Folkerds v. United States, Civ. No. 71-C-2029-C.

• Citation: 369 F. Supp. 1176
• Decision Date: 19 July 1973
• Docket Number: Civ. No. 71-C-2029-C.
• Parties: Esther Brocka FOLKERDS, Executor of the Estate of A. C. Brocka, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Iowa

369 F. Supp. 1176

Esther Brocka FOLKERDS, Executor of the Estate of A. C. Brocka, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 71-C-2029-C.

United States District Court, N. D. Iowa, Central Division.

July 19, 1973.

Van Eman, Mulder, Klinkenborg & Rolfs, Parkersburg, Iowa, and Allen E. Brennecke, Marshalltown, Iowa, for plaintiff.

Evan H. Hultman, U. S. Atty., Cedar Rapids, Iowa, and Robert J. Hipple, Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM AND ORDER

HANSON, District Judge.

This ruling is predicated upon cross-motions for summary judgment filed by the parties to this action. This is an action brought pursuant to 28 U.S.C., Section 1346(a)(1) for recovery of federal estate taxes allegedly overpaid. All material facts have been stipulated by the parties. The only issue before the Court is whether the Estate of A. C. Brocka should have been allowed a marital deduction (26 U.S.C., Section 2056). This, in turn, is determined by examining whether the statute in the Iowa Probate Code prescribing the general order for abatement (Iowa Code Section 633.436) or the statute prescribing the contrary provision as to abatement (Iowa Code Section 633.437) should apply to these facts.

The Court will briefly recite the material stipulated facts.

Plaintiff, Esther Brocka Folkerds, is the executrix of the Estate of A. C. Brocka, decedent, who died testate on July 24, 1969, a resident of Butler County, Iowa. The decedent was survived by plaintiff, his only child, and his wife, Mary Ellen Brocka.

Decedent executed his Last Will and Testament, the material portions of which are set out in the margin,¹ on February 16, 1959. At the time of the execution of his will, and throughout his active adult life, decedent was engaged in the business of farming, which constituted his principal source of income and the means whereby he supported his family.

At the time of the execution of his probated will, decedent had interests in five farm properties, each of which were specifically devised either to his wife or his daughter. The four properties addressed in Item Two of the Will, which included decedent's homestead, were devised to his wife for life, remainder to his daughter. These properties comprised the bulk of the decedent's gross estate and had a net date of death value of $178,667. The fifth property was devised outright, pursuant to Item Three of the Will, to plaintiff, whose husband was also engaged in the farming business. This fifth parcel had a date of death value of $70,000. The decedent acquired an interest in two farm properties, with an aggregate date of death value of $25,080, after the execution of his probated will.

The only issue in this action is the appropriate amount, if any, of the marital deduction available to the Estate of A. C. Brocka, pursuant to the provisions of Section 2056, Internal Revenue Code of 1954. This issue can be resolved by a determination of the net value of the property, if any, which properly passed to decedent's wife as residuary beneficiary under her husband's will.²

Plaintiff contends that such property had a date of death value of $61,641.44. It is the defendant's contention that no property properly passed to decedent's wife pursuant to the residuary bequest, and consequently plaintiff's claimed marital deduction has been disallowed in its entirety. Plaintiff has paid an additional $17,001.25 of federal estate taxes as a result, and brings suit for recovery of that amount.

It is uncontested that after satisfaction of the specific bequests set forth in Items Two and Three of decedent's will, and before satisfaction of any debts or charges outstanding against his estate, there was available in his estate property with a date of death value of $65,367.45. Plaintiff contends that this property was properly available in its entirety for distribution to the decedent's spouse pursuant to her residuary bequest.³ Defendant contends that this property must first be reduced by the debts and charges enumerated in Item One of decedent's will, and must further abate for the payment of federal estate taxes pursuant to Iowa law. If the defendant is correct, no property is available for distribution under the residuary clause.

I.

