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Death and Taxes

Written by on Aug 25, 2009| Posted in: Estate Litigation

Appeals Court Clarifies Apportionment Statute for Elective Share

When a decedent’s estate is probated, there is a certain order in which estate taxes are apportioned.  This order is set forth in the Florida Probate Code and it apportions estate taxes on property passing under the decedent’s last will and testament, property passing under the terms of any trust created in the decedent’s will and homestead property, respectively.  The apportionment of estate tax attributable to other properties is set forth as follows:

The net tax that is not apportioned under paragraphs (a), (b), and (c), including, but not limited to, the net tax attributable to interests passing by intestacy, jointly held interests passing by survivorship, insurance, properties in which the decedent held a reversionary or revocable interest, and annuities, shall be apportioned among the recipients of the remaining interests that are included in the measure of the tax in proportion that the value of each such interest bears to the total value of all the remaining interests included in the measure of the tax.  Fla. Stat. §733.817(5) (f). 

Florida courts have consistently stated that the purpose of section 733.817 is to ensure that all estate and inheritance taxes are shared on a ratable basis by the beneficiaries receiving the property subject to those taxes.

Frequently, probate courts face contentious litigation concerning which beneficiary is responsible for paying what percentage of the estate tax.  As a recent opinion from our court of appeals reflects, this is an area of the law where the importance of having a probate litigation attorney is essential.

In Boulis v. Blackburn, 34 Fla.L.Weekly D1567b (Fla.4th DCA, August 5, 2009) the decedent, Gus Boulis, was estranged from his wife, Frances Boulis, when he died and he left nothing for her in his will.    The will left the residuary of his estate, after payment of funeral expenses, taxes and creditors, to The Seafarer Acquisition Trust for the benefit of his two sons (by Frances), his five nieces and nephews, and his two sons by another woman. Article II of the will provides:

All of the residue of my property of whatsoever kind and wheresoever situated (including all lapsed legacies and devises but expressly excluding any property over which I may have a power of appointment at the time of my death) which shall consist of the balance of my residuary estate (“Residuary Estate”) after the payment of the taxes, if any, as provided in Article III, I give, devise and bequeath to the Trustees of THE SEAFARER ACQUISITION TRUST u/t/a/d March 16, 1999 (the “SEAFARER Trust”). Such bequest shall be held, managed, administered and distributed as set forth in the SEAFARER Trust.

Article IV provides:

I direct my Personal Representative to pay out of the property which would otherwise become a part of the Residuary Estate, all estate, inheritance, transfer and succession taxes, including interest and penalties thereon, which may be lawfully assessed by reason of my death. I waive on behalf of my estate any right to recover any part of such taxes, interest or penalties from any person, including any beneficiary of insurance on my life and anyone who may have received from me or from my estate any property which is taxable as part of my estate.

Because Frances was not included in the will, she filed her elective share request for her statutory share of the estate.  Thereafter, the fight began, with the personal representative of the estate arguing that Frances should bear a portion of the estate tax on her receipt of the elective share.  Frances, on the other hand, argued that she should be relieved of any tax obligation on her elective share.  According to Frances, she should only have to pay the amount of additional taxes her election caused the estate to have to pay.  As support for her argument, Frances cited section 732.215 of the Florida Probate Code which provides:

732.215 Effect of elective share on taxes. — In any case in which the election of the elective share by the surviving spouse shall have the effect of increasing any estate, inheritance, or other death tax, the share of the surviving spouse shall bear the additional tax.

The Fourth District Court of Appeals disagreed:

“Appellant’s interpretation adds an exclusion to this statute that the statute does not provide. This section does not provide that the surviving spouse is not responsible for any tax other than any increase caused by the election. It only provides that the surviving spouse is entirely responsible for any increase in the estate taxes resulting from the election. The courts “are not at liberty to add words to statutes that were not placed there by the Legislature.”

This is a situation which arises frequently in Florida probate courts due to what I perceive as will drafting errors.  Most often, any confusion as to how estate taxes are to be handled can be addressed directly in the testamentary instrument itself.  As this case illustrates, it is important for probate practitioners to address foreseeable situations so as to avoid unnecessary litigation costs to the estate after administration commences and beneficiaries become disgruntled with the tax apportionment position taken by the estate fiduciary.

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