Request By:
Attorney Hunter B. Whitesell
Law Office of Johnson and Whitesell
Post Office Box 433
207 Commercial Avenue
Fulton, Kentucky 42041
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Rickie L. Pearson, Assistant Attorney General
Hereinafter is an opinion of the Attorney General's Office concerning two legal issues as they apply to the Bolton Estate.
The first question presented is whether the State of Kentucky can tax under its inheritance tax laws a contingent remainder?
As far back as 1916, the following language has been included in the State's inheritance tax law:
"All real and personal property within the jurisdiction of this state and any interest therein belonging to inhabitants of this state, . . . which shall pass by will or intended to take effect in possession or enjoyment at or after the death of the grantor or donor, or by reason whereof any person . . . shall become beneficially entitled in possession or expectancy to any property or to the income thereof, is subject to a tax upon the fair cash value as of the date of the death of the grantor. . . . This tax shall be imposed when any such person becomes beneficially entitled in possession or expectancy to any property or the income thereof by any such transfer." (emphasis added)
The above language also appears in KRS 140.010, Levy of inheritance tax - Property affected - When tax attaches, which is the provision that sets forth what property interests are subject to the Kentucky inheritance tax laws.
Pursuant to KRS 140.100, Valuation of future or contingent estates - Taxation of life estates, it is provided in section two (2), that the rate of interest assessed in computing the present value of all future interests and contingencies shall be four percent (4%) per annum.
When the above KRS provisions are read in para materia, it can be concluded that contingent remainders are taxable.
This conclusion is further evidenced by KRS 140.110, Taxation of contingent and defeasible estates. The crux of section one (1) of this provision is to tax estates in expectancy which are contingent and to provide a refund remedy if the interest that ultimately vests is subject to a lower tax rate. Thus, the statutory provision contemplates that certain contingent interest may be partially or totally divested before the remainderperson comes into possession. Upon such divestment, the remainderperson may file for a refund to make the inheritance tax paid at the death of the grantor consistent with the property interest that is ultimately taken.
In
Bosworth v. Commonwealth, Ky., 231 S.W.2d 36 (1950), the Court of Appeals of Kentucky held in part that, contingent estates under the 1916 inheritance tax act were taxable at the time of the grantor's death.
The Court stated at page 38:
"As pointed out by the Commonwealth, it was held in the case of
Commonwealth v. Cambron's Executor, 158 Ky. 577, 165 S.W. 979, in 1914, that, where a devisee received a life estate in property, with a right to dispose of it, an inheritance tax could not be collected from the remainderman until the death of the life tenant. In 1916, the inheritance tax act was amended by adding the second paragraph of what is now KRS 140.010 (Ky. Statutes, section 4281a-12). Under the 1916 amendment, contingent estates were made taxable at the death of the grantor, as in the case of other estates." (Emphasis added.)
The Bosworth opinion denotes that two conclusions may be reached concerning the Kentucky inheritance tax laws. The first conclusion being that contingent interests are taxable. Secondly, contingent interests are taxable at the death of the grantor.
In the case at bar, Charlie and Patsy are contingent remainderpersons. The contingency which they must satisfy before they can take possession of the property in question is to outlive or survive their mother, the life tenant. Notwithstanding the fact that they have a contingent interest and may not come into possession for quite some time, such a contingent estate is taxable at the time of the testator's death (Marion Bolton) and not at the time of the death of the life tenant (Lillie Jewel).
The second issue raised is whether a surviving spouse can take a widow's set aside under KRS 391.030 where the testator's will provides: "I now will, bequeath, and devise to my son, Charlie and my daughter, Patsy, after the death of my wife, Lillie Jewel, all of my money that I may die seized of and all of the household furnishings in the house, to be equally divided, after all of my debts and expenses have been paid in full."
Pursuant to KRS 391.030, it is provided in part that:
"Where any person dies intestate as to his personal estate, or any part thereof, the surplus, after payment of funeral expenses, charges of administration and debts, shall pass and be distributed among the same persons, and in the same proportions, to whom and in which real estate is directed to descend. . . ." (Emphasis added.)
The words "or any part thereof," upon a common sense reading and by plain meaning denotes that a surviving widow or spouse can take a statutory share where the testator dies partially intestate. However, before it can be determined whether Lillie Jewel can properly take a widow's set aside, it must first be determined whether the testator died partially intestate.
Where there exist ambiguity in a will which requires interpretation, the question is not what the testator meant or intended to say, but what was meant by what he actually said.
Kurrie v. Kentucky Trust Co. of Louisville, Ky., 194 S.W.2d 638, 640 (1946). Thus to arrive at the intention of the testator is by looking at will as a whole. Id. The intention that is derived must be sufficient to rebut the legal presumption against partial intestacy. Id.
Looking at the entire will, it is revealed that in each bequest and devise made by the testator the wife was to take a life interest or life estate. In each devise made where the testator's children were to ultimately take possession the words "after the death of my wife" appears. It follows logically that the afore-mentioned words gave rise to a life estate in the wife as to all of the money of which the testator died seized.
The provision in the codicil as it relates to the household furnishings is consistent with the will because in both instances it was his intention to give his wife a life estate in that personalty. This intention is evidenced by the words "after the death of my wife."
Therefore, it can be concluded that the wife had a life estate in the money and the household furnishings and the children had a vested remainder. Thus, the value of the life estate and the vested remainder are taxable under the State's inheritance tax law.