Will of Cooney, Matter of

• Decision Date: 03 October 1995
• Docket Number: No. 93-2508,93-2508
• Court: Wisconsin Supreme Court
• Parties: , 56 A.L.R.5th 855 In the Matter of the Marital Trust Created Under the WILL OF Daniel H. COONEY, Deceased: FIRSTAR TRUST COMPANY, Trustee of the Marital Trust, Petitioner-Appellant-Cross Respondent-Petitioner, v. FIRST NATIONAL BANK OF KENOSHA, Personal Representative of the Estate of Dorothy B. Cooney, Claimant-Respondent-Cross Appellant. . Oral Argument

Page 467

541 N.W.2d 467

197 Wis.2d 484, 56 A.L.R.5th 855

In the Matter of the Marital Trust Created Under the WILL OF

Daniel H. COONEY, Deceased:

FIRSTAR TRUST COMPANY, Trustee of the Marital Trust, Petitioner-Appellant-Cross Respondent-Petitioner, v. FIRST NATIONAL BANK OF KENOSHA, Personal Representative of

the Estate of Dorothy B. Cooney,

Claimant-Respondent-Cross Appellant.

No. 93-2508.

Supreme Court of Wisconsin.

Oral Argument Oct. 3, 1995.

Denied Dec. 21, 1995.

For the petitioner-appellant-cross respondent-petitioner there were briefs by Allan E. Iding, Barbara J. Janaszek, Philip J. Halley and Whyte Hirschboeck Dudek, S.C., Milwaukee and oral argument by Philip J. Halley.

For the claimant-respondent-cross appellant there was a brief by Andrew J. Willms and Willms Anderson, S.C. and Christopher T. Kolb and Halling & Cayo, S.C., of counsel, all of Milwaukee and oral argument by Andrew J. Willms.

WILCOX, Justice.

This is a review of a published decision by the court of appeals which affirmed in part and reversed in part a judgment entered on September 24, 1993, in the Circuit Court for Kenosha County, Mary Wagner-Malloy, Judge. See Firstar Trust Company v. First National Bank of Kenosha, 188 Wis.2d 468, 525 N.W.2d 53 (Ct.App.1994). The court of appeals affirmed the portion of the judgment awarding the cross-appellant First National Bank of Kenosha, as Personal Representative for the Estate of Dorothy B. Cooney (Estate), reimbursement pursuant to 26 U.S.C. § 2207A of federal estate taxes and interest from the cross-respondent-petitioner Firstar Trust Company, Trustee (Trust), from the qualified terminable interest property (QTIP) Marital Trust created under the will of Daniel H. Cooney. It reversed that portion of the judgment denying the Estate's claim for reimbursement of Wisconsin estate taxes.

On review before this court, Firstar, as trustee for the QTIP trust, raises two issues for our consideration. The first issue is whether a pay-all-taxes clause in Dorothy Cooney's will constitutes an "otherwise direct[ion]" within the meaning of 26 U.S.C. § 2207A(a)(2) such that the Estate would not be reimbursed for payment of the federal estate taxes attributable to the inclusion of the trust assets in Dorothy Cooney's estate. We affirm the court of appeals' holding that Dorothy Cooney's direction in her will to pay "all valid inheritance and estate taxes by reason of my death" cannot, under Wisconsin law, be construed as a direction to pay inheritance and estate taxes on the QTIP trust property, and that her estate may recover the federal estate tax from the Trust. Firstar Trust, 188 Wis.2d at 472, 525 N.W.2d at 54.

To preserve finality and ensure certainty in cases of will construction and the administration of trusts and estates, we further adopt the rule that unless the testator's intention to shift the tax burden on a QTIP trust is clearly expressed, a general pay-all-taxes clause will not constitute an "otherwise direct[ion]" for § 2207A(a)(2) purposes. The Estate's right to reimbursement under 26 U.S.C. § 2207A(a)(1) therefore remains intact.

The second issue before this court is whether the Estate is entitled to reimbursement from the Trust for Wisconsin estate taxes. The court of appeals reversed the circuit court's finding that the Estate was not so entitled, and concluded that the applicable statutes and case law construing the former inheritance tax statute supported imposing the tax liability onto the Trust. Id. at 483, 525 N.W.2d at 58. We hold that the Estate is not entitled to reimbursement of Wisconsin estate taxes, and reverse the court of appeals on this issue.

I. FACTS

The relevant facts are not in dispute. Daniel H. Cooney died on May 1, 1986. In accordance with his Last Will and Testament, a marital trust was created wherein his surviving spouse, Dorothy B. Cooney, received all of the trust income for life and also received principal for her health, support, and maintenance. Mr. Cooney's will directed that upon termination of the marital trust, all accrued and accumulated income from the trust was to be distributed to his wife's estate and the principal disbursed in equal shares to several cousins, as remainder beneficiaries. For federal estate tax purposes, Dorothy Cooney and Firstar Trust Company, as personal representative for Mr. Cooney, elected QTIP treatment under 26 U.S.C. § 2056(b)(7) for the assets passing to the trust. Due to this election, no federal or state estate tax was due at the time of Mr. Cooney's death. See 26 U.S.C. § 2056(b)(7). The taxes were deferred until Dorothy Cooney's death, at which point the value of the QTIP trust property was included in her estate, for tax collection purposes. See 26 U.S.C. § 2044.

