Merchants & Planters Bank v. Myers

• Decision Date: 12 August 1982
• Citation: 644 S.W.2d 683
• Parties: MERCHANTS & PLANTERS BANK, Executor of the Estate of J. Lacy Myers, Plaintiff- Appellee, v. Esther Hoss MYERS, Defendant-Appellee, Appellant, Nelle Myers Harrison, Defendant-Appellant. 644 S.W.2d 683
• Court: Tennessee Court of Appeals

Page 683

644 S.W.2d 683

MERCHANTS & PLANTERS BANK, Executor of the Estate of J Lacy Myers, Plaintiff- Appellee, v. Esther Hoss MYERS, Defendant-Appellee, Appellant Nelle Myers Harrison, Defendant-Appellant.

644 S.W.2d 683

Court of Appeals of Tennessee Eastern Section.

Aug. 12, 1982.

Rehearing Denied Sept. 3, 1982.

Permission to Appeal Denied by

Supreme Court Dec. 27, 1982.

Edward F. Hurd, Newport, for defendant-appellee, appellant.

Fletcher L. Ervin, Newport, for defendant-appellant.

Roy T. Campbell, Jr., of Campbell, Hooper & Shults, Newport, for plaintiff-appellee.

OPINION

FRANKS, Judge.

In this declaratory judgment action, the executor of the estate of J. Lacy Myers sought the direction of the court on administering the estate following a dissent from the will by the widow. The chancellor made numerous rulings and both the testator's sister and his widow have appealed.

J. Lacy and Esther Myers were married in 1934 and had no children. Myers, over his lifetime, accumulated a substantial estate, owning a Chevrolet agency in partnership with John Abe Teague, several farms, a shopping center, and banking interests. At his death on May 4, 1978, he was survived by his wife and a sister, Nelle Myers Harrison. Myers' will was probated and the named plaintiff herein was appointed executor of the estate. The will provided specific bequests to some twenty-five persons and organizations. Some $13,800.00 was bequeathed in cash to these beneficiaries. The widow, the sister and John Abe Teague, who already owned one-fourth of the corporate stock of the Chevrolet dealership, were each given the corporate stock of the dealership owned by the deceased. The widow was to receive the home and adjoining land and the sister was to receive Myers' ancestral home and farmland in the Parrottsville community.

The residuary estate was to be placed in trust for the benefit of the widow and sister during their lifetime with the corpus of the trust to be delivered to deceased's niece upon the death of both lifetime beneficiaries.

Several hearings were held before the chancellor and during the course of the proceedings all parties stipulated the values of the estate's assets used in preparing the state and federal tax returns were the correct values for purposes of determining the widow's elective share, with the exception of decedent's half undivided interest in the Myers Chevrolet Building, which value was stipulated to be $120,000.00, or $25,000.00 more than the value shown for tax purposes.

The court, based upon the stipulated value of the estate of $1,443,710.78, computed the widow's elective share as $421,559.64. The chancellor then ruled that estate and inheritance taxes were not payable from the widow's share and the court further directed that the widow's share be paid in cash with the exception of the home, which was awarded to the widow and its value deducted from her overall award. The chancellor further held that the proceeds of two certificates of deposit in the name of J Lacy Myers or Nelle Myers Harrison passed to the sister outside the estate.

John Abe Teague died intestate on November 24, 1980, and, on February 18, 1981, his heirs and the executor of this estate petitioned the court to sell the jointly owned property of the deceased Myers and Teague, the Myers Chevrolet Building and lot. After an evidentiary hearing, the court determined the testator's undivided one-half interest in the property, had "a fair and reasonable market value" of $97,500.00, and approved a sale of decedent's interest for that amount.

The sister's initial issue is whether the chancellor erred in ruling the effective date for determining the dissenting widow's elective share was testator's date of death.

The present right of a surviving spouse to elect against a deceased spouse's will was created by Chapter 25 of the Public Acts of 1977, as codified in T.C.A., Sec. 31-601, which states:

Right to elective share.--The surviving spouse shall have a right of election to take an elective share of one-third ( 1/3) of decedent's net estate as defined by Sec. 31-602(b). ¹ Such elective share, when so determined, shall be exempt from the debts and charges of the decedent incurred after April 1, 1977.

Our Supreme Court addressed this issue under the prior statute thusly: "The right of a widow to claim the benefits ... as a dissenting widow ... exists as of the date of death, although the realization may be postponed until appropriate steps are taken. It is at the time of death that the entire substance of the right is fixed, ..." Marler v. Claunch, 221 Tenn. 693, 698, 430 S.W.2d 452 (1968). Moreover, the will from which the spouse dissents speaks from the death of the testator. Am. Nat. Bank v. Embry, 181 Tenn. 392, 181 S.W.2d 356 (1944). We conclude the chancellor properly evaluated the estate for dissent purposes.

