Millard's Estate, In re, No. 50060

• Court: United States State Supreme Court of Iowa
• Writing for the Court: GARFIELD; THOMPSON; OLIVER
• Citation: 105 N.W.2d 95,251 Iowa 1282
• Parties: In re ESTATE of Frank B. MILLARD, Deceased. UNION BANK AND TRUST COMPANY OF OTTUMWA, Iowa, Trustee, Margaret Ann Hughes, William Millard, and Richard Millard, Appellants, v. IOWA STATE TAX COMMISSION, Appellee.
• Decision Date: 20 September 1960
• Docket Number: No. 50060

Page 95

105 N.W.2d 95 251 Iowa 1282 In re ESTATE of Frank B. MILLARD, Deceased.
UNION BANK AND TRUST COMPANY OF OTTUMWA, Iowa, Trustee, Margaret Ann Hughes, William Millard, and Richard Millard, Appellants,
v.
IOWA STATE TAX COMMISSION, Appellee. No. 50060. Supreme Court of Iowa. Sept. 20, 1960.

[251 Iowa 1283]

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Gilmore, Dull & Keith, Ottumwa, for appellants.

Norman A. Erbe, Atty. Gen., Gary S. Gill, Special Asst. Atty. Gen. and Walter W. Rothschild, Gen. Counsel, Des Moines, for appellee.

GARFIELD, Justice.

The question presented is whether an inheritance tax was properly assessed by the state tax commission upon the right of succession to remainder interests in testator's estate, on termination of the life estate, at 10 per cent of the then net [251 Iowa 1284] value of the property rather than at approximately 75 per cent of such value. From decree approving and fixing the tax at 10 per cent of the then net value, the trustee and remaindermen have appealed.

Frank B. Millard died March 13, 1951. His will left his property in trust to Union Bank and Trust Co. of Ottumwa as trustee, with directions to pay the income during her life to his sister, age 73 at testator's death. The bank was also executor. The estate consisted mostly of personal property but there was some realty. Upon termination of the life estate the property, except $1,000 was bequeathed to two nephews. The net estate was appraised at about $54,500 in 1951 and an Iowa inheritance tax of $595 was then assessed and paid upon the then value of the life estate. The executor sought to, and did, defer payment, until termination of the life estate, of the inheritance tax upon the remainder interests. The life tenant died October 4, 1959. The net estate was then appraised at $108,673.

The state tax commission claimed an inheritance tax on the right to succession of the remainder interests of 10 per cent of this last amount. The trustee and remaindermen contended the tax should be computed on approximately 75 per cent (.75157) of such appraised value. They filed application in the district court asking that it determine whether the tax on the remainder interests should be computed by applying the factor of (approximately) 75 per cent to the appraised value or without application of the factor. The application recites, 'It is now necessary that these applicants pay an inheritance tax on the value of the

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remainder interests, as of October 4, 1959, by reason of the deferment of the payment of said tax during the life of the life tenant.' It is agreed the rate of the tax is fixed at 10 per cent by section 450.10, subd. 3, Code, 1958, I.C.A. Also that the value of the estate is its appraised value at the death of the life tenant.

The answer to the controversy must be found in chapter 450, Code, 1958, I.C.A. The two sections most directly applicable are 450.51 and 450.52 which provide:

'450.51 Annuities--life and term estates. The value of any * * * deferred estate, or interest, or any estate for life, * * *, [251 Iowa 1285] subject to the inheritance tax, shall be determined for the purpose of computing said tax by the rule of standards of mortality and of value commonly used in actuaries combined experience tables as now provided by law. The taxable value of * * *, life or * * *, deferred or future estates, shall be computed at the rate of four percent per annum of the appraised value of the property in which such estate or interest exists or is founded.'

'450,52 Deferred estates--removal of lien. Whenever it is desired to remove the lien of the inheritance tax on remainders, reversions, or deferred estates, parties owning the beneficial interest may pay at any time the said tax on the present worth of such interests determined according to the rules herein fixed.'

