
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN





NO. 03-01-00634-CV


Ricki Diann Rosen, as Independent Executrix of the Estate of
Daniel H. Rosen, Deceased, Appellant

v.

Wells Fargo Bank Texas, N.A., as Trustee of the Rachael Leigh Rosen Trust and the
Dorian Rosen Trust, and as Guardian of the Estates of Rachael Leigh Rosen and
Dorian Rosen; and Eileen Rosen as Custodian of Rachael Leigh Rosen, Appellees





FROM THE PROBATE COURT NO. 1 OF TRAVIS COUNTY
NO. 73,960, HONORABLE GUY S. HERMAN, JUDGE PRESIDING


O P I N I O N



	The central issue in this will construction case is whether, when a testator directs that
all transfer taxes be paid out of the residuary estate but the residue contains no assets, the default
statutory apportionment provisions of section 322A of the probate code apply.  Appellant Ricki
Rosen is the widow of Daniel Rosen, independent executrix of his estate, and primary beneficiary
of his will; she appeals by two issues.  In her first issue, she contends that the probate court erred in
allocating the tax burden to the probate assets.  Under the apportionment statute, appellant argues,
only the taxable assets, here specifically the non-probate life insurance proceeds passing to the
children of Daniel Rosen's first marriage, incur the transfer taxes.  In her second issue, she contends
that the probate court erred in failing to apportion any interest and penalties on transfer taxes and
failing to award the estate its costs and legal fees in pursuing this matter.  For the reasons stated
below, we affirm the probate court's order in part, reverse in part, render judgment that only the
taxable assets of Rosen's estate bear the transfer tax burden, and remand this cause in part for further
proceedings in accordance with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

	Although the parties disagree about the application of the law, the facts in this case
are undisputed.  Daniel Rosen died unexpectedly on June 14, 2000.  At the time of his death, he was
married to appellant, his second wife.  He also had two children, Rachael and Dorian, from his first
marriage to appellee Eileen Rosen that ended in 1996.  Rosen died testate, and his will executed on
May 28, 1997, was admitted to probate in the Travis County Probate Court.  The total value of his
gross estate was approximately $2.632 million.
	Article III of the will left all of Rosen's personal property, as well as his interests in
all employee benefit plans and retirement accounts, to appellant.  Articles IV and V placed the
remainder of the estate in two trusts:  the marital trust and the family trust.  Rosen provided that the
income of the marital trust was to be used for the benefit of appellant during her lifetime.  The
income of the family trust was to be used for the benefit of both appellant and Rosen's descendants.
The remainder of both trusts was to be distributed to his descendants, per stirpes.  Article VIII
contained administrative provisions, including a directive that all transfer taxes "shall be paid out
of the residue of my estate without apportionment."  However, no residue existed because all of the
probate assets were disposed of through other provisions in the will.
	Rosen also had substantial non-probate assets, the bulk of which were designated for
the benefit of his children.  These included a $963,000 life insurance policy, payable to appellee
Wells Fargo Bank, as trustee for Rosen's children, and a $216,000 life insurance policy, payable to
Wells Fargo as guardian of the children. (1)  The non-probate assets also included $54,542 held in a
Uniform Gift to Minors Act (UGMA) account for the benefit of Rachael Rosen.  Because Rosen was
custodian of the UGMA account, it was included in his estate for tax purposes.  See 26 U.S.C.A.
§ 2036 (West 2002).
	In June 2001, appellant filed an application for declaratory judgment, seeking a
declaration that, because there was no residuary estate from which to pay the taxes, the taxes should
be apportioned under section 322A of the probate code.  Tex. Prob. Code Ann. § 322A (West 2003). 
Wells Fargo and Eileen Rosen opposed the declaratory judgment, asserting that the will specifically
directed that the probate assets would bear the tax burden.  It is undisputed that if the probate assets
bear the transfer tax burden, the total taxes will be $224,447.  If the non-probate assets bear the
burden, the total taxes will be $132,442.
	After an evidentiary hearing in July 2001, the probate court signed an order in
October 2001, directing that all transfer taxes, expenses attributable to the determination of the taxes,
plus any interest and penalties on the taxes, be paid solely from the probate assets.  The court further
ordered that each party pay its own attorney's fees and costs for pursuing the declaratory judgment
action.  It is from this order that appellant appeals.

