Union Planters vs. Bettye Dedman

This case is a dispute over the correct valuation of the residuary portion of Testator's estate for purposes of determining whether it was sufficient to pay estate taxes where Testator had directed by Will that such taxes be paid from the residuary. Testator's executor submits that the correct valuation date is the date of death; that neither post-death income nor appreciation of assets in the residuary should be included in the valuation; that income tax paid by the estate on income with respect to a decedent (IRD) should be included in a calculation of the death tax fund deficiency; that attorney's fees incurred as a result of protracted litigation should be included in the death tax fund deficiency calculation. Executor asks us to determine whether such deficiencies are apportionable among those receiving gifts passing outside of probate. We hold that the correct valuation date of the residuary for the purpose of determining its sufficiency to pay the death taxes is the date of Testator's death. Post-death increases should not be utilized. If the residuary on the date of death was insufficient to pay the estate taxes, these taxes are apportionable among all those interested in the estate. We further hold that although the IRD income tax and attorney's fees reduce the estate, they are not includible in the death tax fund deficiency so as to be apportionable to recipients of out of probate transfers.