Dorothy Cooney died on December 13, 1991. Her will provided for the distribution of tangible personal property to Trinity College, three nieces and a nephew. Article IV of the will directed that 10% of the residuary estate, or $100,000, whichever is less, was to be placed in a trust for the benefit of her niece, Ms. Jane Billings. Article V of the will provided that the remaining balance was to be divided equally between two charities, the Jesuit Seminary Guild of Milwaukee, Wisconsin, and Trinity College, Washington, D.C.

The will did not make any express reference to Daniel Cooney's QTIP trust, nor did it mention 26 U.S.C. §§ 2044, 2056(b)(7) or 2207A, which governs the tax deferral and collection aspects of QTIP trusts. Article I of the will provided a general pay-all-taxes clause which contained the following instruction:

I also direct my personal representative to pay expenses of administration of my estate and all valid inheritance and estate taxes payable by reason of my death, including any interest or penalties, without seeking reimbursement from or charging any person therefor. Any action taken by the personal representative as to such taxes shall be conclusive and binding on all persons.

Dorothy Cooney's estate consists of $6,260,580.76 of her own, separate assets. In addition, as a result of the QTIP treatment of the trust assets, for federal estate tax purposes, the entire corpus of the QTIP trust, totalling $6,634,566.48, is treated as though it is part of Dorothy Cooney's taxable estate. Firstar Trust, 188 Wis.2d at 474, 525 N.W.2d at 55. Therefore, the total value of her gross estate was $12,895,147.24. The $2,575,036.81 in federal estate tax and $612,229.17 in state estate tax due on the QTIP trust, was paid by Dorothy Cooney's estate. Id.

Pursuant to 26 U.S.C. § 2207A(a), the personal representative of Dorothy Cooney's estate filed a contingent claim against the trust beneficiaries, alleging that the Estate is entitled to recover from the Trust the federal estate taxes payable by reason of the QTIP trust assets included in Dorothy Cooney's gross estate. Id. The Estate and the Trust filed cross-motions for summary judgment. The Trust argued that the tax clause in Dorothy Cooney's will clearly and unambiguously directed the payment of all estate taxes payable by reason of her death, and directed the personal representative to waive the Estate's right of reimbursement for such taxes attributable to assets of the trust. The Estate argued that the tax clause could not be read to direct against seeking reimbursement from the Trust because it does not contain a specific reference to the trust assets and, if so read, would be inconsistent with the decedent's overall distribution plan. The circuit court granted the Estate's motion.

Shortly thereafter, the Estate filed a petition for entry of judgment, seeking a money judgment for $2,575,036.81 plus pre-and postjudgment interest. Id. Further, the Estate filed an amended claim, seeking reimbursement of Wisconsin estate taxes. The Trust objected to both actions. Following a hearing, the circuit court granted the petition for entry of judgment and denied the Estate's request for reimbursement of Wisconsin estate taxes. Id. at 475, 525 N.W.2d at 55. The Trust appealed from the judgment granting the Estate reimbursement for federal estate taxes plus pre-and postjudgment interest. The Estate cross-appealed from the judgment denying its request for reimbursement of Wisconsin estate taxes.

On October 26, 1994, the court of appeals issued an opinion affirming the judgment ordering the Trust to reimburse the Estate for federal estate tax, together with pre-and postjudgment interest, and reversing the judgment denying the Estate's amended claim for reimbursement of Wisconsin estate tax. In reaching this conclusion, the court of appeals cited Estate of Bauknecht, 49 Wis.2d 392, 182 N.W.2d 238 (1971), holding that as a matter of Wisconsin law, a tax payment clause must specifically direct the payment of estate taxes on "nonprobate property" before that property is exempt from payment of estate taxes. Firstar Trust, 188 Wis.2d at 479, 525 N.W.2d at 57. With respect to the claim for reimbursement of Wisconsin estate tax, the court of appeals, citing an excerpt from the former inheritance tax statute, Wis.Stat. § 72.21(1) (1989-90), reversed the circuit court and held that Wisconsin estate tax, like inheritance tax, must be apportioned among the recipients of the property. Id. at 483-84, 525 N.W.2d at 58.

The two issues presented to this court arise from the parties' motions for summary judgment. We review a circuit court's grant of summary judgment de novo. Seaquist v. Physicians Ins. Co. of Wisconsin, Inc., 192 Wis.2d 530, 531 N.W.2d 437 (Ct.App.1995); Weigel v. Grimmett, 173 Wis.2d 263, 267, 496 N.W.2d 206, 208 (Ct.App.1992). Pursuant to Wis.Stat. § 802.08(2) (1993-94), summary judgment must be entered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Swatek v. County of Dane, 192 Wis.2d...