Estate of Smith, Matter of

• Decision Date: 20 March 1986
• Docket Number: No. 85CA0026,85CA0026
• Parties: In the Matter of the ESTATE OF Ottis SMITH (Deceased). Donna SNYDER and Arnold Ogden, Co-Personal Representatives of the Estate of Ruth M. Smith, (deceased), Petitioners-Appellants, v. Donald L. SMITH, Personal Representative of the Estate of Ottis Smith, (deceased); Donald L. Smith and Eldon R. Smith, Respondents-Appellees. . II
• Court: Colorado Court of Appeals

Page 1069

718 P.2d 1069

63 A.L.R.4th 1159

In the Matter of the ESTATE OF Ottis SMITH (Deceased).

Donna SNYDER and Arnold Ogden, Co-Personal Representatives of the Estate of Ruth M. Smith, (deceased), Petitioners-Appellants, v. Donald L. SMITH, Personal Representative of the Estate of

Ottis Smith, (deceased); Donald L. Smith and

Eldon R. Smith, Respondents-Appellees.

No. 85CA0026.

Colorado Court of Appeals,

Div. II.

March 20, 1986.

Carl W. Dugan, Lakewood, for petitioners-appellants.

Paul Snyder, Castle Rock, for respondents-appellees.

STERNBERG, Judge.

Donna Snyder and Arnold Ogden, as personal representatives of the estate of Ruth M. Smith, appeal from a judgment determining the amount of elective share and exempt property allowance due Ruth's estate from the augmented estate of her husband, Ottis Smith. We affirm in part, reverse in part, and remand for further proceedings.

Ottis Smith died testate in June 1980. He was survived by his wife, Ruth, and his sons, Donald L. and Eldon R. Smith. On August 5, 1980, Ruth Smith filed a petition for an elective share, exempt property allowance, and family allowance. Ruth Smith died in December 1980. Her children from a prior marriage were substituted as petitioners in the Ottis Smith estate proceeding. The petition was contested by Donald, Eldon, and the special administrator of Ottis' probate estate, who argued that Ruth had waived her statutory rights. The trial court ruled against petitioners; however, that judgment was reversed by this court and the cause was remanded for the resolution and allowance of Ruth's claim. In re Estate of Smith, 674 P.2d 972 (Colo.App.1983). After remand, judgment was rendered on Ruth's statutory claims.

The findings of the trial court consist largely of detailed arithmetical computations made pursuant to § 15-11-202, C.R.S. (1985 Cum.Supp.) (outlining how an augmented estate is to be calculated). Ruth's estate challenges these findings and the conclusions that resulted therefrom generally as legal error and specifically to the extent they involve errors of calculation. Because full replication of the statute and the findings and conclusions would do little to clarify matters, we will describe them only insofar as necessary to resolve the issues raised by the parties and will deal summarily with arithmetical errors and errors of inclusion.

Generally stated, the trial court proceeded as follows. The value of the initial probate estate was stipulated to be $5,730.31. We note that there had been substantial transfers of property immediately prior to Ottis' death to his sons. By subtraction of Ruth's claimed exempt property allowance and various administrative expenses claimed by the personal representatives, Ottis' probate estate was reduced to a negative value. To this "net probate estate" was added the stipulated value of augmented estate assets. Certain statutory allowances were then subtracted to reach the "net augmented estate." The fractional share percentage described in § 15-11-207(4)(b), C.R.S. (1985 Cum.Supp.) was calculated and applied to the "net augmented estate" and from this result was subtracted amounts that the court ruled had already been paid by Ottis' estate to or for the benefit of Ruth. The court then added the value of Ruth's exempt property allowance, arriving at a total due Ruth's estate of $108,825.99. Of this amount, Donald was to pay 58.1% and Eldon 41.9%.

I.

Ruth's estate first contends that the trial court erred in assessing administrative charges against the probate estate so that it was assigned a negative value, thus improperly reducing the value of the augmented estate. We do not agree.

Section 15-11-202(1), C.R.S. (1985 Cum.Supp.) states that: "The augmented estate means the estate reduced by funeral and administration expenses, exempt property allowance, family allowances, and enforceable claims, to which is added the sum of the following amounts...." (emphasis supplied) In In re Estate of Novitt, 37 Colo.App. 524, 549 P.2d 805 (1976), it was contended that claims for family and exempt property allowances should be paid from assets includible in the augmented estate because the value of the probate estate was insufficient to pay them. This court stated that: "[T]he language of this section clearly reflects the legislative intent to establish the family allowance and exempt property allowance as items to be claimed from the probate estate, if any, to which are then added certain items [specified in subsections of § 15-11-202] to create the augmented estate." (emphasis supplied) This statement appears to support the position of Ruth's estate; however, to the extent that it does so, we elect not to follow Novitt here.