An adjustment is required when there is either appreciation or depreciation of assets prior to distribution of the spouse's elective share. A good comment on this issue is contained in 7 A.L.R.4th 989, Sec. 3, Appreciation and Depreciation:

No matter when a surviving spouse's election against the deceased spouse's will takes place, and no matter when the final distribution takes place, the rights elected are regarding as vesting at, and therefore dating back to, the time of the death of the testator. However, clearly the value of the estate assets may either appreciate or depreciate during the period between the time of the death and the time of distribution. Various formulas, whether directed in terms to the time when the net value of the estate should be determined or to the determination of the proportionate sacrifice or share, to be allocated between the electing spouse and the will beneficiaries, out of the appreciation or depreciation realized during the administration period, have been evolved or applied. Regardless of the formula applied, it has been generally held without exception, as indicated by the following cases, that the electing spouse shares in the losses or gains, as the case may be, engendered by changes in the value of the estate assets up to the time of distribution. At p. 993.

The evidence adduced at the partition hearing suggests the stipulated value of the Myers Chevrolet Building did not reflect the property's true value as the parcel was valued on tax returns at $95,000.00. The estate has been under administration for approximately four years and the widow should properly share in any gains or losses experienced prior to the distribution of her share. Upon remand, the executor is directed to take into account all gains and losses as of the time of the distribution and adjust the widow's elective share accordingly.

The sister takes issue with the chancellor's determination the widow was not to pay any state inheritance taxes and the argument is made that, prior to the adoption of Chapter 763 of the Public Acts of Tennessee of 1978, the net estate for the purpose of computing the value of the widow's elective share included all of the decedent's property reduced by the funeral and administrative expenses, homestead, exemptions, year's support and the payment of taxes. The '78 Act deleted the words "the payment of taxes". This statutory change does not render this provision in conflict with T.C.A., Secs. 30-1601, et seq., but rather establishes the formula for determining the net estate for determining the widow's elective share. See In Re Peters' Will, 275 App.Div. 950, 89 N.Y.S.2d 651 (1949). In the absence of a testamentary provision to the contrary, federal estate and state inheritance taxes are to be apportioned rateably among those taking the property. T.C.A., Sec. 30-1117, T.C.A., Secs. 30-1601, et seq. Our inheritance tax is a tax upon the privilege of receiving property and case decisions place the financial onus of payment upon the beneficiaries under the will, absent testamentary direction. See Murfreesboro Bk. & Trust Co. v. Evans, 193 Tenn. 34, 241 S.W.2d 862 (1951); Hutchison v. Montgomery, 172 Tenn. 375, 112 S.W.2d 827 (1938).

The chancellor, we believe, however, reached the correct result. The testator's will provides:

I direct my Executor to pay all of my just debts and funeral expenses and all taxes, estate, inheritance or otherwise, which may be or become due. No such tax so paid shall be charged against any beneficiary, but shall be paid as a debt of my estate without regard to whether or not the assets so taxed are included in my estate for purpose of administration.

We note at the outset that the testator is charged with the knowledge of the widow's right to dissent at the time of making the will and the widow's dissent does not affect the construction of the will. Cochran v. Garth, 163 Tenn. 59, 40 S.W.2d 1023 (1931). In addition, the testator further directed:

I direct that my Executor heretofore named, sell all of my stock in the Merchants and Planters Bank for the purpose of paying the expenses of administration of my estate, including the payment of State and Federal inheritance and estate taxes. Should the amount received from this source prove to be inadequate, then this may be supplemented from other assets of my estate.

The term "all taxes" is broad enough to exonerate nontestamentary property from the burden of such taxes. See Wolfe v. Mid-Continent Corp., 222 Tenn. 348, 435 S.W.2d 836 (1968). Accord: Buffington v. Mason, 327 Mass. 195, 97 N.E.2d 538 (1951). Also see Third Nat. Bank in Nashville v. Cotten, 536 S.W.2d 330 (Tenn.1976). We conclude the testator intended all taxes be paid by the executor from the specific fund whether the wife dissented or not.

The next two issues are combined for discussion. Testator's sister objects to the chancellor's order requiring the elective share to be satisfied in cash and disallowing expenses incurred in converting the assets to cash to pay the elective share as administrative expenses affecting the net estate as...