Estate of Robert A. Petteys, by and through the Personal Representative, Beverly Beattie, Plaintiff-Appellant and Cross-Appellee,
Farmers State Bank of Brush, Trustee of the Alonzo & Anna Petteys Children's Trust, Share for Robert A. Petteys' Issue, Defendant-Appellee and Cross-Appellant.
Morgan County District Court No. 11CV51 Honorable Michael K. Singer, Judge
Winters, Hellerich & Hughes, LLC, Thomas E. Hellerich, Greeley, Colorado, for Plaintiff-Appellant and Cross-Appellee
Fairfield & Woods, PC, Craig D. Joyce, Lee Katherine Goldstein, Denver, Colorado, for Defendant-Appellee and Cross-Appellant
¶ 1 In this action seeking reimbursement for payment of federal estate taxes, plaintiff, the Estate of Robert A. Petteys, by and through the Personal Representative, Beverly Beattie (the Estate), appeals the district court's entry of judgment after a bench trial in favor of defendant, Farmers State Bank of Brush, Trustee of the Alonzo and Anna Petteys Children's Trust, Share for Robert A. Petteys' Issue (the Trust).
¶ 2 The Trustee cross-appeals the district court's order granting partial summary judgment in favor of the Estate, in which the court ruled that Colorado law rather than federal law governs apportionment of estate taxes in this case.
¶ 3 We conclude that the district court properly ruled that Colorado law governs this issue but erred in declining to order apportionment as required by the applicable statute. Therefore, we reverse the judgment and remand with directions to enter judgment in favor of the Estate.
¶ 4 Robert Petteys and his two siblings created the Trust and transferred property into it in 1957. The Trust consists primarily of shares of closely held corporations that pay dividends generating income for the beneficiaries of the trust. Petteys retained an interest in the Trust during his lifetime and received income distributions until he died in 2009. He also named his four children beneficiaries of the Trust, and they, or their surviving descendants, were entitled to receive income distributions from the Trust after his death. At present, there are seven beneficiaries of the Trust: two children from Petteys' second marriage and five grandchildren who are descendants of two children from Petteys' first marriage.
¶ 5 In 2007, Petteys executed a will that provided:
All death taxes, except my generation-skipping tax, paid to any jurisdiction by reason of my death with respect to property passing by reason of my death shall be apportioned among the recipients as provided by Colorado law in effect at my death. Specifically, all death taxes paid to any jurisdiction by reason of my death with respect to (a) trusts created by me during my lifetime, (b) trusts created by my father, or (c) trusts created by any of my siblings, shall be apportioned to those trusts.
¶ 6 Robert Petteys died in 2009, leaving a substantial estate. Because Petteys retained an interest in the Trust during his lifetime, the value of the property he contributed to the Trust in 1957 was included in the value of the gross estate for purposes of calculating the federal estate tax. The beneficiaries of his will were the two living children from the second marriage. The Estate, through the personal representative, paid the full amount of the federal estate tax assessed from the liquid assets of the Estate. The Estate then filed this action against the Trustee in district court seeking reimbursement from the Trust for that portion of the estate tax attributable to the value of the Trust included in the Estate.
¶ 7 The parties filed cross-motions for summary judgment. The Estate argued that it was entitled to reimbursement under Colorado's apportionment statute and the terms of Petteys' will. The Trustee argued that federal estate tax law controls and does not allow reimbursement in this case. Alternatively, the Trustee maintained that the Colorado apportionment statute permits the court to consider equity, and the Trustee urged the court to deny reimbursement on equitable grounds. Finally, the Trustee argued that the apportionment provision in Petteys' will is unenforceable as an invalid revocation of the Trust.
¶ 8 The district court first granted partial summary judgment in favor of the Estate on the issue of whether federal law or state law applied. The court ruled that the federal statute relied on by the Trustee is not applicable to this case and therefore Colorado law governs apportionment. The court further ruled that the Estate is presumptively entitled to reimbursement under Colorado's apportionment statute, section 15-12-916, C.R.S. 2015, but it concluded that the Trustee's equitable arguments raised factual issues to be resolved at a bench trial.
¶ 9 At trial, in an effort to show that apportionment would be inequitable to the Trust, the Trustee presented evidence that the Trust's assets are illiquid and consist primarily of shares of stock in closely held corporations. The Trustee presented evidence that if the court ordered apportionment, the Trust would be forced to sell the stock at a considerable discount to pay the estate tax, resulting in a substantial and disproportionate reduction in the Trust assets and future income distributions.
¶ 10 After the trial, the court issued a written order denying apportionment on equitable grounds and entering judgment in favor of the Trustee. In its order, the court also ruled sua sponte that Colorado's apportionment statute is unconstitutionally retrospective as applied to the Trust, and therefore refused to enforce it.
II. Apportionment Under Colorado Law
¶ 11 The Estate contends that Colorado's apportionment statute requires apportionment of estate taxes to the Trust and that the district court erred in (1) relying on equitable considerations to reach a contrary result and (2) ruling that applying Colorado's apportionment statute to the Trust would be unconstitutionally retrospective. We agree with the Estate.
¶ 12 Although the Trustee argues that we may affirm the court's judgment under Colorado law, the Trustee alternatively contends that application of federal law also precludes apportionment of the estate taxes to the Trust. As explained below, determining whether federal law applies requires comparing the Trustee's tax liability under Colorado's apportionment statute to its liability under federal law. Thus, we first address apportionment under Colorado law.
A. Standard of Review
¶ 13 Statutory interpretation is a question of law that we review de novo. Klinger v. Adams Cty. Sch. Dist. No. 50, 130 P.3d 1027, 1031 (Colo. 2006). Our task is to give effect to the intent of the General Assembly. Id. To do so, we begin by examining the statute's plain language within the context of the statute as a whole. Triple Crown at Observatory Vill. Ass'n v. Vill. Homes of Colo., Inc., 2013 COA 150M, ¶10. We construe words and phrases according to their plain and ordinary meanings. Id. If the plain meanings are clear, we do not resort to other rules of statutory construction. Klinger, 130 P.3d at 1031.
¶ 14 Likewise, whether a statute's application is unconstitutionally retrospective also raises a question of law that we review de novo. See Vaccaro v. Am. Family Ins. Grp., 2012 COA 9, ¶ 16.
B. Colorado's Apportionment Statute
¶ 15 Section 15-12-916 of the Colorado Probate Code governs apportionment of estate taxes, including the federal estate tax. The Colorado Probate Code applies to court proceedings commenced after its effective date, July 1, 1974. § 15-17-101(2)(b), C.R.S. 2015.
1. Section 15-12-916(2)
¶ 16 Section 15-12-916(2) provides:
Unless otherwise provided in the will or other dispositive instrument, the tax shall be apportioned among all persons interested in the estate, subject to the exceptions specified in this section. The apportionment is to be made in the proportion that the value of the interest of each person interested in the estate bears to the total value of the interests of all persons interested in the estate. . . . [I]f the decedent's will or other dispositive instrument directs a method of apportionment of ...