Gowling's Estate, In re

• Decision Date: 29 September 1980
• Docket Number: No. 52841,52841
• Citation: 44 Ill.Dec. 297,411 N.E.2d 266,82 Ill.2d 15
• Parties: , 44 Ill.Dec. 297 In re ESTATE of Lyman GOWLING, Deceased. Lyman FLEMING et al., Appellants, v. Pearl GOWLING et al., Appellees.
• Court: Illinois Supreme Court

Page 266

411 N.E.2d 266

82 Ill.2d 15, 44 Ill.Dec. 297

In re ESTATE of Lyman GOWLING, Deceased.

Lyman FLEMING et al., Appellants, v. Pearl GOWLING et al., Appellees.

No. 52841.

Supreme Court of Illinois.

Sept. 29, 1980.

Michael J. McDonald, Jerseyville, for appellants Virginia Prosser and Lyman Fleming.

Gerald J. McGivern, of Wiseman, Shaikewitz, McGivern & Wahl, P.C., Alton, for appellees.

KLUCZYNSKI, Justice:

This appeal presents a question of apportionment of Federal estate tax liability among recipients of the assets of the estate of testator, Lyman Gowling. The circuit court of Jersey County ruled that the taxes should be paid from probate assets, thereby excluding the remainder interests of plaintiffs Lyman Fleming and Virginia Prosser, interests acquired by deeds executed in 1963. On appeal by testator's widow, Pearl Gowling, the appellate court reversed, holding that the tax liability should be apportioned among all assets of the estate which generated that liability (77 Ill.App.3d 548, 33 Ill.Dec. 6, 396 N.E.2d 82). Lyman Fleming and Virginia Prosser would thereby be required to bear a proportionate share of the tax liability, since their remainder interests generated part of that liability, and Pearl Gowling would not be required to pay any part of the taxes, since her interest qualified for the marital deduction allowed by Federal law. We granted the petition for leave to appeal of Lyman Fleming and Virginia Prosser.

In April of 1963, testator and his spouse at that time, Nettie Gowling, deeded two parcels of farm property to Lyman Fleming, testator's grandson, and to Virginia Prosser, testator's daughter, reserving life estates. Nettie Gowling died in 1967, and testator thereafter married Pearl Gowling, defendant herein. On November 21, 1977, testator died, survived by Pearl. In his will, testator specified that crops growing or harvested on the land deeded to the remaindermen, Lyman Fleming and Virginia Prosser, but on which the landlord's (testator's) share had not been paid, should not be included in his estate and should belong to the remaindermen. Testator also bequeathed to Gene Prosser and Lois Call, share and share alike, his accounts in the Jersey Savings and Loan, and to his wife, Pearl, any remaining bank accounts. Testator provided that the residue should go to Virginia Prosser. Lyman Fleming was named executor. At testator's death, he held various savings accounts, checking accounts and certificates of deposit in joint tenancy with his wife, Pearl, totaling.$19,000.

On June 29, 1978, Lyman Fleming, in his capacity as executor, filed a petition to establish and assess Federal estate tax and debt liability. Count 1 of that petition relates to Federal estate taxes and is the only count of concern to us here. The allegations contained therein are as follows:

"1. The residuary estate * * * is $1,211.04.

2. The will heretofore admitted to probate contains no provisions as to the payment of the federal estate taxes.

3. The total gross estate, as shown on the United States Estate Tax Return for LYMAN GOWLING attached hereto and made a part hereof, is $436,943.35.

4. By specific bequests in the will, joint tenancies, previous deeds to real estate wherein a life estate was reserved by decedent, and the residuary paragraph of the will, the following individuals have received or are to receive the following amounts, comprising the total gross estate for federal estate taxes.

                a.  Lyman Fleming     $232,600.00  or   54% of Total
                b.  Virginia Prosser   114,561.04  or   26% of Total
                c.  Pearl Gowling       71,412.03  or   16% of Total
                d.  Gene Prosser         9,185.14  or    2% of Total
                e.  Lois Call            9,185.14  or    2% of Total
                                      -----------      -------------
                                      $436,943.35      100% of Total
                

5. The total amount of federal estate taxes that are to be paid are $72,142.62.

6. Pursuant to law residuary assets are to be used to pay estate taxes and debts.

7. After applying the residuary assets to the payment of federal estate taxes, there will be a balance of $70,931.58 to be paid.

8. The law applicable in Illinois is that when the will is silent as to payment of federal estate taxes, each beneficiary is to pay his or her proportionate share, using the amount of the total gross estate for federal estate taxes as the denominator."

Based on these allegations, the petition prayed that Federal estate tax liability be apportioned among the various recipients of the assets of the estate as follows: Lyman Fleming, $38,303.06; Virginia Prosser, $19,653.25 (representing residuary assets of $1,211.04 plus 26% of $70,931.58); Pearl Gowling, $11,349.05; Gene Prosser, $1,418.63; and Lois Call, $1,418.63.

