Published on:

Court Rules of Tax Apportionment Clause

This is a proceeding to construe the last will and testament of a testatrix who died on April 18, 2010, survived by five children. Her will, dated September 1, 2006 (the “Will”), was admitted to probate on July 2, 2010 and letters testamentary issued to petitioner, one of her children. Article SECOND of the Will established a credit shelter trust for her husband, with remainder to her children. Article THREE left the “rest, residue and remainder” of her estate to her husband outright. Her husband predeceased her and she provided in Article FOURTH that if her husband predeceased her, she left “all the rest, residue and remainder of my estate, real, personal and mixed and wheresoever situated”
The estate is sufficiently large to generate a New York State estate tax. Article FIFTH of the will provides that “All estate, inheritance, transfer, succession or other similar taxes shall be payable out of the residuary of my estate”. The executor asks that the Court construe the gift to real property to the devisee in Article FOURTH(A) as a preresiduary gift and the remainder clause of Article FOURTH(B) as the residuary estate. The executor brings this construction proceeding, since he claims that not all of the residuary beneficiaries agree with his interpretation.
In the Will in question, Article FIFTH directs that the payment of estate taxes be paid from the residuary estate. The problem is that the Will contains two residuary clauses. The first is found in the preamble to Article FOURTH, which disposes of the “all rest, residue and remainder of my estate, real , personal and mixed and wheresoever situated” of the testator’s estate if the testator’s husband predeceased the testator. The second is Article FOURTH(B), which purports to dispose of the “rest and remainder” of the testator’s estate after the devise of real property in Article FOURTH(A).
The executor asks the Court to construe Article FOURTH(B) as the true residuary estate. The effect will be that all estate taxes will be apportioned among the beneficiaries of Article FOURTH(B) and the devise of real property under FOURTH(A) will pass to the devisee free of New York estate taxes. No objections have been filed to the petition for a construction, although the executor states that not all of his siblings agree with his interpretation.
The executor treats the matter as purely one of construction. He alleges that the “residuary estate”, to which tax exoneration provision of the Will applies, is not clear. In construing a will, the Court looks first at whether the will’s provisions are clear. If there is no ambiguity, the court should interpret the will in accordance with the testator’s intent as expressed in the will. If there is an ambiguity, the Court should take extrinsic evidence of the testator’s intention.
However, construction of a tax apportionment clause cannot be made without considering the special rules governing the State’s apportionment statute, EPTL 2-1.8.
The question of allocation should not be approached as would a construction question where at all events the meaning of the text must be determined from the content of the will. In a tax allocation problem the text of the will is to be scanned only to see if there is clear direction not to apportion; and if such explicit direction is not found, construction of text ceases because the statute states the rule.
EPTL 2-1.8 provides that whenever it appears that a fiduciary may be required to pay an estate tax with respect to property included in the gross estate, “the amount of the tax, except in a case where the testator otherwise directs in her will” shall be equitably apportioned among the persons to whom the property is disposed of “in accordance with the rules of apportionment set forth, and the persons benefited shall contribute the amounts apportioned against them”.
There is a strong public policy in favor of apportionment. Where there is a clear tax exoneration clause, it will control. Where the exoneration clause is not “clear and unambiguous”, the apportionment statute applies. Those who contend against apportionment have the burden of proof.
Accordingly, the courts have applied a rule of strict construction where exoneration from apportionment is alleged. “In case of doubt as to what the will means on the subject of taxes the statutory direction to apportion is absolute”.
Where the will directs payment of federal and State estate taxes out of the residuary estate, taxes are to be apportioned among the residuary beneficiaries unless there is a clear direction against apportionment. [Provisions that estate taxes are to be paid out of the residuary estate] do not amount to unambiguous directions against proration within the residuary itself”.
Despite this heightened standard of proof, the Court of Appeals has indicated that EPTL 2-1.8 is not a canon of construction, but a directive to apportion estate taxes among all testamentary beneficiaries unless the will provides otherwise.
In Article SIXTH, the testator provided that “All the rest, residue and remainder of my estate, real, personal and mixed, wheresoever situate . . . I give devise and bequeath to my EXECUTORS, hereinafter named” and directed that they pay therefrom various sums of money to various individuals and charities named in Article SIXTH(a) to SIXTH(i).
The Surrogate sustained the objections, finding that the multiple residuary clauses created an ambiguity as to which was the true residuary clause, so that the statutory apportionment applied. In three to two decision, the Appellate Division affirmed the decision of the Surrogate.
Accordingly, this Court must construe the Will to determine the proper apportionment of estate taxes, attempting to effectuate the intention of the testator in accordance with the testator’s intent as expressed in the will. The court must first look within the four corners of the instrument to determine the grantor’s intent, which “is to be construed as written and the [testator’s] intention determined solely from the unambiguous language of the instrument itself”. Unless an intention to deviate from the apportionment rule of EPTL 2-1.8 is found, EPTL 2-1.8 governs.
The Will contains two possible residuary clauses, the residuary clause of Article FOURTH and the residuary clause of Article FOURTH(B). Reading the Will as an entirety, it is clear that the residuary clause is contained in Article FOURTH of the Will and not, as the executor argues, in Article FOURTH(B). This construction is supported by the plain terms of Article FOURTH, which contains the broadest possible language, “all the rest residue and remainder of my estate, real, personal and mixed and wheresoever situated”, that is typically found in a residuary clause. The clause of Article FOURTH(B) is more limited, providing for the disposition of the “rest and remainder” of the testator’s estate after the devise of real property in Article FOURTH(A). This is more like the language of a provision disposing of the remainder of the residuary estate.
Nor can it be said that the residuary clause of Article FOURTH is “illusory”. The testator clearly provided for the disposition of her residuary estate in Article THIRD, after creating a marital trust for her husband in the event that her husband survived her. The language used, “all the rest, residue and remainder of my estate”, is broader than the language of Article FOURTH(B).
Finally, the effect of finding that the residuary estate is created by Article FOURTH(B) would be to relieve the child receiving the real property from the obligation to share in the estate taxes imposed on the value of the devise. While the testator left her daughter a specific devise out of the residuary estate, there is no indication that the testator also intended to exonerate the specific devise from its share of the estate taxes imposed as a result of the gift.
If your right was violated by reason of execution of a will, you can consult with Stephen Bilkis and Associates, who will represent and file an opposition of the will. They have offices to serve you throughout the New York area. Call for a free consultation at 1-800-NYNYLAW.

Contact Information