DISCUSSION

Standard of Review
	We review a declaratory judgment action under the same standards as other orders,
judgments, and decrees.  Tex. Civ. Prac. & Rem. Code Ann. § 37.010 (West 1997); Black v. City of
Killeen, 78 S.W.3d 686, 691 (Tex. App.--Austin 2002, pet. denied).  We must uphold the judgment
of the trial court if it can be sustained on any legal theory supported by the evidence.  See Bell v. Katy
Indep. Sch. Dist., 994 S.W.2d 862, 864 (Tex. App.--Houston [1st Dist.] 1999, no pet.); Oak Hills
Props. v. Saga Rests., Inc., 940 S.W.2d 243, 245 (Tex. App.--San Antonio 1997, no writ).  We have
a duty to render the judgment the trial court should have rendered.  See City of Galveston v. Giles,
902 S.W.2d 167, 172 (Tex. App.--Houston [1st Dist.] 1995, no writ); Scurlock Permian Corp. v.
Brazos County, 869 S.W.2d 478, 488-89 (Tex. App.--Houston [1st Dist.] 1993, writ denied).  We
may only render judgment when, as here, the material facts are undisputed.  See Mitchell v. Rancho
Viejo, Inc., 736 S.W.2d 757, 762 (Tex. App.--Corpus Christi 1987, writ ref'd n.r.e.) (citing Donald
v. Carr, 407 S.W.2d 288, 291 (Tex. Civ. App.--Dallas 1966, no writ)).

Will Construction
	In addressing appellant's first issue, whether the default statutory apportionment
provisions apply, we must first examine what Rosen intended in his will.  Testamentary intent is the
critical inquiry when construing a will.  San Antonio Area Found. v. Lang, 35 S.W.3d 636, 639 (Tex.
2000); Huffman v. Huffman, 339 S.W.2d 885, 888 (Tex. 1960).  In determining the testator's intent,
we are limited to the language within the four corners of the will.  Lang, 35 S.W.3d at 639; Shriner's
Hosp. for Crippled Children of Tex. v. Stahl, 610 S.W.2d 147, 151 (Tex. 1980).  We focus not on
what the testator intended to write, but the meaning of the words actually used.  Stahl, 610 S.W.2d
at 151; Rekdahl v. Long, 417 S.W.2d 387, 389 (Tex. 1967).  "An appellate court must give the words
in a will their normal meaning, in light of the testator's intent."  Barker v. Rosenthal, 875 S.W.2d
779, 781 (Tex. App.--Houston [1st Dist.] 1994, no writ).  We should construe the will to give effect
to every part of it, as long as the language is reasonably susceptible of that construction.  See Perfect
Union Lodge No. 10, A.F. & A.M. v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex.
1988); Republic Nat'l Bank of Dallas v. Fredericks, 283 S.W.2d 39, 43 (Tex. 1955).  All rules of
construction must yield to the testator's basic intent and purposes as reflected by the entire
instrument.  Welch v. Straach, 531 S.W.2d 319, 322 (Tex. 1975).  However, we will not redraft the
will or add provisions under the guise of construction to effectuate some presumed intent of the
testator.  See Perfect Union Lodge No. 10, 748 S.W.2d at 220; Stahl, 610 S.W.2d at 151; Huffman,
339 S.W.2d at 888.
	The overarching intent of Rosen's will was to pay as little in transfer taxes as
possible.  To fulfill this intent, his will employed two common methods to avoid taxation of his
estate--the unified credit and the unlimited marital deduction.  Article III of the will made specific
gifts of probate assets to appellant.  Article IV established a marital trust for the benefit of appellant,
funded by assets entitled to the marital deduction.  Under the Internal Revenue Code, property
passing to a surviving spouse is entitled to an unlimited marital deduction, which is deducted from
the value of the decedent's taxable estate.  See 26 U.S.C.A. § 2056(a) (West 2002).  The gift was
"intended to entitle [the] estate to the maximum marital deduction . . . and any provision in this Will
which may conflict with or fail of this intention shall be disregarded, reconciled or amplified to
accomplish this objective."
	The amount of the marital trust was to be "reduced by an amount, if any, needed to
increase my taxable estate as determined for Federal estate tax purposes to be the largest amount
which . . . will result in the least amount of Federal estate tax imposed on my estate."  This clause
ensured that assets would fund the unified credit, also deducted from the value of the taxable estate,
before funding the marital trust.  At the time of Rosen's death, the unified credit was $675,000.  See 
26 U.S.C.A. § 2010 (West 2000), superseded by 26 U.S.C.A. § 2010 (West 2001).  The effect of
Article IV was that all probate assets not otherwise devised in Article III would fund the marital trust,
less the amount necessary to fund any unused portion of the unified credit.  The amount of unused
unified credit thus would become the residue of the estate.
	Article V placed all of the residue of the estate in the Daniel Hunt Rosen Family
Trust, with appellant as primary beneficiary if she survived Rosen.  Article VIII directed that transfer
taxes be paid out of the residue, as follows:

