IN THE MATTER OF THE ESTATE OF ERIC CHRISTOPHER ERLAND, Deceased, PATRICIA SHEA ERLAND AND JOHN SHEA ERLAND, Executors, Appellants. vs. KRIS FAY, TERRI LUPEI AND MICHAEL SHEPARD, Appellees.
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IN THE COURT OF APPEALS OF IOWA
No. 6-771 / 05-0978
Filed November 30, 2006
IN THE MATTER OF THE ESTATE OF
ERIC CHRISTOPHER ERLAND,
Deceased,
PATRICIA SHEA ERLAND AND
JOHN SHEA ERLAND, Executors,
Appellants.
vs.
KRIS FAY, TERRI LUPEI
AND MICHAEL SHEPARD,
Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Wapello County, James Q.
Blomgren, Judge.
The executors appeal from a district court ruling sustaining the appellees’
objections to the final report. AFFIRMED.
John R. Webber III of Harrison, Moreland & Webber, P.C., Ottumwa, for
appellants.
Kenneth A. Duker of Breckenridge & Duker, P.C., Ottumwa, for appellees.
Considered by Vogel, P.J., and Miller and Eisenhauer, JJ.
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VOGEL, P.J.
The co-executors of the estate of Eric Erland appeal from the district
court’s order sustaining the objections of the appellees to the final report. We
affirm.
I. Background Facts and Proceedings.
Eric Erland died in October 2002. His will was admitted to probate on
October 17, 2002, with his mother, Patricia Erland, and his brother, John Erland,
appointed as co-executors. Eric executed his will in August 1997 and named his
then wife, Joni Erland, as the sole beneficiary. In February 2001, Eric and Joni’s
marriage was dissolved, but Eric did not revise his will accordingly. As Eric and
Joni had no children, the will provided that if Joni predeceased Eric, the
homestead would pass to Joni’s sister, Vicki Jo Shepard. The residue of Eric’s
estate would then pass in equal shares, one-half to Joni’s parents, Alice and
Norman Shepard, and one-half to Eric’s mother, Patricia.
When it was understood that the dissolution revoked Joni’s interest in
Eric’s estate according to Iowa Code section 633.271 (2001), the remaining
beneficiaries, in hopes of negotiating a settlement, retained counsel and began
discussing with the executors an alternate distribution of the property of the
estate. An agreement was reached whereby Alice, Norman, and Vicki would
disclaim their interests in the estate pursuant to Iowa Code section 633.704 so
that Joni would receive the homestead and have $50,000 paid by the estate on
the mortgage. Vicki and Joni also disclaimed any interest they would receive
resulting from the disclaimer filed by their parents, Alice and Norman.
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On June 13, 2003, the named beneficiaries (Patricia, Vicki, Alice, and
Norman) entered into a “Family Settlement Agreement” with Joni and the
executors. The Agreement provided the following:
1. The homestead to be conveyed to Joni, with the estate to pay
$50,000 toward the mortgage due on the property and all remaining
sums to be paid by Joni.
2. The estate to pay property taxes pro-rated to the date of Joni’s
possession.
3. Joni receives all remodeling building materials located at 915 E.
Highland, Ottumwa.
4. Joni will pay the inheritance taxes on the Vanguard IRA, in the
amount of $3679.22.
5. Vicki, Alice and Norman Shepard shall each execute disclaimers to
their interest in the estate before the expiration of nine months from
the date of death (10/09/02).
6. Patricia will receive the balance of the assets of the estate, with the
estate to pay for administration of the estate.
The initial report and inventory filed by the executors on March 24, 2003,
listed the estate’s gross assets at $226,925.65. The Iowa inheritance tax return,
with the family settlement agreement attached, was prepared on June 17, 2003,
by the attorney for the estate, John R. Webber III. It reported a gross estate of
$226,925.65 with allowable deductions of $112,400.34, leaving a net estate for
distribution of $114,525.31. Joni and Patricia were the only persons listed on this
return as “beneficiaries.” Joni’s share was $36,792.19 and, as a non-relative, the
inheritance tax was calculated at $3679.22. Patricia’s share was $77,733.12
and, as Eric’s mother, no inheritance tax was due.
Correspondence from the Iowa Department of Revenue to Webber in
September 2003 regarding the return indicated any disclaimed property by Vicki,
Alice, or Norman would pass to their heirs, requiring additional taxes depending
on the existence and number of those heirs.
Webber subsequently wrote
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attorney Robert Breckenridge, who represented Vicki, Joni, Norman, and Alice,
informing him of the department’s position and requesting information on any and
all heirs of Vicki, Alice, and Norman, and advising that this would affect the
inheritance tax due.
Webber also recommended amending the “Family
Settlement Agreement” to include any children of Alice and Norman.
An amended Iowa inheritance tax return was filed on May 7, 2004, which
added Alice and Norman’s three other children, Michael Shepard, Kris Fay, and
Terri Lupei, the objectors and appellees, each with a $10,836.86 share and
inheritance tax of $1083.69 due on each share.
