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Factual Background:

Grantor died, leaving most of her property in trust.  Most of the property was distributed to Successor Trustee and other Primary Beneficiaries in specific devises.  In trust, Grantor named Hospitals as residuary beneficiaries.  Grantor’s trust did not have specific instructions providing for the payment of federal estate taxes.  At trial, Grantor’s attorney testified that, when the trust was created, Grantor planned to leave the payment of expenses to Successor Trustee’s discretion.  After consulting an accountant and his attorney, Successor Trustee distributed the property to the Primary Beneficiaries first, and to specifically identified charities second.  Next, he paid the expenses including the federal estate tax and finally distributed the residual estate to Hospitals.  Hospitals received less than expected and filed suit claiming Successor Trustee and other primary beneficiaries claiming unjust enrichment.

Held:

The trial entered final judgment in favor of the Hospitals, applying the doctrine of equitable apportionment.

On Appeal:    

Reversed and Remanded.

The doctrine of equitable apportionment does not apply.  When read as a whole, Grantor’s will and trust show that Grantor wanted Successor Trustee to have broad discretion in distributing the trust assets.

Federal law requires the estate tax on the gross estate to be paid out of the whole estate, but state law actually governs the apportionment of the taxes.  Missouri has no apportionment statute addressing the ultimate burden of federal tax, so Missouri courts look to the decedent’s testamentary instruments to discern the decedent’s intent.  The doctrine of equitable apportionment causes the property generating the federal estate tax to bear the estate’s tax burdens and exonerates from the burden property that does not.  It is only appropriately applied when the grantor’s intent cannot be ascertained.  The court will examine all testamentary instruments in the record to determine the grantor’s intent as to how the estate taxes should be paid.  Where a will and a trust together form parts of the same plan, they must be read together.  When the grantor’s intent clearly appears, then it is to be given effect.  If ambiguity is found, then judicial construction is required.

Here, the Grantor’s will devised her entire estate to the trust and then directed that the Successor Trustee pay off all debts as soon as practicable.  The trust did not expressly address the issue of estate taxes.  However, Grantor made a distinction between her specific bequests and the residual gifts.  She showed a clear intention to keep these specific bequests intact and separate from the residuary estate.  Therefore, without express direction from Grantor, it was reasonable to assume that Grantor intended for the federal estate taxes to be paid from her gross estate and her residuary bequests to be effective only as to the net estate remaining after payment of the various charges imposed by law and distribution of the specific bequests.