Initially, the Court must determine the effect of a prior judgment by the Iowa District Court in and for Butler County upon this lawsuit. Shortly after the death of A. C. Brocka, his wife, Mary Ellen Brocka, also died. For purposes of determining the valuations and rights of the two estates with regard to various assets, a declaratory judgment proceeding was brought in Butler County District Court. On July 20, 1970, the State District Court held that the general order of abatement contained in Section 633.436 applied to the Estate of A. C. Brocka. The Federal Government was not a party to that action, and so plaintiff cannot assert res judicata or collateral estoppel against the Government in this proceeding. Freuler v. Helvering, 291 U.S. 35, 54 S. Ct. 308, 78 L.Ed. 634 (1934); See Allan D. Vestal, Res Judicata/Preclusion (Matthew Bender & Co., New York, 1969). Plaintiff acknowledges this, but argues that the Internal Revenue Service failed to give the decision of the State district court "proper regard" in determining the estate tax liability of the Estate of A. C. Brocka.

Plaintiff relies upon Commissioner v. Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). There the Supreme Court held that the state trial court determinations are not "final and binding" for federal estate tax purposes. The court further stated, however, that state court determinations were to be given weight, even if the decision was not controlling. A fair reading of the Bosch decision indicates that the weight to be given state district court opinions depends upon the extent to which the action in the state court was contested—or, in other words, whether the action was "a bona fide adversary proceeding."

The Court has before it the record of the entire proceedings in Probate No. 8176 before the Butler County District Court. It appears quite clearly that, in that proceeding, the abatement issue was not contested; the court's order simply reflects the pleadings and joint motion of the parties to the action. This Court feels that the Internal Revenue Service was correct in refusing to be bound by the decision of the Butler County District Court, and further holds that the decision will be given very little weight in the determination to be made by this Court. Bosch, supra.

II.

The law which controls the ultimate placing of the estate tax burden is the law of the state in which the estate is being administered. Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L. Ed. 106 (1942); United States v. Goodson, 253 F.2d 900, 902 (8th Cir. 1958).

The Iowa Probate Code was enacted in 1963, and so the Court will devote its attention to the Iowa cases decided subsequent to 1963. There are four Iowa cases dealing with the problem before this Court. The first, Bergren v. Estate of Mason, 163 N.W.2d 374 (Iowa, 1968), merely states that federal estate taxes cannot be apportioned and must be paid from the residue as the first source available, in the absence of direction in the will to the contrary.

The remaining three cases deal squarely with the problem of abatement when the surviving spouse is named in the residuary clause.

In re Estate of Twedt, 173 N.W.2d 545 (Iowa, 1970), involved a will in which a specifically described farm was given to charity and then the entire residue of the considerable estate was given to the wife. The issue there was which bequest would abate to pay the federal estate taxes, that issue turning upon whether Section 436⁴ or Section 437⁵ applied.

Therein the court cogently analyzed the problem:

"Whenever the residuary clause names the surviving spouse the abatement problem will arise under section 633.436 even though there are sufficient funds to pay all debts and charges and all legacies. This is true because the availability of the residuary fund is cut off by the plain terms of the section to the extent of the surviving spouse's interest. * * *

"If section 633.436 applies to this case, and section 633.437 does not apply, the executrix's position is irrefutable. The section evidences a clear intent on the part of the legislature to protect the interest of the surviving spouse. Each section dealing with property that passes under the will specifically protects the property passing to the spouse down to the very last source. Then, and then only, does the legislature make the spouse's share subject to debts and charges. (The legacies will already have been eliminated.)

* * * * * *

"The regular order to abate is inapplicable by virtue of Section 633.437 when it would defeat:

"(a) The provisions of the will, or

"(b) The testamentary plan, or

"(c) The express or implied purpose of the devise.

* * * * * *

"In reaching its conclusion the trial court followed the rules recently reiterated in In The Matter of the Estate of Lamp, Iowa, 172 N.W.2d 254, where we said: `Our position in will construction cases was well summarized in In re Estate of Larson, 256 Iowa 1392, 1395, 131 N.W.2d 503, 504. There we said the law is well settled (1) the testator's intent is the polestar and if expressed must prevail; (2) his intent must be gathered from a consideration of (a) all the language contained in the four corners of his will, (b) his scheme of distribution, (c) the circumstances surrounding him at the time he made his will, (d) the existing facts; and (3) technical rules or canons of construction should be resorted to only if the language of the will is clearly ambiguous or conflicting or the testator's intent is for any reason uncertain. (Citations)."

The Supreme Court of Iowa then went on in Twedt to adopt the opinion of the trial court. The trial court, and the Supreme Court by reference, held that the obvious testamentary plan...