Pearl Gowling objected to the petition, arguing that she, as surviving spouse, could not be required to contribute to the payment of Federal estate taxes because the property she received qualified for the marital deduction allowed by Federal law and therefore did not generate tax liability. Lyman Fleming, in his capacity as remainderman, and Virginia Prosser, also a remainderman, objected to the petition, arguing that the deeds of April 1963 under which they took their interests evidenced a donative intent on the part of testator and his spouse at that time, Nettie Gowling, to convey interests free of encumbrances such as Federal estate taxes.

On December 4, 1978, the circuit court conducted a hearing on the petition. The court initially found no need to appoint a special administrator for the estate even though Lyman Fleming was appearing as both executor and as a remainderman, and all parties indicated that they had no objection to this finding. After hearing arguments of the parties, the court ruled that Federal estate taxes should be paid with probate assets to the extent that such assets were sufficient to meet that liability. The court reasoned that a provision of the testator's will, authorizing the executor to settle claims against the estate, indicated the testator's intention that probate assets be used to settle Federal estate taxes, since amounts owed the Federal government represent a class of claims that may be asserted against the estate (Ill.Rev.Stat.1975, ch. 3, par. 18-10). This reasoning was rejected in Roe v. Estate of Farrell (1978), 69 Ill.2d 525, 530-31, 14 Ill.Dec. 466, 372 N.E.2d 662. Because of its disposition of the case, the circuit court found it unnecessary to address the issues of whether tax liability should be apportioned and whether the 1963 deeds to Lyman Fleming and Virginia Prosser evidenced the intent of the grantors that Lyman Fleming and Virginia Prosser be free of estate tax liability.

Pearl Gowling appealed to the appellate court, arguing that the circuit court erred in requiring her to contribute to the payment of estate taxes, since her interest qualified for the marital deduction allowed by Federal law and therefore generated no tax liability. The appellate court agreed, reversing the judgment of the circuit court. (77 Ill.App.3d 548, 33 Ill.Dec. 6, 396 N.E.2d 82). The appellate court further held that the estate tax liability should be apportioned among all recipients of estate assets, except Pearl Gowling, and the court remanded the cause to the circuit court to "determine and charge probate and nonprobate assets with that portion of the total tax obligation which is attributable to the assets received, but excluding that portion of any property which did not contribute to estate tax. The proportionate share of tax attributable to the probate assets of the estate (excluding the property qualifying for the marital deduction) shall be borne to the extent possible by the residue of those assets, and upon extinguishment of that sum shall be paid out of the remaining probate assets according to the rules on abatement." (77 Ill.App.3d 548, 554, 33 Ill.Dec. 6, 10, 396 N.E.2d 82, 86). Lyman Fleming, in his capacity as remainderman, and Virginia Prosser, also a remainderman, appeal.

The authority of the States to determine how Federal estate tax liability should be apportioned in the absence of directions by the decedent was recently discussed in Roe v. Estate of Farrell (1978), 69 Ill.2d 525, 529-30, 14 Ill.Dec. 466, 468, 372 N.E.2d 662, 664:

"Unlike our inheritance tax, which is a tax on the right of succession to the beneficial interest in the property of a decedent (In re Estate of Greiner, 412 Ill. 591, 594, 107 N.E.2d 836), the Federal estate tax is imposed on the transfer of the taxable estate as a whole (Int. Rev. Code of 1954, sec. 2001). If a decedent's probate assets are insufficient to satisfy the Federal estate tax, persons holding nonprobate assets includible by law in the Federal gross estate are liable to the extent of the value of those assets, and the tax becomes a lien against those assets if the tax is not satisfied in full. (Int. Rev. Code of 1954, sec. 6324). There is, however, no express provision made in the Internal Revenue Code for contribution from persons acquiring nonprobate assets such as surviving tenants of jointly held property, to satisfy the estate tax, if the executor is able to satisfy all or a portion of the tax out of probate assets, except in the case of life insurance proceeds (Int. Rev. Code of 1954, sec. 2206) and property subject to appointment (Int. Rev. Code of 1954, sec. 2207).

This absence of any Federal provision for contribution by persons acquiring nonprobate assets led some to believe that it was the intent of Congress that equitable apportionment between probate and nonprobate assets to satisfy the tax should not be permitted. The Supreme Court of the United States in 1942 in Riggs v. Del Drago, 317 U.S. 95, 97-98, 63 S.Ct. 109, 110, 87 L.Ed. 106, 110-11, however, made it clear that the States were free, if they chose, to apportion the burden or 'ultimate impact,' as the court put it, on the estate tax. Following the holding in Riggs, s...