Davis, et al. v. Smith
| Docket Number: | 2003-CA-02811-SCT | |
| Supreme Court: | Opinion Link Opinion Date: 01-20-2005 Opinion Author: Waller, P.J. Holding: Reversed and Remanded |
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| Additional Case Information: |
Topic: Wills & estates - Tax liability of estate - Section 27-10-7 - Section 27-10-21 - 26 U.S.C. § 2206 Judge(s) Concurring: Smith, C.J., Cobb, P.J., Carlson, Graves, Dickinson and Randolph, JJ. Non Participating Judge(s): Diaz, J. Dissenting Author : Easley, J. Procedural History: Bench Trial Nature of the Case: CIVIL - WILLS, TRUSTS, AND ESTATES |
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| Party Name: | Attorney Name: | |||
| Appellant: | W. E. Davis, Administrator, First Security Bank and Bank of Holly Springs |
JOHN T. LAMAR, JR.
BRYAN E. DYE
WILLIAM F. SCHNELLER |
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| Appellee: | Raymond Smith and Ruth Smith | JOHN B. TURNER M. DARIN VANCE WILLIAM A. BASKIN |
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| Topic: | Wills & estates - Tax liability of estate - Section 27-10-7 - Section 27-10-21 - 26 U.S.C. § 2206 |
| Summary of the Facts: | When Anthony Smith died without a will, he had three life insurance policies in full force and effect. The beneficiaries were Raymond Smith, Anthony’s father, who received $2,000,000; Ruth Smith, Anthony’s ex-wife, who received $125,000; and Vickie Smith, Anthony’s wife at the time of his death, who received $30,000. Raymond filed a petition seeking a declaratory judgment that: the administrator of Anthony’s estate must first pay any estate taxes out of the estate; and if the estate did not have enough funds to pay the taxes in full, only then could the administrator seek contributions from the three life insurance proceeds beneficiaries. W. E. Davis, as administrator of Anthony’s estate, responded that the tax liability of the estate increased substantially because of the pay-out of $2,000,000 of the life insurance proceeds and that the beneficiaries’ proportionate tax liability amounted to $561,354 for Raymond and $35,085 for Ruth, and that Raymond and Ruth should be ordered to interplead these amounts into the registry of the court. The chancellor held that each insurance beneficiary should contribute toward the estate tax liability a percentage of the insurance proceeds equal to the proportion of the insurance proceeds to the value of the gross estate, and therefore, Raymond owed $130,023 (21.8% of the tax liability) and Ruth owed $7,753 (1.3% of the tax liability) to the estate. Davis appeals. |
| Summary of Opinion Analysis: | Section 27-10-7 provides that estate tax liability shall be apportioned based on the gross estate. However, 26 U.S.C. § 2206 provides that apportionment would be based on the taxable estate. Because federal law controls (under section 27-10-21), the apportionment of the estate’s tax liability should be based on the amount of the taxable estate, not the gross estate as the chancellor held. |
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