In re Estate of Denman

• Decision Date: 27 August 2008
• Docket Number: No. 04-07-00851-CV.,04-07-00851-CV.
• Parties: In re ESTATE OF Gilbert M. DENMAN, Deceased.
• Court: Texas Court of Appeals

270 S.W.3d 639

In re ESTATE OF Gilbert M. DENMAN, Deceased.

No. 04-07-00851-CV.

Court of Appeals of Texas, San Antonio.

August 27, 2008.

R. Laurence Macon, Janie A. Shannon, Jo Beth Eubanks, Akin Gump Strauss Hauer & Feld L.L.P., James L. Branton, Sonia M. Rodriguez, Branton & Hall, P.C., San Antonio, TX, for Appellant.

James L. Drought, Thomas Drought, Drought, Drought & Bobbitt, Howard P. Newton, Harry W. Wolff Jr., Ellen B. Mitchell, Cox Smith Matthews Incorporated, Robert G. Newman, Rosemarie Kanusky, Fulbright & Jaworski L.L.P., San Antonio, TX, for Appellee.

Sitting: CATHERINE STONE, Justice, KAREN ANGELINI, Justice, STEVEN C. HILBIG, Justice.

OPINION

Opinion by: STEVEN C. HILBIG, Justice.

This is an appeal from the probate court's judgment construing section 2603(b) of the Internal Revenue Code and provisions in the will of Gilbert M. Denman, Jr. ("the Will") to determine the proper allocation of the federal generation-skipping transfer tax ("GST tax"). Appellants Leroy G. Denman, Jr., as independent coexecutor ("Denman"), and Wendel Denman Thuss, a beneficiary under the Will ("Thuss"), urged the tax should be charged and allocated to the residuary estate. Appellees The Trust Company, a coexecutor of the Will and co-trustee of a trust created by the Will, and beneficiaries Trinity University in San Antonio ("Trinity") and the San Antonio Museum of Art ("the Museum"), advocated the tax should be allocated to the El Capote Ranch, which was transferred to Thuss in a codicil to the Will. The trial court rendered a final judgment declaring the GST tax should be charged and allocated to the El Capote Ranch. Denman and Thuss each perfected an appeal. The Trust Company, joined by Trinity and the Museum, filed a motion to dismiss Denman's appeal for want of jurisdiction based on an absence of standing. We grant the motion to dismiss and affirm the trial court's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In 1988, Gilbert Denman ("the Decedent") executed a holographic will. Between 1991 and 2002, he executed four codicils to the Will. In Article XIII of the Will, the Decedent bequeathed one-half of the residuary of the estate to Trinity and the other half to The Trust Company and Denman as trustees of a trust ("the Trust") created in the Will for the benefit of the Museum. In 2002, the Decedent executed Article IV of the codicil to the Will in which he bequeathed to Thuss, his third cousin, all of his real property in Guadalupe and Gonzales Counties as well as the animals and farm equipment thereon. This property is known as El Capote Ranch ("the Ranch"). The parties do not dispute that the Decedent's bequest to Thuss gave rise to the federal GST tax imposed by Chapter 13 of the Internal Revenue Code. See 26 U.S.C. § 2601.

The Decedent died on May 16, 2004, and the Will was admitted to probate in June of that year. In August 2005, The Trust Company and Denman filed the estate's federal tax return. The return, which was signed by Denman and a representative of The Trust Company, apportioned and charged payment of the GST tax to the Ranch bequeathed to Thuss. The amount of the GST tax as apportioned and charged in the tax return was $913,868.

Thuss disagreed with the position taken by The Trust Company and Denman in the federal tax return. He contended Article XII of the Will, which provides for allocation of taxes, removed the GST tax burden from him as the transferee of the Ranch and placed it on the residuary estate. Because of Thuss's contention, The Trust Company and Denman, as coexecutors and co-trustees, filed a petition in the probate court seeking a declaratory judgment that the GST tax should be allocated and charged to the property transferred to Thuss. They argued section 2603(b) of the Internal Revenue Code mandates the tax on a generation-skipping transfer be charged to the property transferred unless otherwise directed by the governing instrument through a "specific reference to the tax imposed" under Chapter 13 and the Will did not contain the required specific reference. See id. § 2603(b). Thuss counterclaimed, asserting that because Article XII of the Will specifically referred to the GST tax the transfer tax burden should fall on the residuary estate.

