportionment of federal estate taxes and determination of Nebraska inheritance tax. The Quadhamers and Kile, as well as Detlefs' heirs, filed separate objections to the petition for apportionment. The parties objected to the apportionment as premature due to the pending appeals in district court challenging the probate of Detlefs' 1979 will, alleging that the gift tax issue remained unsettled and asserting that the personal representative was still negotiating with the IRS as to the amount of estate tax due. In August of 1983 the county court upheld the objections and stated that the action "should be continued until the testacy or intestacy of the decedent has been determined."

In January 1984, Detlefs' heirs withdrew their district court appeal challenging the probate of the 1979 will. This action was pursuant to a settlement agreement which was filed with and approved by the county court in March of 1984. Following the October 1984 final assessment of federal estate and gift tax, and payment of that tax by the estate, the personal representative filed an amended application for apportionment of federal estate tax. The amended application was filed in January of 1985. In June 1985, the Franklin County Court entered an order which determined Nebraska inheritance taxes due, apportioned the federal estate tax and the interest among the parties interested in the estate, and held that the gift tax and interest thereon was a debt of the estate and thus not subject to apportionment among the transferees (Quadhamers and Kile). Appellants herein, Quadhamers and Kile, appealed the county court order to the district court. On January 30, 1986, the district court upheld, with some modification, the order of the county court, and this appeal followed.

Prior to addressing appellants' assigned errors, it is necessary to establish this court's scope of review in estate tax apportionment appeals. This issue has not been directly addressed in...