Risor v. Brown, 5--4873

• Decision Date: 03 November 1969
• Docket Number: No. 5--4873,5--4873
• Citation: 446 S.W.2d 202,247 Ark. 500
• Parties: Alta RISOR, Administratrix, Appellant, v. Gordon BROWN, Appellee.
• Court: Arkansas Supreme Court

Page 202

446 S.W.2d 202

247 Ark. 500

Alta RISOR, Administratrix, Appellant, v. Gordon BROWN, Appellee.

No. 5--4873.

Supreme Court of Arkansas.

Nov. 3, 1969.

Smith, Williams, Friday & Bowen, Little Rock, for appellant.

Moses, McClellan, Arnold, Owen & McDermott, Little Rock, for appellee.

GEORGE ROSE SMITH, Justice.

This suit was brought by the appellant, as administratrix of the estate of Oddie M. Anderson, deceased, to require the appellee, Gordon Brown, to contribute his proportionate share of the federal and state estate taxes that had been paid by the administratrix upon the decedent's estate. This appeal is from a decree holding that Brown is under no duty to contribute to the payment of the taxes (except with respect to a small testamentary bequest not in issue).

The facts are not in dispute. On March 4, 1964, Mrs. Anderson gave Brown securities worth $22,000. The donor was then 86 years old and suffered from an incurable degenerative process of the spinal cord. Within a few months Mrs. Anderson was taken to a hospital, where she died in the following October. In an earlier declaratory judgment proceeding it was held that the gift to Brown was valid, as against an assertion that it had been procured by undue influence and by an abuse of a confidential relationship. Barrineau v. Brown, 240 Ark. 599, 401 S.W.2d 30 (1966).

Thereafter the federal taxing authorities determined that the gift to Brown had been made in contemplation of death, so that the value of the gift was to be included in the decedent's estate for tax purposes. That determination was accepted by the state revenue department and by the parties to the present dispute. Thus it is an uncontroverted fact that the gift to Brown was in contemplation of death.

The question now before us is whether the recipient of such a gift must bear his proportionate part of the estate taxes. That question turns upon the proper construction of our apportionment statute, § 1 of Act 99 of 1943, which reads as follows:

Except as otherwise directed by the decedent's will, the burden of any State and Federal Estate, Death, and Inheritance Taxes paid by the executor or administrator shall be spread proportionately among the distributees, and/or beneficiaries of the estate, so that each shall bear his proportionate part of said burden. (Ark.Stat.Ann. § 63--150 (1947).)

When one studies the language of the apportionment act itself, and the language of the three prior decisions that are pertinent to the present problem, it is plain that the recipient of a gift which was includible in the decedent's estate as having been made in contemplation of death, must bear his fair share of the estate taxes assessed by the federal and state governments.

It has long been the rule that state law--not federal law--determines the manner in which the burden of the federal estate tax is to be distributed among the beneficiaries of an estate. At first Arkansas had no apportionment statute. That deficiency in our law led to the inequitable result that the court felt itself compelled to reach in the first of the three decisions to which we have alluded: Thompson v. Union & Merc. Tr. Co., 164 Ark. 411, 262 S.W. 324, 37 A.L.R. 536 (1924). There we held that the widow was not required to contribute to the payment of the federal estate tax, even though the value of her dower was included in the valuation upon which the tax was computed. We thought it appropriate to explain that we had no choice in the matter: 'We have nothing to do with the justice or the policy of our laws in this regard, as that is a matter entirely for the legislative branch of government.'

Late in 1942 the Supreme Court of the United States handed down the next pertinent decision: Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106 (1942). That case involved a New York apportionment statute. The state trial court had held that under the statute the tax should be equitably apportioned among all the persons beneficially interested in the estate. The New York appellate court reversed that decision, under the mistaken impression that the federal estate tax law did not permit the states to accomplish such a fair and just distribution of the federal tax burden. That appellate decision was in turn reversed by the United States Supreme Court, which upheld the validity of the state statute.

The Riggs decision made it clear to the states that by appropriate legislation they could put into effect an equitable distribution of the tax burden. The Arkansas General Assembly at once acted upon that invitation by the adoption of the apportionment act now before us, Act 99 of 1943. That the act stemmed from the Riggs decision cannot be doubted, for the language of the act is almost a verbatim copy of the Supreme Court's paraphrase of the New York law in the first paragraph of the Riggs opinion.

