Summary of a Recent
Judicial
Development in
Estate Planning & Taxation
Testator's Specific Bequests to Other Beneficiaries in Case of Deficiency
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Estate of Brown, No. 33A05-0805-CV-306, 2008 WL 5273985 (Ind. Ct. App. Dec. 19, 2008), the Indiana Court of Appeals held that a testator's will devising his farm to his nephew clearly provided that in the event of a deficiency, the nephew was to pay each of the two other beneficiaries a cash sum equal to one-third of the value of the farm real estate, which was specifically valued at $61,500 rather than the fair market value at the time of the testator's death, and which was to be paid from the residuary assets of the estate.
Background
A testator devised his farm, valued at the time at $61,500, to his nephew Jack Zirkle, and devised $61,500 to each of his two nieces, on the condition that if there were insufficient funds in the estate to pay the nieces, Zirkle would be charged to pay a sum in cash equal to one-third of the deficiency to each of them. Id. at *1. After the will was probated, an inventory of the estate showed that the value of the estate was $414,759, with the value of the farm comprising $353,610 of that amount. Id. at *2. Since the remainder was insufficient to make the cash bequests to the nieces, the parties disputed the amount that Zirkle should be charged to pay them. Id. Zirkle argued that in calculating the amount, the value used for the farm should be $61,500, while the nieces claimed that the fair market value of the farm at the time of the testator's death should be used in computing the charge. Id. The trial court concluded that Zirkle had to pay the nieces a total of $235,740, two-thirds of the fair market value of the farm on the date of death, in order to inherit the farm, and Zirkle appealed. Id. at *2-3.
Arguments
Zirkle argued that the court improperly used the fair market value of the farm real estate at the time of the testator's death when calculating the charge to be paid, and that the deficiency should have been paid from the residuary of the estate. Id. at *3.
Analysis and Holdings
The court found that the deficiency should have been paid from the residuary of the estate because the will clearly stated that in the case of a deficiency the bequests "shall be reduced to the remaining assets in the estate." Id. at *4. The court further concluded that the trial court erred in its calculation of the charge, because the section of the will concerning the possibility of a deficiency clearly stated, "considering the farm . . . at a value of $61,500." Id. The court therefore reversed and remanded, ordering the trial court to enter a judgment providing that each niece was entitled to specific cash bequests of $61,500, to be funded by the estate assets. Id. at *5.
The case was decided on December 19, 2008.