Estate of Pouser, In re
| Decision Date | 08 April 1999 |
| Docket Number | No. CV-97-0407-PR,CV-97-0407-PR |
| Citation | 193 Ariz. 574,975 P.2d 704 |
| Parties | , 299 Ariz. Adv. Rep. 3 In the Matter of the ESTATE OF: Benjamin POUSER, Deceased. Amy Pouser-Webb, Harold Pouser, and Richard Pouser, Plaintiffs-Appellants, v. Suzanne Pouser, individually; Suzanne Pouser and Thomas S. Filip as Personal Representatives of the Estate of Benjamin Pouser, Deceased; and the Estate of Benjamin Pouser, Deceased, Defendants-Appellees. |
| Court | Arizona Supreme Court |
O P I N I O N
¶1 After a trial to the court, the trial judge found that decedent Benjamin Pouser had intended that appellee Suzanne Pouser, Benjamin's second wife, inherit the maximum amount allowable under the federal estate tax marital deduction in effect at the time of his death and that Suzanne was therefore entitled to Benjamin's entire estate, to the exclusion of appellants Richard Pouser, Harold Pouser, and Amy Pouser Webb, Benjamin's children by a previous marriage. 1 The court of appeals reversed the judgment, ruling that the trial court's findings as to Benjamin's intent were clearly erroneous. We granted Suzanne and appellee Thomas Filip's petition for review and now vacate the court of appeals' decision and reinstate the trial court's judgment because we conclude the trial court's finding of Benjamin's intent was supported by substantial evidence.
¶2 We view the facts in the light most favorable to supporting the trial court's judgment. Aztec Film Productions, Inc. v. Prescott Valley, Inc., 128 Ariz. 402, 403, 626 P.2d 132, 133 (1981). Benjamin had substantial assets when he and Suzanne married in 1959. They executed a prenuptial agreement, keeping their property interests separate and providing that Suzanne would inherit nothing when Benjamin died. In 1974, when Benjamin's estate was worth over one million dollars, he executed a will that left $50,000 to Suzanne and the remainder in trust for appellants. In 1976, after Benjamin retired and his health failed, he and Suzanne revoked the prenuptial agreement and executed mutual wills. Benjamin's will provided for a maximum marital deduction trust for Suzanne and residuary trusts for appellants. Suzanne's will left her estate to Benjamin if she predeceased him or, contingently, to appellants. She later amended her will, excluding appellants.
¶3 When Benjamin died in 1993, he was survived by Suzanne and appellants. Pursuant to Benjamin's will, the court appointed Suzanne and her nephew, appellee Filip, as personal representatives of Benjamin's estate. They interpreted Benjamin's will as devising his entire estate to Suzanne's marital trust, thereby utilizing the unlimited federal estate tax marital deduction then in effect and, due to Suzanne's amended will, effectively disinheriting appellants.
¶4 Appellants filed a petition to construe the will, asserting that the maximum marital deduction in effect at the time Benjamin executed his will allowed Suzanne to receive a maximum of $250,000 from his estate. 2 The trial judge held a trial to the court, considered extrinsic evidence, and ruled in favor of Suzanne.
¶5 The Third paragraph of Benjamin's will provided that the marital trust was to be funded with "an amount of property equal to the maximum marital deduction allowable in determining the Federal Estate Tax imposed upon my estate under the Internal Revenue Code of 1954, or such similar provisions under any revenue act that may be in effect at the time of my death...." It further stated:
It is my object to secure the full benefit of the maximum marital deduction allowable for Federal Estate Tax purposes under the Federal Estate Tax law in effect upon my death. Accordingly, the terms of this will shall be construed to fulfill this objective. Any provision of this Will which may conflict with my said objective shall be reconciled or ignored to the end that the full marital deduction may be allowed with respect to my estate.
Appellants' trust was to be funded with the residue "remaining after the funding of the SUZANNE POUSER MARITAL TRUST."
¶6 The devolution of Benjamin's estate is controlled by state law, which looks to his intent, A.R.S. § 14-1102(B)(2); In re Estate of Krokowsky, 182 Ariz. 277, 280, 896 P.2d 247, 250 (1995), as opposed to the technical application of federal tax law. See In re Estate of Arend, 373 N.W.2d 338, 344 (Minn.App.1985). Because Benjamin's will specifically referred to the federal tax law, however, we must first determine the "maximum marital deduction" in the context of applicable federal tax law and then determine if the trial court's finding that Benjamin intended to bequeath his entire estate to Suzanne under an unlimited marital deduction was clearly erroneous.
