Waldow v. Laporta

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 DIVISION ONE FILED: 08/02/2011 RUTH A. WILLINGHAM, CLERK BY: DLL IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE IN THE MATTER OF THE ESTATE OF: ) ) ROSANNE L. MCGATHY, ) ) Deceased. ) __________________________________) MARIANNE WALDOW, as personal ) representative of THE ESTATE OF ) ROSANNE L. MCGATHY, Deceased; MARY) McGATHY; DAVID RHODES; WILLIAM ) RHODES; MICHAEL McGATHY; ERIN ) McGATHY, ) Appellees, ) v. ) ) JAMES M. LAPORTA, ) Appellant. ) __________________________________) DIVISION ONE FILED: 08/02/2011 RUTH A. WILLINGHAM, CLERK BY: DLL No. 1 CA-CV 09-0022 DEPARTMENT C MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. PB 2007-090525 The Honorable Kirby D. Kongable, Commissioner VACATED AND REMANDED Law Offices of Bill King, P.C. By William L. King Attorney for Appellant Hahn Law Office P.C. By Bradley S. Hahn And Barron and Polk P.L.L.C. By Jay M. Polk Attorneys for Appellee Waldow Scottsdale Sun City Phoenix Becker & House, P.L.L.C. By Mark E. House Attorney for Appellees McGathy and Rhodes Phoenix B R O W N, Judge ¶1 order James M. LaPorta ( LaPorta ) appeals the trial court s directing that non-probate transfers relating to his daughter s estate must bear a pro rata share of estate taxes in accordance with a New York statute requiring apportionment. For the following reasons, we vacate the court s order and remand for further proceedings. BACKGROUND ¶2 Decedent Rosanne McGathy ( Decedent ) died on or about July 15, 2007, and resided in Maricopa County, Arizona, at the time of her death. In 1997, Decedent executed a Last Will and Testament (the Will ) in New York, where Decedent resided at the time of the Will execution. The Will left all tangible personal property and real property used as residences to her husband, William McGathy, whom she later divorced in 2001. The Will also provided that if her husband predeceased 1 her, the sum 1 Under both Arizona and New York probate statutes, a divorced spouse is treated as predeceased, revoking any revocable dispositions of property. Ariz. Rev. Stat. ( A.R.S. ) § 14-2802(A) (2005) ( A person who is divorced from the decedent . . . is not a surviving spouse[.] ); N.Y. Est. Powers & Trusts Law ( EPTL ) § 5-1.4(b)(1) (McKinney 2011) ( Provisions of a governing instrument are given effect as if the former spouse 2 of $150,000 was to be set aside in separate trusts for her father, LaPorta, and for her mother-in-law, Mary McGathy. Will divided the residual organizations and other estate amongst individuals, various including The charitable David Rhodes, William Rhodes, Michael McGathy, and Erin McGathy, relatives of the decedent s former spouse (these individuals are referred to hereinafter as Appellees ). ¶3 sold In 2005, Decedent relocated from New York to Arizona, her New Arizona. York property, and purchased real property in Decedent never revoked the Will or executed another will. ¶4 In intestate. Personal later, He 2007, filed a Representative after Marianne July the Waldow Will was LaPorta believed Petition for and Decedent appointed. was was located appointed Informal and Personal died Appointment Several admitted to of months probate, Representative of the estate. ¶5 In instructions February (the 2008, Petition ) Waldow seeking filed a petition clarification from for the trial court as to the administration and distribution of the estate. Specifically, Waldow requested guidance as to: (1) whether New York or Arizona law should be applied to determine had predeceased the divorced individual as of the time of the revocation. ). 3 the proper beneficiaries under the Will; and (2) whether, due to the silence of the Will on the issue, estate taxes relating to non-probate transfers should be apportioned or paid from the residuary estate without apportionment. ¶6 At a hearing on the Petition, Waldow informed the court that she took no position as to how the devisees should be identified or how estate taxes must be paid. the court concluded that devisees of determined pursuant to New York law. Without objection, the Will should be The court then granted additional time for filing of responses regarding the payment of estate taxes. ¶7 LaPorta, consisting of a as life the beneficiary insurance of policy, an non-probate