After The Trust Company and Denman filed a motion for summary judgment, Denman changed his position on the tax burden, deciding his grandson was correct and that the Decedent's intent as expressed in the Will was that the GST tax be imposed on the residuary estate. As a result, Denman obtained new counsel and, solely in his capacity as coexecutor, filed amended petitions generally adopting Thuss's position.¹

The Trust Company, joined by Trinity, filed an amended motion for summary judgment, Denman and Thuss filed a cross-motion for summary judgment, and the probate court heard argument on all the motions. The court rendered a final judgment on November 9, 2007, granting the motion for summary judgment filed by The Trust Company and Trinity and denying the one filed by Denman and Thuss. The probate court declared the Will did not direct the GST tax for the Ranch to be paid from the residuary estate so "the GST tax must thus be charged to such property," i.e., the Ranch. The probate court impliedly found the Will did not contain a sufficiently specific reference to the GST tax to remove it from the statutory scheme of section 2603(b) of the Internal Revenue Code. Denman and Thuss appealed.

APPELLATE STANDING

The Trust Company, joined by Trinity and the Museum, move to dismiss Denman's appeal for want of jurisdiction. They argue Denman, as coexecutor of the estate, lacks standing because the interests of the estate were not injured or prejudiced by the probate court's judgment.

The standing doctrine identifies suits appropriate for judicial determination. Brown v. Todd, 53 S.W.3d 297, 305 (Tex.2001). Standing is a component of subject matter jurisdiction and, as such, is a question of law. Id. at 305 n. 3. "Texas courts have long held that an appealing party may not complain of errors that do not injuriously affect it or that merely affect the rights of others." Torrington Co. v. Stutzman, 46 S.W.3d 829, 843 (Tex. 2000). While a party of record is generally entitled to appellate review, that party must be prejudiced before he has standing to appeal. Aguirre v. Phillips Props., Inc., 111 S.W.3d 328, 335 (Tex. App.-Corpus Christi 2003, pet. denied); Gorman v. Gorman, 966 S.W.2d 858, 864 (Tex.App.-Houston [1st Dist.] 1998, pet. denied). The appellant bears the burden of making a prima facie showing of prejudice. Gorman, 966 S.W.2d at 864. Accordingly, Denman is required to make a prima facie showing that either he, in his capacity as coexecutor, or the estate itself was prejudiced or injuriously affected by the probate court's judgment. See id.

Denman claims he has standing in his capacity as coexecutor on two bases: (1) his duty to ensure a proper construction of the Will, and (2) the possibility he could be held liable for any deficiency arising from an incorrect interpretation of the Will. With regard to his first contention, Denman argues Texas courts have generally recognized an executor's standing to appeal probate court rulings. See Drew v. Jarvis, 110 Tex. 136, 216 S.W. 618 (1919); Read v. Gee, 551 S.W.2d 496 (Tex.Civ. App.-Fort Worth), writ ref'd n.r.e., 561 S.W.2d 777 (Tex.1977); Pipkin v. Hays, 482 S.W.2d 59 (Tex.Civ.App.-Austin 1972, writ ref'd n.r.e.). Denman suggests these cases hold an executor always has standing to appeal probate court rulings. We disagree. None of the authorities cited by Denman so hold or support such a broad proposition. See id.

In Drew, an administratrix appealed a probate court's order withdrawing the estate from administration. 216 S.W. at 618. The supreme court held the administratrix had standing to appeal because she had a duty to recover the estate and to withhold it from those not entitled to receive it to avoid financial loss to the estate. Id. at 620. In Read, the appellate court held the executor had standing to appeal an order directing him to deliver all of the estate's assets to the executrix of a second estate. 551 S.W.2d at 498, 500. The executor sought to appeal on the ground that neither the executor nor the beneficiaries were given notice of the hearing that produced the order and were not present or represented by counsel. Id. at 500. Although the court did not specifically mention an adverse impact on the estate, the due process errors obviously had an adverse impact on the estate because it was not represented at the hearing that resulted in an order disposing of all of the estate's assets. See id.

Finally, in Pipkin, a coexecutrix, in her individual capacity as a beneficiary of her mother's will, appealed on an issue involving allocation of taxes. 482 S.W.2d at 59-60. The executrix's individual interests were adversely affected by the trial court's determination that taxes were to be charged against the individual devises rather than the residuary estate. Id. at 60. Because the coexecutrix was injuriously affected by the trial court's judgment, she had standing as an individual devisee to contest that judgment on appeal. See Torrington, 46 S.W.3d at 843.

Denman does not and cannot argue the probate court's ruling had an adverse or injurious effect on the estate. The undisputed evidence established that if the probate court ruled as suggested by Denman and Thuss, the estate would incur an increased tax burden of more than $400,000—an obvious adverse consequence to the estate. See Belt v. Oppenheimer, Blend, Harrison & Tate, 192 S.W.3d 780, 785-87 (Tex.2006) (recognizing, in context of legal malpractice action, that increased tax consequences are adverse effect on estate). The only party adversely affected by the probate court judgment is Thuss, who is responsible under the court's ruling for payment of the GST tax. Accordingly, Denman has not made a prima facie case...