Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable Joshua B. Rustad, Judge.
The opinion of the court was delivered by: Crothers, Justice.
N.D. Supreme CourtEstate of Harms, 2012 ND 62 This opinion is subject to petition for rehearing. [Go to Documents] [Download as WordPerfect]
Opinion of the Court by Crothers, Justice.
Estate of HarmsNo. 20110165
[¶1] William McNamara appeals a district court order distributing the undistributed assets of the estate of Edith Harms. The district court determined Edith Harms' will required the undistributed assets be distributed to the estate of Arne Harms. William McNamara argues the district court erred by considering the terms of the will because a prior agreement controlled. Alternatively, William McNamara argues the district court's interpretation of Edith Harms' will was erroneous. He argues the will directs the undistributed assets be distributed to the Edith Harms testamentary trust. We conclude the district court correctly determined the prior agreement did not control but erred in its interpretation of Edith Harms' will. We reverse and remand for further proceedings.
[¶2] Edith Harms was married to Arne Harms. They had a daughter, Cheryl Feist. Edith Harms also had two sons from a previous marriage, Thomas and William McNamara. In 1995, Edith Harms executed a will with the following provision:
"I give, devise and bequeath all the rest, residue and remainder of my property of every kind and description (including lapsed legacies and devises), wherever situate and whether acquired before or after the execution of this Will as follows:
"(1) Creation of Share A and Trust B. If my husband, Arne Harms, shall survive me, my personal representative shall divide my residuary estate into Two (2) separate shares, hereinafter designated as Share 'A' and Trust 'B'. Share A shall be composed of that fraction of my residuary estate (undiminished by any estate, inheritance, succession, death or similar taxes) determined as follows: the numerator of the fraction shall be the maximum marital deduction as finally determined in my federal estate tax proceedings, less the aggregate amount of marital deductions (if any) allowed for such tax purposes by reason of property or interests in property passing or which have passed to my husband otherwise than pursuant to the provisions of this Item; provided, however, the numerator for Share A shall be reduced by the amount, if any, needed to increase my taxable estate (for federal estate tax purposes) to the largest amount that, after allowing for the unified credit against the federal estate tax, and the state death tax credit against such tax (but only to the extent that the use of such state death tax credit does not increase the death tax payable to any state), will result in the smallest, if any, federal estate tax being imposed on my estate. The denominator of the fraction shall be the value of my residuary estate as finally determined in my estate tax proceedings. The term 'maximum marital deduction' shall not be construed as a direction by me to exercise any election respecting the deduction of estate administration expenses, the determination of the estate tax valuation date, or any other tax election which may be available under any tax laws, only in such manner as will result in a larger allowable estate tax marital deduction than if the contrary election had been made. In no event, however, shall there be included in the marital fraction any asset or the proceeds of any asset which will not qualify for the federal estate tax marital deduction and the marital fraction shall be reduced to the extent that it cannot be created with such qualifying assets. Such non-qualifying asset shall be allocated to Trust B and the marital fraction shall be created from my residuary estate less the non-qualifying asset. Share A shall be paid over and distributed to my husband and Trust B shall be the balance of my residuary estate.
"(2) If my husband shall not survive me, Trust B shall be my entire residuary estate." The will named Arne Harms the lifetime income beneficiary of "Trust B" and directed the trust be distributed to Cheryl Feist and Thomas and William McNamara after Arne Harms' death.
[¶3] Edith Harms died in 2001. Arne Harms was appointed personal representative of her estate, and her will was admitted to informal probate. On August 16, 2001, Arne Harms, as personal representative of the Edith Harms estate, conveyed a number of acres of real property from the Edith Harms estate to himself. On August 29, 2001, Arne Harms notified Cheryl Feist and Thomas and William McNamara of his intent to distribute to himself "all right, title and interest in and to all of the rest, residue and remainder" of the Edith Harms estate. Thomas McNamara objected to the proposed distribution, arguing that some of the real property Arne Harms conveyed to himself should be transferred to the Edith Harms testamentary trust, described as "Trust B" in Edith Harms' will.
[¶4] In August 2002, Arne Harms signed an amended notice of proposed distribution which provided:
"YOU ARE HEREBY NOTIFIED that the personal representative proposes to distribute the estate ...