Holzhauser v. Iowa State Tax Commission, 48333

Citation62 N.W.2d 229,245 Iowa 525
Decision Date15 December 1953
Docket NumberNo. 48333,48333
PartiesHOLZHAUSER v. IOWA STATE TAX COMMISSION. WALKER v. IOWA STATE TAX COMMISSION.
CourtUnited States State Supreme Court of Iowa

Leo A. Hoegh, Atty. Gen., Henry W. Wormley, Sp. Asst. Atty. Gen., George Cosson, Jr., Director Property Tax Division, Des Moines, for the Iowa State Tax Commission.

Work & Work, Ottumwa, for appellees.

BLISS, Justice.

Plaintiffs, Holzhauser and Walker, for several years were tenants, respectively, of farms of 120 acres and 160 acres, owned by Mrs. Gertrude M. Davis during said tenancies, and of which she died testate on October 2, 1947, devising a life estate to each plaintiff for the period of his natural life, in the farm he had occupied and operated. The will was duly probated and the provisions were made effective, and thereafter each plaintiff as a life tenant of his respective farm continued to operate it, and to occupy it as his homestead, as he previously had done as lessee.

Subject to these two devises, and to the payment of her just debts and funeral expenses, the testatrix made the following bequests: '1. To my cousin $500 and also my fur coat;' 2. to another cousin, $500; 3. to Fred Schafer, $500; 4. to the Baptist Church of Farson, Iowa, $500; and to my second cousin, Dorothy Arendt, * * * my large diamond ring. * * *.

'6. All of the remainder and residue of my estate shall be converted by my executor into cash, and the same shall be divided among my legal heirs according to the Statutes of the State of Iowa.'

Each plaintiff made application to the board of supervisors of Wapello County for a homestead tax credit, which was granted on the tax for the year 1951, payable in 1952, involved herein, and for prior years. On August 16, 1952, the defendant, by registered mail served a notice dated August 12, 1952 on each plaintiff, stating therein that the homestead credit, granted to each by the supervisors had been disallowed by it, for the following reason: 'The applicant has a life estate in the above described property, the remainder interest being in persons who are not blood relatives.' Each plaintiff, on September 2, 1952, served notice of appeal from the order, on the defendant and the county auditor.

Each plaintiff filed a petition in the district court setting out the factual matters above noted, with the legal description of the land of each, and the improvement of the dwellings by modern plumbing and lighting, and also alleging that: testatrix owned the land in fee simple; her husband had predeceased her and she was a widow at her death; she bequeathed the remainder interest after the life estates to her collateral heirs, she having no direct descendants. It was also alleged in the petition of each plaintiff that: he 'is entitled to homestead tax credit as an 'owner' as defined by law, being the devisee of the deceased owner, Gertrude M. Davis. There is no division of interest between said life tenant and any other person which must be shared by blood relatives and Section 425.11, Paragraph 2, expressly grants a homestead tax credit to the petitioner.' The petitions prayed that each plaintiff be entitled to the homestead tax credit for the period of his natural life, and that the order of defendant purporting to set aside the said tax credits be adjudged rescinded, but that each plaintiff have such other and further relief as the court may deem just.

The material and pertinent allegations in the answer are as follows: That the petitioners are not owners as defined in section 425.11 of the homestead credit act, Code of 1950, I.C.A. 'The Commission by way of further answer alleges that the applicant, * * *, was granted only a life estate in the premises under the last will and testament of Gertrude M. Davis who was in no way related to the applicant and that the remainder interest was devised under the same will be parties who were not related to Gertrude M. Davis or the applicant; that the said life tenant and remaindermen are not blood relatives as is required under the express provisions of Section 425.11, Code of 1950, I.C.A.

'That the applicant is not in any manner qualified nor can he qualify to receive a homestead tax credit under the laws of the State of Iowa.' The replies of plaintiffs denied the affirmative allegations of the answer.

Most of the material facts were established by stipulation of the parties though they disagreed with respect to some conclusions to be deduced therefrom.

I. While all parts of a statute must sometimes be studied and construed to determine the meaning of a particular statute or part thereof, the important part of said Chap. 425 in the determination of this appeal is paragraph 2 of section 425.11 of the chapter, which is as follows: 'The word, 'owner', shall mean the person who holds the fee simple title to the homestead, and in addition shall mean the person occupying as a surviving spouse or the person occupying under a contract of purchase where it is shown that not less than one-tenth of the purchase price named in the contract actually has been paid and which contract has been recorded in the office of the county recorder of the county in which the property is located, or the person occupying the homestead under devise or by operation of the inheritance laws where the whole interest passes or where the divided interest is shared only by blood relatives, or by legally adopted children, or where the person is occupying the homestead under a deed which conveys a divided interest where the other interests are owned by blood relatives or by legally adopted children.' (Italics ours).