Patricia’s share dropped to
$32,510.59. The total allowable deductions shown had increased to $125,112.29
leaving the net estate at the amended value of $101,813.36. There was also a
penalty of $162.56 and interest of $162.60 for the late filing. In July 2004, the
district court approved the application for executor’s fees to Patricia of $4658.21,
ordinary fees to attorney Webber of $4658.21, as well as extraordinary attorney
fees of $5569.67.
Although they received notice of the application for fees,
neither Michael, Kris, nor Terri raised any objections to the application.
The executors filed the final report for the estate on March 4, 2005, to
which Michael, Kris, and Terri filed an objection. The objections consisted of the
following five points:
1. That Kris Fay, Terri Lupei, and Michael Shepard are heirs at law,
based upon certain disclaimers filed in this matter.
2. That the attorney for the executor originally incorrectly filed an
estate tax return in which Kris Fay, Terri Lupei, and Michael
Shepard were all left off as receiving shares. That Mr. Webber
failed to even notify heirs prior to the required filing of the return.
3. That because of the errors of Mr. Webber in failing to include them,
certain penalties were required to be paid [to] the State of Iowa.
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4. Further, Mr. Webber did not include the deductions for his
extraordinary fees which [were] more than $5000 over $5500
additional to be claimed on the tax return. Failure to do so
artificially inflated the taxes on the return as well.
5. As such, the share of Kris Fay, Terri Lupei, and Michael Shepard
has been decreased due to Mr. Webber’s failing to take action to
notify them correctly as well as failing to properly prepare the estate
tax return.
WHEREFORE, the claimants request that the amounts to be
distributed to them be changed and increased to more properly
represent what they should have received but for the errors of Mr.
Webber.
Following a contested hearing, the district court issued its ruling on April
20, 2005, in favor of the objectors. The court found that Kris, Terri, and Michael
became “beneficiaries of the estate by reason of the disclaimers signed by [their
parents, Alice and Norman Shepard].” The court also found that as beneficiaries
of the estate, Kris, Terri, and Michael were not bound by the Family Settlement
Agreement, as they were not party to the agreement. The court sustained the
objections to the final report in their entirety, and ordered the “distributions to the
heirs of the estate should be adjusted accordingly.” The executors, Patricia and
John, appeal from this ruling.
II. Scope of Review.
The matters before us were resolved in probate proceedings for final
settlement of the estate, and our review is therefore de novo. Iowa Code §
633.33 (2001); In re Estate of Lamb, 584 N.W.2d 719, 722 (Iowa Ct. App. 1998).
III. The Settlement Agreement and Disclaimers.
The executors appeal the district court’s finding that the objectors are not
bound by the Family Settlement Agreement and therefore request this court to
enforce the agreement “as written,” which would give to Patricia, the “balance of
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the assets” or the residual estate of $77,733.12. Because the objectors took
their parents’ disclaimed shares of one-half of the residual estate, the amount
remaining for Patricia’s share dropped to $36,792.19. The objectors reply that
they should each receive the amount set forth in the amended inheritance tax
return, $10,836.86, minus the tax due on each share, $1083.69.
In Iowa the beneficiaries under a will may enter into an agreement, “to
disregard the instrument and have the estate distributed as intestate or in any
other manner they see proper.” In re Swanson’s Estate, 31 N.W.2d 385, 389
(Iowa 1948). Under the law in effect at the time Eric’s estate was admitted to
probate, Iowa Code section 633.704(3) 1 provided that property disclaimed
descends “as if the disclaimant has died prior to the date of the transfer,” making
any person claiming under the disclaimant an heir of the disclaimant. In this
case, the beneficiaries attempted to craft a settlement agreement using
disclaimers to accomplish their goals of an alternate distribution of the assets of
the estate.
Contrary to the district court ruling, the objectors, Kris, Terri, and Michael
were not “beneficiaries under a will” and, therefore they were not, nor should they
have been, party to the settlement agreement. Alice and Norman were proper
parties to the agreement, as they were beneficiaries under the will. Pursuant to
the agreement, Alice and Norman disclaimed their interest, which by statute
resulted in their heirs, that is their five children, receiving their disclaimed interest.
Iowa Code § 633.704(3). Joni and Vicki followed through by disclaiming the
1
This code chapter has since been replaced by the Uniform Disclaimer of Property
Interest Act found at Iowa Code chapter 633E.
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interest they received as heirs of their parents; Kris, Terri, and Michael did not.
Therefore, Kris, Terri, and Michael, as children of the disclaimants, Alice and
Norman, took not as heirs of Eric but as heirs of their parents, receiving their
disclaimed interest.
Alice and Norman’s disclaimed one-half interest in the
residuary of the estate passed in equal shares to Kris, Terri, and Michael. The
three children each received, therefore, one-third of one-half of the residuary of
the estate, and Patricia’s share is also one-half of the residual estate. Thus, the
amended inheritance tax return correctly reflected the proportionate shares.
The remaining findings by the district court that “the objections to the final
report should be sustained” are not on appeal, and we do not address them.
AFFIRMED.
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