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In Re Estate of Monroe

OPINION FILED APRIL 6, 1982.

IN RE ESTATE OF HENRY MONROE, DECEASED. — (THE PEOPLE OF THE STATE OF ILLINOIS, PLAINTIFF-APPELLANT,

v.

THE FIRST TRUST BANK OF SHELBYVILLE, EX'R OF THE ESTATE OF HENRY MONROE, DEFENDANT-APPELLEE.)



APPEAL from the Circuit Court of Shelby County; the Hon. DANIEL H. DAILEY, Judge, presiding.

PRESIDING JUSTICE KARNS DELIVERED THE OPINION OF THE COURT:

The State appeals from the judgment of the circuit court of Shelby County overruling the objections of the Attorney General to the inheritance tax return filed on behalf of the estate of Henry Monroe, deceased, and affirming the order assessing inheritance tax. On appeal, the State raises the following issues: whether the inheritance tax should be imposed upon the individual receiving property under a settlement agreement rather than the beneficiary taking property under a will; and, alternatively, whether a charitable exemption should be allowed for the amount of the estate applied to settlement of a will contest where the recipient would not otherwise be entitled to a charitable exemption.

The controversy was adjudicated upon an agreed statement of facts. The decedent's will was admitted to probate on June 26, 1979. The will provided for the payment of all the debts of the estate and left the residue to the Shelby County American Cancer Society, a registered charity. On December 18, 1979, Florence Futch, decedent's sister and sole heir, filed a contest of the will. Prior to trial of the will contest, Futch and the charity agreed to a compromise. The terms of the compromise provided that Futch would receive $75,000 and certain jewelry appraised at $3,825 in exchange for withdrawal of the will contest. There was no suggestion of collusion between the charity and Futch.

On February 10, 1981, First Trust Bank of Shelbyville, executor of decedent's estate, filed the inheritance tax return. The return indicated that the entire net estate, $258,603.74, with the exception of expenses and annuities, passed to the Shelby County American Cancer Society and that no tax was due because the charitable exemption applied. Thereafter, the Attorney General filed an objection to the tax return. On April 23, 1981, the court disallowed the objections and found that the amount passing to Futch under the settlement agreement was not taxable. The order assessing inheritance tax was issued on May 12, 1981. The State then appealed this order to the circuit court. On June 19, 1981, the court entered judgment affirming the order assessing inheritance tax. This appeal followed.

The State first argues that an inheritance tax should be assessed against Futch for the amount she received in settlement of the will contest. In substance, the State argues that the inheritance tax should be imposed according to the terms of the compromise, rather than according to the terms of the will because it is more equitable to tax the person who actually received property from the estate. The State's contention, however, is contrary to the weight of authority.

Section 1 of the Inheritance and Transfer Tax Law provides, in pertinent part, the following:

"A tax is imposed upon the transfer of any property, real, personal, or mixed, or of any interest therein or income therefrom, in trust or otherwise, to persons, institutions or corporations, not hereinafter exempted, in the following cases:

1. When the transfer is by will or by the intestate laws of this State, from any person dying while a resident of the State and having a legal or equitable interest in the property.

Ill. Rev. Stat. 1979, ch. 120, par. 375.

• 1, 2 The Inheritance and Transfer Tax Law imposes a tax on the right of succession and not on the estate. The tax accrues when the property vests, either by the terms of a will or by statutory intestate succession, on the death of the decedent. (People v. McCormick (1927), 327 Ill. 547, 158 N.E. 861; People v. Flanagin (1928), 331 Ill. 203, 162 N.E. 848.) No transfers of estate property by agreement of those succeeding to the estate, among themselves or with others, can affect the tax. In re Estate of Graves (1909), 242 Ill. 212, 89 N.E. 978; People v. Upson (1930), 338 Ill. 145, 170 N.E. 276.

The instant issue was considered by the supreme court in Graves and Upson. In both cases, a sum was paid by the residuary legatees to a will contestant under a settlement agreement. The court held that the sums paid were subject to inheritance taxes and that the taxes were to be assessed against the residuary legatees. The court reasoned that the beneficial interest in the property vested in the residuary legatees on the decedent's death and that the inheritance tax should be imposed upon the property as it vests.

• 3 Here, decedent's will left the entire residue of his estate to the charity. The estate vested in the charity on the death of decedent and the inheritance tax accrued at the time the estate vested. The settlement agreement between the charity and Futch did not affect the tax. Therefore, in the absence of a charitable exemption, the sums paid to Futch under the settlement agreement would be taxable to the charity as residuary legatee.

The State contends, alternatively, that an inheritance tax should be assessed against the charity for the amount paid to Futch under the compromise. In this regard, the State argues that the exemption provided by section 28 of the Inheritance and Transfer Tax Law (Ill. Rev. Stat. 1979, ch. 120, par. ...


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