II. The 6th paragraph of the will definitely establishes that it was the clear intent of the testatrix to employ the doctrine of equitable conversion in the testamentary disposition of part of her property, but not to all of it. She imperatively directed the executor of her estate to convert into cash 'all of the remainder and residue of my estate'. She plainly excepted from equitable conversion the devises of the life estates in paragraphs 2 and 3 of the will, and the five bequests in paragraph 4 of the will. In other words, the only real estate devised by the will were the two life estates given to the plaintiffs. The remainder interest in the two farms, and all personal property other than the specific bequests, at the instant of the death of the testatrix were converted into cash and passed under the will as personal property to her statutory heirs.

The doctrine of equitable conversion has been so long recognized in Iowa and has been so fully treated in many of the opinions of this court, that any extended discussion of its general principles is unnecessary. 'Equitable conversion is defined as a constructive alteration in the nature of property by which in equity real estate is regarded as personalty or personal estate as realty.' Beaver v. Ross, 140 Iowa 154, 159, 118 N.W. 287, 289, 20 L.R.A., N.S., 65; Brickson v. Schwebach, 219 Iowa 1368, 1370, 261 N.W. 518; Boland v. Tiernay, 118 Iowa 59, 62, 91 N.W. 836; In re Estate of Sheeler, 226 Iowa 650, 661-662, 284 N.W. 799; In re Estate of Dodge, 207 Iowa 374, 381, 223 N.W. 106; In re Estate of Sanford, 188 Iowa 833, 837-838, 175 N.W. 506; In re Estate of Jurgens, 239 Iowa 490, 492, 31 N.W.2d 663; In re Estate of Jackson, 217 Iowa 1046, 1050, 1051, 252 N.W. 775, 91 A.L.R. 937; Ingraham v. Chandler, 179 Iowa 304, 306, 161 N.W. 434, L.R.A. 1917D, 713.

III. 'The great weight of authority is in favor of the proposition that the conversion takes place at the instant of testator's death, and that all property rights must be determined as if the conversion had taken place at that time, and the rights of the parties are adjusted as if the property were personalty.' Beaver v. Ross, 140 Iowa 154, 157-158, 118 N.W. 287, 289 supra; In re Estate of Bernhard, 134 Iowa 603, 605, 606-607, 112 N.W. 86, 12 L.R.A., N.S., 1029; Emmack v. Tish, 214 Iowa 794, 797, 243 N.W. 517; Brickson v. Schwebach, 219 Iowa 1368, 1370, 261 N.W. 518, supra; Fischer v. Klink, 234 Iowa 884, 889, 14 N.W.2d 695, 150 A.L.R. 1084; In re Estate of Warner, 209 Iowa 948, 952, 229 N.W. 241; Peters v. Thoning, 231 Iowa 755, 759, 2 N.W.2d 76; In re Estate of Jackson, 217 Iowa 1046, 1051, 252 N.W. 775, supra; In re Estate of Mount, 189 Iowa 279, 283, 178 N.W. 391; Ihle v. Ihle, 222 Iowa 1086, 1090, 270 N.W. 452; Shillinglaw v. Peterson, 184 Iowa 276, 287, 167 N.W. 709.

IV. 'Under the doctrine of equitable conversion, nothing is better established than the equitable principle that land directed to be sold and turned into money is to be considered as that species of property into which it is directed to be converted and this is especially so where the direction is made in a will.' In re Estate of Jackson, 217 Iowa 1046, 1050, 1051, 252 N.W. 775, 777, supra.

'Where a testator in his will directs a sale of real estate, the property is thereby converted from realty to personalty, and, whenever the sale takes place, the proceeds arising therefrom are to be distributed as personalty.' In re Estate of Bernhard, 134 Iowa 603, 606-607, 112 N.W. 86, 87, supra.

'That a testator may convert his real estate into personalty in such a manner as that the beneficiaries under the will take no part of the real estate, but simply a portion of the purchase price upon a sale by trustee or executor, is, of course, true. When this is done, the realty is constructively converted into personalty, and the beneficiary takes no title to the real estate as such'. Hanson v. Hanson, 149 Iowa 82, 84, 127 N.W. 1032.

'If the will worked an equitable conversion, the beneficiaries took no interest in the real estate.' Grady v. Grady, 221 Iowa 561, 564, 266 N.W. 285, 287.

'In the instant case, the equitable conversion of this property took place at the death of the testator. * * * this property after the death of the testator and up to the time of Mable P. Smith's election was, in the eyes of...

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