Sections 450.51 and 450.52 were enacted in 1911 as section 17, chapter 68, of the Acts of the 34th General Assembly. The section has been editorially divided by the code editor.

The tables to which the above statutes refer show the present value of a remainder interest in any property subject to a life estate in a person then aged 73 as .75157 of the total net value of the property. That was the then present value of these remainder interests at testator's death. The tax commission concedes the tax on the remainder interests, if paid within 18 months of testator's death, would have been measured by .75157 of the value of the property at his death. Code section 450.6, I.C.A., provides: 'The tax hereby imposed * * * shall accrue at the death of the decedent owner, and shall be paid * * * within eighteen months after the death of the decedent owner except when otherwise provided in this chapter.'

However, as stated, appellants did not pay the tax on the remainder interests during such eighteen months period. They chose to defer payment until termination of the life estate. But they claim they may still settle the tax for .75157 of the value of the property. They concede such value is determined by the appraisement at the life tenant's death rather than by the one at testator's death. This concession is required by our decision in In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469.

Thus appellants' position is, in effect, that while the tax [251 Iowa 1286] on the remainder interests is measured by the appraised value of this property at the death of the life tenant at age 81 or 82, the percentage factor for determining the value of remainder interests in any property subject to a life estate in a person 73 must still be applied. It would seem illogical to measure the tax by the specific value of this property when the life estate ended, reduced by an abstract figure measuring the value of a remainder interest in any property when a life estate therein to a person of 73 begins.

As above indicated, appellants claim nothing for the fact the net estate was appraised at the life tenant's death at about twice its appraisement at testator's death. This was one consequence of their election not to pay the tax now in controversy until termination of the life estate. If the appraised value at this later date had been less than the earlier one the remaindermen, rather than the state, would have benefited therefrom. Appellants were charged with knowledge of our statutes and our decision in In re Estate of Wickham, supra, 241

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Iowa 198, 40 N.W.2d 469 (January, 1950) requiring appraisal at the life tenant's death. In a sense they chose to gamble on whether the property would increase or diminish in value at the end of the life tenancy.

The tax commission contends that since appellants elected not to pay the tax on the remainder interests within 18 months after testator's death the tax must be paid on the present worth of such interests at the time of payment rather than on their worth at testator's death. We think this is the plain requirement of section 450.52, heretofore quoted. The tax commission and the attorney general's office have evidently placed this construction upon the statutes since before our Wickham decision was handed down and we then gave such construction our approval. The cited opinion has stood for more than ten years without any change by the legislature in the applicable statutes.

The tables to which sections 450.51, 450.52 refer show the present worth of remainder interests subject to a life estate of a person aged 81 as approximately 83 per cent (.82965). Thus, it seems clear that if appellants had desired to remove the lien [251 Iowa 1287] of the inheritance tax on the remainder interests in 1959 before the life tenant died they could have done so under section 450.52 by paying the tax on the then present worth of such interests subject to a life estate of a person aged 81, i. e., about 83 per cent of the value of the property. They could not then have removed the lien of the tax by paying approximately 75 per cent of such value--the factor to be applied if paid during the first 18 months after testator's death. This seems to us the reasonable and logical meaning of sections 450.51, 450.52 in view of the obvious fact the present worth of remainder interests increases as the duration of the life tenancy diminishes.

The conclusion just reached is fatal to appellants' claim to a reversal. Their position is that the factor for determining the abstract value of remainder interests at testator's death remains constant regardless of the probable duration of the life estate. Under their argument if the life tenant had been five, rather than 73, at testator's death, they could have settled the tax on the remainder interests by paying at the life tenant's death a tax measured by approximately 21 per cent (.20950) of the then value of the property. And this would be true regardless of how long the life tenant actually lived.

Appellants' application states: 'The sole question before the court is: Shall the factor of .75157 be applied to compute the inheritance taxes now due?' Appellants open their argument here by repeating this quotation and adding, 'If the answer is affirmative, the trial court was in error. If the answer is negative, the trial court was correct and should be affirmed. There is no other dispute or question in the case.' Thus our negative answer to what...