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In Re Estate of Lyons





APPEAL from the Circuit Court of De Kalb County; the Hon. CARL A. SWANSON, Judge, presiding.


This is an appeal from an order of apportionment of the Federal estate taxes of the estate of Clinton M. Lyons, Sr. The executor of the estate and one of its beneficiaries, Clinton M. Lyons, Jr., petitioned the court for apportionment and contribution. His three sisters, who were the other beneficiaries, counterclaimed for relief that would equitably allocate the value of certain assets of the estate using a formula different than that proposed by the executor. The trial court's granting of the relief prayed for by the sisters resulted in a higher estate tax liability for the executor and this appeal.

The question raised on appeal is whether or not the trial court properly valued the land assets of the estate for purposes of apportionment of the estate tax burden. The executor's first argument urges that the only valuation that should be used for Federal estate tax purposes is that valuation listed in the Federal estate tax return. Secondly, he urges that even if there were other legal valuations that could be used, there was no competent evidence given at trial that the value of the land was other than that listed in the Federal estate tax return. Finally, he contends that the court erred in not directing contributions to the executor of the proportionate sums due upon apportionment of the Federal estate taxes.

Clinton M. Lyons, Sr., died testate leaving four children: three daughters and a son. There is no dispute as to the value of the estate as a whole or that $45,033.42 is owed as Federal estate taxes. The question is how to apportion such taxes among the beneficiaries.

Decedent's probate estate consisted of approximately 12 acres of land and some minor items. The remainder of the assets were placed in trust and consisted of approximately 410 acres of land. All the land is located in De Kalb County. The daughters of Clinton M. Lyons, Sr., received 103.3 acres from the estate in trust plus a small parcel acre through the probate estate. The executor received the balance from the trust, or approximately 307 acres plus some small acreage from the probate estate. The land received by the executor was largely tillable farm land, while that received by the daughters was largely wooded land. At the executor's request, an appraiser from the estate and gift tax section of the Internal Revenue Service valued some of the land involved at $600 an acre and other at $652 an acre. This was for the purpose of valuing the whole estate and did not reflect any apportionment among the parties. The beneficiaries received some land valued at $600 per acre and some valued at $652 per acre.

After a trial, the court ruled that the tillable land was worth 2 1/2 times what the wooded and nontillable land was worth. Therefore, the daughters' estate tax liability was apportioned by the value of the land they owned rather than the percentage of the farm acreage they owned. The trial court also ruled that the daughters could pay the Internal Revenue Service directly and need not pay the executor.

Generally, apportionment of Federal estate tax burdens is a question for the States to resolve. The two areas where Federal law controls, life insurance proceeds and property over which a decedent had a taxable power of appointment (Internal Revenue Code of 1954 §§ 2206, 2207) are not in issue here. In Riggs v. Del Drago (1942), 317 U.S. 95, 87 L.Ed. 106, 63 S.Ct. 109, the Supreme Court left the apportionment of the ultimate impact of Federal estate taxes for the State legislatures or courts> to decide. Illinois has no pertinent statutes governing this area.

The executor's first argument proposes that the burden of the estate tax and expenses should be divided among the interested persons in proportion to the value of each person's share of the estate. He characterizes this as the equitable contribution approach. He urges that his three sisters are proposing a different rule, the burden on the residue rule which would put the burden entirely on the residuary estate. Actually, there is no controversy as to this point and the parties all recognize that the equitable contribution rule is controlling in Illinois. The question is really one of valuation.

• 1 At trial, the executor relied on testimony from the appraisal witness for the Internal Revenue Service who valued some land at $50 an acre more than other land. This witness, however, did not testify as to the value of the actual parcels received by either the executor or the three sisters. On the other hand, the two appraisal witnesses for the daughters testified that the acreage received by the executor, the tillable farm land, was worth two to three times the wooded acreage received by the daughters.

Both parties cite the same cases in support of their respective positions. It is well settled in Illinois that payment of Federal estate taxes should be equitably apportioned among the beneficiaries. This includes surviving tenants of property held in joint tenancy. (Roe v. Estate of Farrell (1978), 69 Ill.2d 525, 372 N.E.2d 662.) In Roe, the court found that non-probate assets generated the estate tax, and so to deny apportionment would inequitably favor the recipient of non-probate assets. In re Estate of Gowling (1979), 77 Ill. App.3d 548, 396 N.E.2d 82, expanded Roe to apply the doctrine of equitable apportionment to testate as well as intestate estates.

Similarly, in the case of In re Estate of Van Duser (1974), 19 Ill. App.3d 1022, 1026, 313 N.E.2d 228, the court stated:

"impelling justice and fairness dictate, and equity provides, that the recipients of those assets contribute in paying the federal estate tax proportionately to the amount of tax their share generated."

While the court in Van Duser was referring to the inclusion of probate and non-probate assets to determine Federal tax liability, we feel that this language is equally applicable to the case before us.

Clearly the doctrine of equitable apportionment is applicable here. The only two possible obstacles to the application of this doctrine would be a statement of legislative intent to the contrary or a situation where a contrary intention is expressed by the decedent in a will. No such statute exists, nor did decedent make any ...

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