Arizona assets residence passing by joint tenancy with right of survivorship, and a life insurance annuity contract, asserted that the court should apply Arizona law, which would direct the residuary estate to pay all estate tax obligations. Appellees countered that the court should apply New York law, which would apportion estate taxes between the probate and non-probate assets. ¶8 The trial court concluded that because Decedent executed the Will when she was domiciled in New York, and before she owned any property in Arizona, it would be the intention of the deceased that New York law would apply to issues affecting the administration and distribution of the [D]ecedent s estate. 4 The court then ordered that all non-probate transfers should bear a pro rata share of the estate taxes, pursuant to New York law. See N.Y. EPTL § 2-1.8(a) (McKinney 2011). appealed and we have jurisdiction pursuant to LaPorta timely A.R.S. § 12- 2101(J) (2003). 2 DISCUSSION ¶9 Determination of the source of payment of estate taxes requires reference to relevant provisions of the Internal Revenue Code (the Code ) as well as applicable state law. The Code imposes liability for the payment of federal estate taxes on the executor. I.R.C. § 2002 (West 2011). The liability applies to both probate and non-probate property as the gross estate. Treas. Reg. § 20.2002-1 (West 2011). In determining the apportionment of taxes, in the event of conflict with state law, federal law preempts. (1942). Riggs v. Del Drago, 317 U.S. 95, 102 Therefore, regardless of our decision concerning which state law should apply, federal law may provide tax recovery, or apportionment, against the beneficiary 2 who receives certain Originally we dismissed this appeal for lack of jurisdiction, concluding that a tax payment order was interlocutory and not appealable under A.R.S. § 12-2101(J). In re Estate of McGathy v. LaPorta, 1 CA-CV 09-0022, (decision order filed Feb. 22, 2010). The supreme court granted a joint petition for review and vacated the decision order, holding that § 12-2101(J) permits appeal of the final disposition of each formal proceeding instituted in an unsupervised administration. In re Estate of McGathy, 226 Ariz. 277, ___, ¶ 17, 246 P.3d 628, 631 (2010). Therefore, we now consider the merits of the appeal. 5 assets unless the decedent s will specifically provides otherwise. 3 ¶10 Whether the estate taxes for non-probate assets should be apportioned presents a question of law that we review de novo. In re Estate of Fogleman, 197 Ariz. 252, 256 n.4, ¶ 8, 3 P.3d 1172, 1176 n.4 (App. 2000); Bill Alexander Ford, Lincoln Mercury, Inc. v. Casa Ford, Inc., 187 Ariz. 616, 618, 931 P.2d 1126, 1128 (1996) (standard of review on choice of law issues is de novo). ¶11 LaPorta and Appellees agree that the Will is silent as to the apportionment of estate taxes among beneficiaries of nonprobate transfers, but they disagree regarding the trial court s application of New York law. 4 LaPorta does not challenge the court s determination that the Decedent intended that New York law would apply to issues affecting administration of her 3 See, e.g., I.R.C. § 2206 (West 2011) (life insurance); I.R.C. § 2207 (West 2011) (general power of appointment); I.R.C. § 2207A (West 2011) (qualified terminable interest property); I.R.C. § 2207B (West 2011) (retained life estate, requires specific reference to the section to waive); I.R.C. § 2603(b) (West 2011) (generation skipping transfers, requires specific reference to section to waive). Because this issue has not been raised by either party, we do not address whether LaPorta may be obligated, under federal law, to pay the requisite portion of estate taxes regardless of the state law applied. 4 Other non-probate transferees, Michael and Julie Farris, argued that a reasonable reading of Article Eight of the Will provides that the residuary is to pay estate taxes. However, they did not appeal the trial court s order directing apportionment of taxes. 6 estate. He argues, however, that the court erred in applying New York s statutory law because New York courts apply the rule that payment of taxes is determined by the law of the state where the decedent was domiciled at the time of his or her death. Appellees counter that the default rule in New York is that non-probate transfers must bear the proportionate share of the estate taxes. 