Find Legal Information

JUSTICE SLATER delivered the opinion of the court:

Robert L. Maierhofer died testate on October 29, 1999; his will was admittedto probate on November 8, 1999. Robert's estate, consisting of various interestsin real property and a guardianship account of over $333,000, was valued at

$1,390,282.60. Federal estate tax amounted to $211,976.17; Illinois estatetax was $52,487.63. This appeal primarily concerns the payment of those taxesand their effect on the residuary clause of Robert's will.

The appellant is Francis Maierhofer, one of the testator's brothers. AppelleeJames Maierhofer is Robert's other brother and was the executor of the estate.In the first paragraph of his will, Robert directed the executor to pay alldebts, funeral expenses and the cost of administering the estate, includingestate taxes. The second paragraph devised various interests in real property,primarily to Francis and James. The third paragraph stated:

"I hereby give, devise and bequeath all of the rest, residue andremainder of my estate, whether real or personal property and wheresoeversituated unto my brothers, Francis Maierhofer and James Maierhofer, in thefollowing proportions. My executor, after payment of debts, funeral expenses andthe cost and expense of the administration of my estate shall divide saidremaining property into two separate shares in such proportions as to render therelative value of all gifts under this Will to my brothers to be equal. Inmaking this determination, the appraised value of any real estate shall countagainst that brothers share, as if received by them outright, withoutcalculating the values of the life estate, separately from the remainderinterests."

The trial court ruled that the estate taxes should be paid from the residuaryestate. As a result, the burden of those taxes fell disproportionately onFrancis, who paid about 80% of the taxes. Francis contends that the trial courterred in failing to apply the principle of equitable apportionment, which wouldhave distributed the tax burden more equally. We disagree.

The trial court applied the "burden on the residue" rule in thiscase.

"Under this rule, taxes, debts and expenses of administrationattributable to probate assets are borne by the residuary estate in the absenceof a contrary indication in the will. [Citations.] There is a presumption thatthe attorney who prepared the will was aware of the rule when he drafted it.[Citation.] The rule operates as if it were written into the will itself.[Citation.] If the will is silent as to the payment of taxes or other debts orfees allocable to probate assets, they are to be treated as expenses ofadministration and paid from the residue." In re Estate of Britt,112 Ill. App. 3d 186, 188, 445 N.E.2d 367, 369 (1983); see also Haberl v.County of Monroe, 142 Ill. App. 3d 152, 491 N.E.2d 909 (1986).

The courts of this state have consistently applied the burden on the residuerule (In re Estate of Maddux, 93 Ill. App. 3d 435, 417 N.E.2d 266 (1981))and "this court has expressed the belief that Illinois lawyers have longrelied on this rule and that 'countless wills have been drafted on thisassumption'" (Haberl, 142 Ill. App. 3d at 155, 491 N.E.2d at 911,quoting In re Estate of Phillips, 1 Ill. App. 3d 813, 815, 275 N.E.2d685, 687 (1971)). Francis argues, however, that the principle of equitableapportionment should be applied to equalize the tax burden. We disagree.

Equitable apportionment is a term used to describe the process ofdistributing the burden of estate expenses among beneficiaries in the sameproportion they cause such expenses to be incurred. Landmark Trust Co. v.Aitken, 224 Ill. App. 3d 843, 587 N.E.2d 1076 (1992). Although manyjurisdictions have statutes providing for equitable apportionment of the estatetaxes among beneficiaries, Illinois does not. Landmark Trust, 224 Ill.App. 3d 843, 587 N.E.2d 1076. However, in Roe v. Estate of Farrell, 69Ill. 2d 525, 372 N.E.2d 662 (1978), our supreme court adopted equitableapportionment in cases of intestate estates containing both probate andnonprobate assets. The court subsequently extended the applicability of Roeto testate estates in In re Estate of Gowling, 82 Ill. 2d 15, 411 N.E.2d266 (1980). In both Roe and Gowling, the recipients of nonprobateassets were required to pay the taxes attributable to those assets. However, onseveral occasions this court has refused to apply equitable apportionment toestates containing only probate assets. See Landmark Trust, 224Ill. App. 3d 843, 587 N.E.2d 1076; In re Estate of Fenton, 109 Ill. App.3d 57, 440 N.E.2d 222 (1982); Maddox, 93 Ill. App. 3d 435, 417 N.E.2d266. Indeed, the appellate decision in Gowling pointed out that "twodistinct rules" govern estate tax liability in Illinois: the burden on theresidue rule applies to probate assets, while nonprobate assets are subject toequitable apportionment. In re Estate of Gowling, 77 Ill. App. 3d 548,553, 396 N.E.2d 82, 86 (1979), aff'd, 82 Ill. 2d 15, 411 N.E.2d 266(1980). Moreover, the application of separate rules to different classes ofassets is not arbitrary:

"[T]here are sound reasons for not requiring contribution within theprobate estate, while at the same time apportioning the tax burden between theprobate and nonprobate assets. Within the probate estate, the burden on theresidue rule prefers specific over general bequests and devises in theallocation of tax burdens and for that reason is not manifestly unfair or agreat distance apart from what a decedent's desires might ordinarily be assumedto be. (Phillips.) On the other hand, '[i]t is unfair to deplete theresidue and general [probate] estate for the benefit of nontestamentary assetswhen the decedent may not have considered such assets as a part of his estatefor death tax purposes but which are included under the broad concept of whatconstitutes the "gross taxable estate."' A. Fleming, Apportionmentof Federal Estate Taxes in Illinois--Current Status and Drafting Suggestions,63 Ill. Bar J. 522, 523 (1975)." Gowling, 77 Ill. App. 3d at 553,396 N.E.2d at 86.

Accordingly, we find that the trial court did not err in refusing to applyequitable apportionment to Robert's estate, as it consisted almost entirely ofprobate assets. Francis further asserts, however, that the language of thetestator's will precludes application of the burden on the residue rule. Francisrelies on the fact that the first article of the will directs the executor topay all "debts, funeral expenses and the cost and expense of theadministration of my estate including estate taxes" (emphasis added)as soon as may reasonably be done. In contrast, the third article directs theexecutor to divide the residue of the estate "after payment of debts,funeral expenses and the cost and expense of the administration of myestate." Francis maintains that the omission of the phrase "includingestate taxes" from the third paragraph manifests an intent by the testatorto shield the residue from taxes.

As we have indicated, where a will is silent regarding the payment of taxesthe burden on the residue rule requires payment from the residuary estate. Britt,112 Ill. App. 3d 186, 445 N.E.2d 367; Maddux, 93 Ill. App. 3d 435, 417N.E.2d 266. Of course, a testator may designate what property should assume thetax burden. See Landmark Trust, 224 Ill. App. 3d 843, 587 N.E.2d 1076.However, "[a]n intent to preclude application of the burden on the residuerule must be found in the words of the will itself and not in what is presumedto exist in the mind of the testator." Britt, 112 Ill. App. 3d at190, 445 N.E.2d at 370. In this case we do not believe that the testator'somission of the phrase "including estate taxes" from the third articleof the will suggests an intent to shift the tax burden elsewhere. It is wellsettled that estate taxes are "considered an item of expense, such asdebts, funeral expenses, and the like." First National Bank of Chicagov. Hart, 383 Ill. 489, 497, 50 N.E.2d 461, 464-65 (1943); see also In reEstate of Grant, 83 Ill. 2d 379, 415 N.E.2d 416 (1980); Lawless v.Lawless, 17 Ill. App. 2d 481, 150 N.E.2d 646 (1958). In both the first andthird articles of the will, the testator directed the executor to pay the costand expense of administering his estate, which includes estate taxes. Mereacknowledgment of this fact in the first paragraph in no way evidences acontrary intent.

Nor do we find any ambiguity in the terms of the will. Although it is truethat in construing a will, a court's primary objective is to give effect to thetestator's intent (In re Estate of Miller, 230 Ill. App. 3d 141, 595N.E.2d 630 (1992)), the language of the will itself is the best proof of thatintent (In re Estate of Lind, 314 Ill. App. 3d 1055, 734 N.E.2d 47(2000)). Here, the testator's direction to pay the cost and expenses ofadministration are consistent with the burden on the residue rule. We find noambiguity.