We perceive that one of the purposes of the augmented estate provisions is to allow a surviving spouse, deprived of a share in the decedent spouse's estate by inter vivos transfers to third parties or other means, to claim an elective share of property deemed includible in the augmented estate. To construe § 15-11-202 in accordance with the above statement from Novitt would mean that, in situations where a decedent spouse has by such transfers reduced his or her "probate" estate below some threshold amount, (1) the surviving spouse would not receive the full amount of statutory allowances which are strongly favored as a matter of public policy and (2) the surviving spouse would not be required to pay a pro rata share of administrative expenses properly chargeable to the estate.

Where the augmented estate provisions are triggered, we think that policy considerations should favor disbursement of all valid claims and expenses from the total assets of the augmented estate. The elective share should then be awarded from a net value. Thus, computation of a "negative" value for the "probate" estate is merely an accounting tool that would allow proper allocation of all benefits and burdens which may accrue to an estate during the probate process. This construction of the statute is consistent with the statutory language.

Here, the evidence showed that Ottis Smith transferred substantial property to his sons within one month prior to his death, creating the precise situation with which the augmented estate concept was designed to deal. Because of the lengthy litigation concerning Ruth Smith's alleged waiver of her right to an elective share, a total of $29,550.08, primarily legal and personal representative fees, was expended for, and during the course of, the defense to her petition. These amounts were thereafter claimed as expenses of administration by the personal representative of Ottis' estate. If we were to follow Novitt, Ruth's estate would not be able to recover the full amount of the allowances to which she would have been entitled, while Ottis' sons as sole contributors to the elective share would bear all of the administrative expenses charged to the estate. We conclude therefore that the trial court did not err in utilizing the negative value technique in valuing the estate prior to adding the value of the augmented estate assets.

It is stipulated, however, that Ottis' initial probate estate contained only his one-half interest in a mobile home ($5,730.32) and that Ruth's estate is entitled to exempt property allowance in the amount of $7,500. In its computations, the trial court did not allow Ruth's estate to receive full credit for this allowance. Under the rule we adopt, this was error.

II.

It was stipulated that Ottis' transfers to persons other than the surviving spouse, see § 15-11-202(1)(a), C.R.S. (1985 Cum.Supp.), consisted of a savings account ($58,529) and trust assets including a bank account ($418.86), real estate ($110,000), and notes receivable ($116,857.11). Ruth's estate asserts, however, that the trial court improperly excluded from the augmented estate the value of Ruth's one-half interest in the couple's mobile home ($5,730.32) which should have been considered as a transfer to the surviving spouse. We agree. See § 15-11-202(1)(b), C.R.S. (1985 Cum.Supp.). Further stipulations establish that Ruth received life insurance proceeds ($1,000) and a note receivable ($2,200). The value of augmented estate assets, therefore, not including Ottis' share in the mobile home and before subtraction of any allowances or charges, is $294,465.61. See § 15-11-202, C.R.S. (1985 Cum.Supp.).

III.

Ruth's estate next argues that the trial court erred in allowing certain charges to the estate as administrative expenses. These include: attorney fees ($11,500); "other attorney" and CPA fees ($2,029.81); personal representative fees paid to Eldon Smith ($1,600); personal representative fees paid to Donald Smith ($4,800); and general administrative expenses of $2,500. (Other charges allowed as administrative expenses were maintenance costs for rental property included in the trust ($99.14), funeral and medical expenses for Ottis ($3,314.25), and special administrator fees of $1,706.88). We consider each of the contested items separately.

A.

Ruth's estate first contends that at least some of the amounts allowed for attorney and CPA fees, which total $13,529.81, are improper because they were incurred by Donald and Eldon as personal costs of defending Ruth's claim to an elective share and not as costs of the estate administration. We agree.

The trial court allowed these charges based on its conclusion that the special administrator, and Donald and Eldon as personal representatives, were "duty bound" to carry out the desires of the deceased, and that this duty required them to defend against Ruth's claim because had they "merely honored the claims of Ruth" they would have been subject to suit. The elective share provision of the probate code, however, implement a legislative policy decision to thwart the express or apparent desires of a deceased in circumstances such as those before us here. Neither Donald nor Eldon opposed Ruth's claim in the capacity of personal...