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09/07/93 MARIE GELLERSTEDT v. UNITED MISSOURI BANK

September 7, 1993

MARIE GELLERSTEDT, APPELLANT,
v.
UNITED MISSOURI BANK OF KANSAS CITY, N.A., RESPONDENT.



APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY. The Honorable John A. Borron, Jr., Judge

Before Smart, P.j.; Shangler, Senior Judge; and Fenner, J.

The opinion of the court was delivered by: Smart

This appeal presents, as an issue of first impression, the issue of whether Missouri law applies as to the allocation of the federal estate tax burden when a decedent's will was executed in Kansas and the decedent died in Missouri. Plaintiff Marie Gellerstedt appeals from the trial court's judgment applying Kansas law, causing the burden of the estate tax to fall on the residue of the estate.

The judgment is reversed and the case is remanded to the trial court for further proceedings.

Ada LaFrenz ("Decedent") died testate on November 22, 1988, while residing in a nursing home in Jackson County, Missouri. She had executed her will seventeen years earlier while domiciled in Johnson County, Kansas. Three years after the will was executed, she executed a codicil. At the time the codicil was signed, she remained domiciled in Johnson County, Kansas. These documents were executed in 1971 and 1974 respectively.

On May 8, 1979, Mrs. LaFrenz was moved from her home in Kansas to a nursing home in Kansas City, Missouri by a family member. Two days later decedent's nephew, Roy Moore, petitioned the probate court for the appointment of a guardian for the person and estate of decedent. On June 5, 1979, Mrs. LaFrenz was adjudicated incompetent by the probate court, and guardians were appointed. Mrs. LaFrenz remained a resident of the nursing home in Missouri nine years until her death.

Both decedent's will and codicil are silent as to the allocation of the burden of the state and federal taxes. Decedent's gross taxable estate amounted to $3,266,263.18. Her total tax liability amounted to $1,184,028.30, which included federal estate taxes of $977,811.57, Missouri estate taxes of $168,279.85, and Iowa inheritance taxes of $37,936.98. Decedent's gross taxable estate included the assets of her probate estate valued at $1,945,977.31 and her interest in a marital trust established by her late husband (apparently valued at approximately 1.3 million dollars), as to which she had a power of appointment.

Mrs. LaFrenz's will made certain specific bequests amounting to approximately $65,000 in cash. Her will also included a specific bequest of a lot at the Lake of the Ozarks, her jewelry, and country club memberships. After making the specific bequests, the will made the following residuary bequests: (1) fifty percent of decedent's residuary estate up to a maximum of $200,000.00 to be distributed to her nephew, Roy Moore; and (2) fifty percent of decedent's residuary estate and any excess over the maximum gift to Roy Moore to be distributed to Marie Gellerstedt, decedent's niece.

In early 1990, the federal estate taxes were paid and United Missouri Bank of Kansas City ("the Bank") thereafter made distributions to specific distributees under the will without deducting a pro rata portion of the estate tax liability. The Bank also made a distribution of the sum of $200,000 to Roy Moore.

On March 1, 1991, Plaintiff Gellerstedt filed her petition for declaratory judgment requesting that the trial court find that the federal estate tax liability should have been prorated among recipients under the will in proportion to the amount of property each received, rather than imposed on the residue. *fn1 Plaintiff sought an order from the court declaring that Defendant Bank was liable to plaintiff in an amount equal to the collective taxes attributable to the distribution of $278,500 made to specific distributees by the Bank. On cross-motions for summary judgment, the trial court concluded that Kansas law governed the allocation of the tax liability, and that Kansas law causes the tax burden to fall on the residue. The court found that therefore it was not necessary to allocate the tax burden pro rata, and granted summary judgment in favor of Defendant Bank. Plaintiff Gellerstedt appeals from this judgment.

Allocation of Tax Burden

Internal Revenue Code § 2002 (imposing federal estate tax liability) and § 2205 (allowing reimbursement to a distributee for estate taxes paid by the distributee) merely determine the method of tax payment. They do not determine the "ultimate liability" for the tax which is determined according to state law. *fn2 Riggs v. Del Drago, 317 U.S. 95, 87 L. Ed. 106, 63 S. Ct. 109 (1942).

The intent of the federal estate tax is that it shall be paid out of the estate before distribution, but the federal statute does not designate out of what fund the tax is payable. It is intended that state law determine the ultimate thrust of the tax and who is to bear the burden.

In re Estate of Nease , 643 S.W.2d 97, 100 (Mo. App. 1982) . A testator may provide for payment of estate and inheritance taxes from a specific fund in his or her will if testator so desires. In re Estate of Boder v. Albrecht Art Museum , 850 S.W.2d 76, 78 (Mo. banc 1993). However, when no provision for the payment of estate and inheritance taxes is made in the will or subsequent codicil to the will, the probate court must look to state law for the appropriate tax allocation. Id.; Carpenter v. Carpenter, 364 Mo. 782, 267 S.W.2d 632, 637 (1954). Missouri has no statute concerning the allocation of the burden of estate taxes. Missouri has adopted the rule of "equitable apportionment" for the payment of estate taxes when there is no clearly expressed intention of the testator as to where the burden should fall. Carpenter, 267 S.W.2d at 637 ; Nease, 643 S.W.2d at 100; In re Estate of Johnson, 803 S.W.2d 619, 620 (Mo. App. 1990). Kansas, on the ...


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