5 the testator See N.Y. EPTL § 2-1.8(a) (stating that unless directs otherwise by will, taxes should be equitably apportioned among the persons interested in the gross tax estate ). the estate apportioned. Appellees concede that if Arizona law governs, taxes for non-probate transfers will not be See Sanders v. Boyer, 126 Ariz. 235, 240, 613 P.2d 1291, 1296 (App. 1980). ¶12 Here, we assume, as have the parties and the trial court, that New York law governs the general administration and 5 We note that both parties have failed to provide us with briefs that comply with the letter or the spirit of our appellate rules. LaPorta s brief does not include any citations to the record nor does it set forth his contentions as to why the trial court erred. See ARCAP 13(a). Instead, his brief makes only general assertions purportedly supported by a lengthy string citation of New York authorities, with no explanation or discussion of any of the cases. Notwithstanding these deficiencies, we are able to discern LaPorta s argument that New York law applies the law of the decedent s domicile. Appellees, on the other hand, utterly fail to acknowledge LaPorta s argument regarding the law of the decedent s domicile. Nor do Appellees address any of the authorities cited in LaPorta s brief. In any event, we address this appeal based on our independent review of the record and applicable New York law. 7 distribution of Decedent s estate. the specific question of However, under New York law, apportionment of estate controlled by the law of the decedent s domicile. taxes is See Will of Dow, 55 A.D.2d 323, 329, 390 N.Y.S.2d 721, 726 (N.Y. App. Div. 1977) (recognizing that absent testamentary expression to the contrary, construction and interpretation of the will, including apportionment of estate taxes, is to be governed by the domicile at death); In re Huntington s Trust, 14 A.D.2d 312, 316, 220 N.Y.S.2d 664, 667 (N.Y. App. Div. 1961) (noting the established doctrine that the New York courts must apply the law of Connecticut, the domicile of Mr. Huntington, in the construction of the Will and the determination of the matter of the apportionment of the estate taxes ); In re Gato's Estate, 276 A.D. 651, (stating 655, that 97 New N.Y.S.2d York 171, applies 175 the (N.Y. App. domiciliary Div. law 1950) of the decedent for apportionment of estate taxes), order aff'd, 93 N.E.2d 924 (N.Y. 1950). Because it is uncontroverted that the Decedent s domicile at death was Arizona, the trial court erred in determining apportionment. that New Instead, York law whether governs the estate the question taxes for of non- probate transfers are subject to apportionment is controlled by Arizona law. ¶13 for We also reject Appellees argument that estate taxes non-probate transfers must 8 be apportioned based on Decedent s intent that New York law govern the administration and distribution of her Will. Decedent chose to relocate to Arizona and lived here until she died. consistent with Decedent s intent. Thus, our conclusion is As we have explained, New York law follows the law of the decedent s domicile, which in this case, is Arizona. 6 Appellees have not directed us to any language in the Will or any other evidence supporting the notion that Decedent intended that the law of the decedent s domicile would not be applied to her estate. 6 Appellees argue further that the residual estate would likely be exhausted if it is used to pay the estate taxes, but a review of the documents submitted by Waldow shows otherwise. Additionally, it is not clear that these calculations account for the possibility that some of the non-probate assets would be apportioned regardless of the state law applied because of the application of federal law, as discussed supra, n.3. 9 CONCLUSION ¶14 order For the foregoing reasons, we vacate the trial court s finding that the non-probate transfers are to bear a proportional share of the estate taxes and we remand for further proceedings consistent with this decision. /s/ _________________________________ MICHAEL J. BROWN, Judge CONCURRING: /s/ ______________________________ PATRICK IRVINE, Presiding Judge /s/ ______________________________ DONN KESSLER, Judge 10

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