The apportionment act came before us for interpretation in the third pertinent case: Terral v. Terral, 212 Ark. 221, 205 S.W.2d 198, 1 A.L.R.2d 1092 (1947). There the widow argued, on the authority of the Thompson case, supra, that she ought not to be required to bear her fair share of the tax, even though the amount of the tax had been swelled by the inclusion in the tax base of the value of her dower and of her interest as surviving tenant by the entirety. We rejected that argument, pointing out that if the legislature had meant to continue in force the (inequitable) rule of the Thompson case it would have used appropriate language to accomplish that result.

Specifically, the widow in the Terral case insisted that she was not a distributee or beneficiary of her husband's estate, within that clause of the apportionment act which directs that the tax burden be spread proportionately among 'the distributees, and/or beneficiaries of the estate.' We found that argument unsound, holding that the words were used in a nontechnical sense to include all persons in whom the law might vest any part of the intestate's property.

That decision is controlling here. Mrs. Terral's dower and survivorship interests did not pass through the hands of her husband's personal representative, but she was nevertheless a beneficiary of his taxable estate within the apportionment act. Similarly, the gift to Brown did not pass through the hands of Mrs. Anderson's personal representative, but Brown was nevertheless a beneficiary of her taxable estate. The whole point--and it is a simple one--is that both Mrs. Terral and the appellee Brown were the recipients of property which constituted a part of the decedent's taxable estate and increased the amount of the tax. If the key word 'proportionate' in our apportionment act means anything at all, it means that those who receive a portion of the decedent's taxable estate must bear their just part of the tax burden. Here Brown received, we are told, 13.4906% of Mrs. Anderson's taxable estate. The apportionment act achieves justice by requiring that he bear that same proportionate part of the estate taxes paid by the administratrix. Nothing could be more simple or more fair.

Reversed.

FOGLEMAN, Justice (dissenting).

I respectfully dissent because I firmly believe that the majority has extended the application of our estate tax apportionment statute by construction. I further feel that the effect of this extension is actually contrary to the intention of the General Assembly in at least one respect; i.e., one who desires to make a completed gift inter vivos must, if he desires to insulate it from estate tax liability, make a will if he does not have one and would not otherwise make one, or, if he has made a will, he must either revoke it and make another or amend it by codicil. This may be exactly what the donor sought to avoid by making the gift, especially if the gift is in contemplation of death. I cannot read this requirement into our statute.

There are facts in the record but not stated in the majority opinion which I consider pertinent in consideration of this case. At the time of Mrs. Anderson's death, she had not filed a gift tax return on this and other gifts made by her on the same date she made the one involved here. Her will and first codicil were executed approximately four years prior to this gift. Neither the will not the codicil contained any directions concerning the estate tax burden. The decedent did direct that, after payment of debts, expenses of administration and certain bequests, the personal representative convert all stocks, bonds and other evidences of indebtedness into cash and purchase a refund plan annuity for her niece. While estate tax returns were filed by her personal representative, the assets involved in this gift were not included. The accountant who prepared these returns did not prepare any gift tax return, even though it was the responsibility of the decedent to have done so before April 15, 1965. 26 U.S.C.A. §§ 6019, 6075. Since she died before she filed the return, the duty to do so devolved upon her personal representative. See Int.Rev.Serv.Reg., § 25.6019--1(b) (1969); 1 CCH Fed.Est. & Gift Tax Rep., § 4021, p. 5032. The tax on this gift was due when the return was filed. 26 U.S.C.A. § 6151. The tax is to be paid by the donor. 26 U.S.C.A. § 2502. It is only when the tax is not paid when due that any liability attaches to the donee of a gift. 26 U.S.C.A. § 6324(a)(2). If the tax is collected from a donee, he is entitled to reimbursement either out of any part of the estate still undistributed or by a just and equitable contribution by those whose interest in the estate of the decedent would have been reduced if the tax had been paid before distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes. 26 U.S.C.A. § 2205. The excuse given for the personal representative's not filing this return was that the validity of the gift was then in question. Even though any doubt on this score was resolved by our ...