¶7 In 1976, the marital deduction was increased to the greater of $250,000 or one-half the estate. I.R.C. § 2056(c) (1976). The Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, 95 Stat. 172 (1981) (the ERTA) further amended § 2056 to provide for an unlimited marital deduction. ERTA § 403(a). Recognizing that the ERTA might have an unintended impact on existing wills, Congress provided a transitional rule, ERTA § 403(e)(3), which states that the limited pre-ERTA deduction will still apply if:
(C) the formula referred to in subparagraph (B) was not amended to refer specifically to an unlimited marital deduction at any time after the date which is 30 days after the date of enactment of [the ERTA], and before the death of the decedent....
The Senate report explained the rule as follows:
The committee is concerned that many testators, although using the formula clause, may not have wanted to pass more than the greater of $250,000 or one-half of the adjusted gross estate (recognizing the prior law limitation) to the spouse. For this reason, a transitional rule provides that the increased estate tax marital deduction, as provided by the bill, will not apply to transfers resulting from a will executed ... before the date which is 30 days after enactment, which contains a maximum marital deduction clause....
S.Rep. No. 97-144, at 128 (1981), reprinted in 1981 U.S.C.C.A.N. 105, 229. Although the transitional rule speaks in absolute terms, the courts interpreting it, relying on its stated purpose, have held that it will not be applied to defeat the intent of the testator. See Liberty Nat'l Bank & Trust v. United States, 867 F.2d 302, 304 (6th Cir.1989); Estate of Bruning v. Comm'r, 888 F.2d 657, 659 (10th Cir.1989); Unborn Beneficiaries of Kreigh Family Trust v. Kreigh, 554 N.E.2d 1167, 1168 (Ind.App.1990); Arend, 373 N.W.2d at 344; In re Will of Hickok, 140 Misc.2d 650, 530 N.Y.S.2d 983, 986 (Sur.Ct.1988).
¶8 One expression of intent is a directive in a will that the maximum marital deduction in effect at the time of the testator's death apply to the estate. The Internal Revenue Service (IRS) has determined that the transitional rule does not apply when the terms of a will indicate that subsequent changes in the federal estate tax law on the marital deduction should apply to the estate. See Rev. Rul. 80-148, 1980-1 C.B. 207. 3 See also Randall J. Gingiss, When Does the Unlimited Marital Deduction Apply to Pre-ERTA Wills?, 16 Est. Plan. 148 (1989) ().
¶9 Similarly, courts have recognized that a will which specifically refers to the marital deduction in effect at the time of the decedent's death is not governed by the transitional rule. Kreigh, 554 N.E.2d at 1168; see Liberty Nat'l Bank, 867 F.2d at 304 (). But see Arend, 373 N.W.2d at 344; Hickok, 530 N.Y.S.2d at 985-86. The rationale for refusing to apply the transitional rule when the will refers to the marital deduction in effect at the time of the testator's death is that, because the testator has contemplated the possibility that the marital deduction may change and has specifically mandated that the amendments control, applying the transitional rule is not necessary and would actually defeat the testator's intent. See Kreigh, 554 N.E.2d at 1168. Under the transitional rule, therefore, just as under Arizona case law, the testator's intent is controlling.
¶10 In attempting to ascertain the testator's intent, we consider the text of the will as a whole and, when appropriate, the circumstances at the time it was executed. In re Estate of Smith, 119 Ariz. 293, 295, 580 P.2d 754, 756 (App.1978). A will is ambiguous when "the written language is fairly susceptible of two or more constructions," Smith, 119 Ariz. at 296, 580 P.2d at 757, the same standard applicable to other documents. See Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 154-55, 854 P.2d 1134, 1140-41 (1993). A latent ambiguity does not appear on the face of the will but appears when considering extrinsic evidence. In re Estate of Shields, 84 Ariz. 330, 331, 327 P.2d 1009, 1010 (1958). If the language of the will is reasonably susceptible to two...
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