[Nonpublishable material under Supreme Court Rule 23 omitted here.]

Francis next argues that the executor lacked the authority to petition thecourt to transfer possession of the Tedford farm and the Morris house becausethe trial court's order of July 31, 2000, transferred possession of thoseproperties to the independent special administrator, LaSalle National Bank. Weare aware of no principle of law, however, to support the proposition thatappointment of a special administrator for a limited purpose divests theexecutor of authority over the estate after the special administrator hascompleted his task. Moreover, section 20--1(c) of the Probate Act of 1975 (Act)provides:

"(c) Upon petition of any interested person, the court may grantpossession of real estate on such terms as it deems appropriate to the heir orlegatee thereof, if it appears that the real estate or income therefrom will notbe needed for the payment of claims, expenses of administration, estate orinheritance taxes or legacies." (Emphasis added.) 755 ILCS 5/20--1(c) (West1998).

An "interested person" includes one who has a financial interest orproperty right, such as an heir or legatee. See 755 ILCS 5/1--2.11 (West 1998).Thus, even if James lacked authority as executor to petition the court forpossession, he had authority to do so as an "interested person" underthe Act. We find no error.

Finally, appellant argues that the trial court's order of July 31, 2000,transferring possession of the Foersterling/Dwight and Latimer farms,"determined that the estate taxes were charged equally against the twofamilies." Thus, according to appellant, the principle of res judicataprevents reconsideration of this issue. However, we find nothing in the court'sJuly 31, 2000, order, or anything else in the record, to support the claim thatthe trial court "determined" how the estate taxes were to be paidprior to its May 2, 2001, order. We find no error.

For the reasons stated above, the judgment of the circuit court is affirmed.

Affirmed.

McDADE, J., concurs.

JUSTICE HOLDRIDGE, specially concurring:

The burden on the residue rule is well-established in Illinois' common lawpertaining to testamentary disposition. I thus concur in the majority's Opinion.I write separately, however, to express my concern regarding the propriety ofthe rule.

The third paragraph of Robert's will shows that he intended Francis and Jamesto emerge from the disposition of his property with gifts of equal value. Therecord reveals the following dollar figures: aggregate value of James' specificbequests--$429,000; aggregate value of Francis' specific bequests--145,500;value of the residuary estate--$127,000. The third paragraph's equalizationlanguage entitled Francis to the entire residuary estate, giving him propertywith an aggregate value of $272,500. The result was a disparity of $156,500between the value of Francis' and James' gifts under the will. That disparitywas inherent given the size of the residuary estate and the circumstances ofproperty value at the time of the disposition.

Equitable apportionment of the estate tax burden would have maintained thisposture between Francis and James. However, the burden on the residue ruleincreased the disparity between them by the value of the residuary estate($127,000); all of which was applied to the tax bill before James shouldered anyof the burden. Thus, the rule defeated Robert's expressed intention to the tuneof $127,000.

I realize that Robert could have drafted his way around the rule. However, Iquestion the soundness of using the rule as a default standard. I believe thedefault standard should engender equality and that a drafted exception should berequired for unequal imposition of the tax burden. Illinois' common lawcurrently operates backwards and causes the type of strife we now see betweenFrancis and James.

This court has previously stated:

"In many other states, provision is made by statute for apportionment ofestate taxes in the absence of specific testamentary direction to the contrary.[Citation.] A statute on the subject could deal at one time with the manyproblems involved. [Citation.] The legislature could also specify an effectivedate for a change with such widespread effects as an apportionment statute mighthave on wills now in existence. *** If a change is to be made in what we regardas a well established rule in this State on allocation of the burden of estatetaxes, we believe it is for the legislature, and not for the courts, to doso." In re Estate of Phillips, 1 Ill. App. 3d 813, 815-16 (1971).

For the reasons stated above, I encourage the legislature to enact a statuteimplementing equitable apportionment as the default standard for imposition oftestamentary estate taxes.