APPEAL from the Circuit Court of Kankakee County; the Hon.
EDWARD A. McINTIRE, Judge, presiding.
MR. JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:
This is an appeal by Iliah Comstock from the judgment of the Circuit Court of Kankakee County (in her deceased husband's estate proceedings) that Iliah's elective share as a surviving spouse (Ill. Rev. Stat. 1977, ch. 110 1/2, par. 2-8) should be computed from the assets available after deduction of all of the Federal estate tax obligation. Counsel for Iliah had argued that the elective share should be computed based on assets available prior to payment of Federal estate taxes, since no Federal estate tax is payable on Iliah's elective share. The issue presented in this court, consequently, is whether the surviving spouse's elective share should be computed before or after deduction of the Federal estate tax liability of the estate, considering the fact that no Federal estate tax was payable on Iliah's elective share.
The facts necessary for an understanding of this appeal are few. Howard C. Comstock died in 1976, survived by his wife, Iliah Comstock, and a daughter, Karen Cheesman, from a previous marriage. Howard Comstock's will was made and executed in 1947, prior to his marriage to Iliah. The will made no provision for Iliah, and it made no specific provision for payment of Federal estate taxes. As a result of such omission, Iliah Comstock filed a renunciation of will in the probate proceedings concerning her deceased husband's estate and elected to take her statutory share. Iliah's share, according to the statute (Ill. Rev. Stat. 1977, ch. 110 1/2, par. 2-8), was one-third of the decedent's entire estate. In the process of administering the estate, the executor petitioned the circuit court for instructions regarding the distribution and settlement of the estate. The executor asked the court whether Iliah Comstock's share should be one-third of the estate without deduction for payment of Federal estate taxes charged against the estate or whether she should receive one-third of the net estate remaining after payment of such taxes. The circuit court held that the elective share should be computed after payment of all of the Federal estate tax. It is from this judgment that Iliah appeals.
Under the Federal estate tax laws, the gross estate upon which such taxes are levied is reduced by amounts qualifying as "marital deductions." (Section 2056(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 2056(a).) The marital deduction covers certain "qualified" property passing from a decedent to a surviving spouse and is limited by statute to amounts specified in the act, but normally, in larger estates, to 50% of the value of the adjusted gross estate. (26 U.S.C. § 2056(b), (c), (d).) In the instant case, all of the widow's elective share is exempt from Federal estate tax. Iliah was to receive one-third of her deceased husband's entire estate by virtue of her renunciation of the will, and counsel, accordingly, contends that her one-third share does not give rise to any Federal estate taxes by reason of the marital deduction and should, therefore, in equity, not be burdened by payment of the Federal estate taxes imposed upon the remaining property, which may be subject to Federal estate taxes. A burden of that type would be imposed if a computation of the surviving spouse's share is made after payment or computation of Federal estate taxes. It is argued that equitable apportionment of the Federal estate tax burden, when an elective share qualifies as a marital deduction, should result in determining that the widow's share from the entire estate should be computed before reduction of the estate by the amount of Federal estate taxes payable.
Appellant finds support for application of the doctrine of equitable apportionment to the issue of Federal estate tax liability on estates in the Illinois Supreme Court case of Roe v. Estate of Farrell (1978), 69 Ill.2d 525, 372 N.E.2d 662. That case dealt specifically with the question of whether, when no specific provision had been made by the testator, the Federal estate tax burden ought to be equitably shared by holders of both probate and non-probate assets, and not simply borne by holders of the probate assets. The court in that case adopted a rule of equitable apportionment as to the burden of Federal estate taxes, and found that such taxes should be borne proportionately by those assets which gave rise to that Federal estate tax liability. (69 Ill.2d 525, 532.) Although Roe v. Farrell did not directly address the question of the burden of Federal estate taxes when a surviving spouse files a renunciation of will, counsel argues, we believe correctly, that the court's adoption of the doctrine of equitable apportionment logically extends to situations such as are presented in the instant case. Although not binding upon us, some support for such extension is to be found in the United States Court of Claims decision in Farley v. United States (Ct. Cl. 1978), 581 F.2d 821. The issue in Farley was precisely the same as that now before us, i.e., whether the surviving spouse's elective share, under section 2-8 of the Illinois Probate Code, should be computed before or after payment or computation of Federal estate taxes. The court in Farley took the rule of equitable apportionment as set forth in Roe v. Farrell and applied it to the situation where the elective share of a surviving spouse qualified as a marital deduction and, therefore, not subject to Federal estate taxes. The Court of Claims held that, were the question now to be presented to the Illinois Supreme Court, it would apply the rule of equitable apportionment adopted in Roe v. Farrell to the elective share situation before the court in Farley and would find that the elective share should be computed based on the entire estate, and not on the estate as reduced after payment or computation of Federal estate taxes. (581 F.2d 821, 834.) In so holding, the Court of Claims was forced to conclude that a previous Illinois appellate decision, Northern Trust Co. v. Wilson (1951), 344 Ill. App. 508, 101 N.E.2d 604, had been effectively overruled by the decision in Roe v. Farrell. Counsel for Karen Cheesman, the daughter, assert that the Northern Trust Co. v. Wilson case was still viable. They argue that Roe v. Farrell must be limited to its factual situation, probate and non-probate assets, and not extended to the situation presented in the instant case.
1 Congress, in imposing the Federal estate tax, has not determined how the burden of Federal estate taxes is to be allocated in estate proceedings. It has left to State law the determination as to the ultimate thrust of the tax. Therefore, the question of the ultimate burden of Federal estate taxes is one of State, rather than Federal, law. (Riggs v. Del Drago (1942), 317 U.S. 95, 87 L.Ed. 106, 63 S.Ct. 109; Roe v. Farrell (1978), 69 Ill.2d 525, 372 N.E.2d 662.) Since this issue has been left for decision by the individual States, we turn, initially, to any statutory provisions bearing upon the issue. In this case, three statutory provisions may be involved, sections 2-8, 18-10, and 18-14 of the Probate Act. (Ill. Rev. Stat. 1977, ch. 110 1/2, pars. 2-8, 18-10, 18-14.) We set such provisions out in pertinent part. Section 2-8 states:
"(a) If a will is renounced by the testator's surviving spouse, whether or not the will contains any provision for the benefit of the surviving spouse, the surviving spouse is entitled to the following share of the testator's estate after payment of all just claims: 1/3 of the entire estate if the testator leaves a descendant or 1/2 of the entire estate if the testator leaves no descendant." (Ill. Rev. Stat. 1977, ch. 110 1/2, par. 2-8.)
"All claims against the estate of a decedent are divided into classes in the manner following:
1st: Funeral expenses and expenses of administration. * * *
2nd: The surviving spouse's or child's award.
3rd: Debts due the United States.
4th: Money due employees of the decedent * * *.
5th: Money and property received or held in trust by decedent which cannot be ...