In re Estate of Denman, 270 S.W.3d 639 (Tex. App.—San Antonio 2008, pet. denied).

Wills

Apportionment

 

A dispute arose regarding whether generation-skipping transfer taxes should be allocated against the residuary estate or against the generation-skipping transfer. Both the trial and appellate courts agreed that the GSTT should be charged against the transfer itself.

GST Beneficiary claimed that a will provision which provided that “taxes shall be paid out of my residuary estate” clearly expressed the testator’s intent that the gift pass without reduction for the GSTT triggered by the gift. However, the Residuary Beneficiary pointed to I.R.C. § 2603(b) which mandates that a GST bears the burden of the tax unless otherwise directed by a “specific reference to the [GSTT]” in the will. The will’s reference to “transfer, estate, inheritance, succession and other death taxes” was not a specific reference to the GSTT and thus the tax was allocated against the GST.

Moral: A person who wants to shift the GSTT burden from the beneficiary of the GST must make a clear and unambiguous reference to the GSTT and how it is to be allocated in the will or trust.

 

Estate Administration

Appeal

Standing

 

Executor appealed a judgment of the probate court regarding the appropriate allocation of the generation-skipping transfer tax, that is, did the burden fall on the beneficiary of the gift triggering the tax or did it fall on the residuary estate. The appellate court determined that Executor lacked standing to bring the appeal.

The court determined that Executor was not injured or prejudiced by the probate court’s judgment. Although the probate court’s judgment had a significant impact on the beneficiaries of the estate, the court held it had no impact on the Executor. The court rejected Executor’s two claims.

First, Executor claimed he had standing because of his duty to ensure a proper construction of the will. The court refused to hold that an executor always has standing to appeal probate court rulings simply to ensure proper will construction as is the case in many other jurisdictions. Instead, the Texas requirements for appellate standing are more rigorous and thus the ruling must injure the estate as a whole, not just one of the beneficiaries.

Second, Executor claimed he would have potential personal liability for the GSTT if a deficiency resulted from an incorrect probate court ruling. The court studied IRC § 3713(b) and decided that Executor faces no personal liability unless he distributes the estate before paying the GSTT. The Executor merely needs to wait until the appeals filed by other parties are resolved before distributing estate property to be protected from personal liability.

Moral: An executor needs to show that a probate court judgment impacts the estate or the executor personally before having standing to appeal.



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