All estate, inheritance or similar taxes . . ., all funeral expenses and all expenses
incurred with the administration of my estate shall be paid out of the residue of my
estate without apportionment; provided, however, if my wife fails to survive me, to
the extent the residue of my estate is insufficient for the payment of such taxes and
expenses, then any excess, except as otherwise specifically provided in this Section,
shall be paid on a pro rata basis from all of the assets included in my gross estate.


(Emphasis added.)  Because the combined taxable value of the non-probate assets exceeded the
unified credit, there was no residue of the estate to fund the family trust or pay the transfer taxes. 
The dissent's reasoning rests on its finding that the marital trust contains the residue of the estate. 
"The residuary is what is left after all debts and legal charges have been paid and other testamentary
gifts have been satisfied."  Stahl, 610 S.W.2d at 152 (emphasis added).  The dissent disregards
Rosen's intent to create a marital trust by testamentary gift separate from the creation of the residue. 
The marital trust clause specifically designated that portion which, when read in conjunction with
the family trust clause, would be the residue:  the amount, "if any," needed to fulfill the unified
credit.  Because the non-probate assets satisfied the unified credit, there was no residue.  The will
contained no alternative provision for the payment of taxes if the residue were unfunded or
insufficient to pay the taxes.  Thus arose the parties' dispute about which assets would bear the
burden of the taxes.
	The dispute centers on whether section 322A of the probate code, the default
apportionment statute, should apply when the will contains an ineffective directive for payment of
taxes out of the residue of the estate.  This is an issue of first impression in Texas. (2)  The default
apportionment provisions apply unless the will "specifically directs the manner of apportionment
of estate tax or grants a discretionary power of apportionment to another person."  Tex. Prob. Code
Ann. § 322A(b)(2). (3)  Appellant argues that the lack of a residuary estate negates any specific
direction for apportionment and therefore the default apportionment provisions of section 322A
should apply.  We agree.  Because Rosen's only specific directive--payment of taxes out of the
residuary estate--was ineffective, and because his will did not anticipate an alternative for payment
of taxes if the residue were insufficient, we hold that the default apportionment provisions of section
322A apply.  To hold otherwise would give effect to a provision in the will that failed of its purpose. 
See Perfect Union Lodge No. 10, 748 S.W.2d at 220; Stahl, 610 S.W.2d at 151; Huffman, 339
S.W.2d at 888. (4)

Assets Subject to Payment of Transfer Taxes
	Now we must decide which estate assets bear the tax burden.  Appellees argue that
Rosen's "clear and unequivocal intent" was for taxes to be paid without apportionment out of the
probate estate if no residuary estate existed.  Appellees support their argument with the following
clause from the will:

Non-probate assets payable to my testamentary Trustee shall not be liable for or used
to pay (but may be loaned for such purpose) any taxes, liabilities, debts or any other
claims against my estate: provided, however, such assets may be used to pay estate,
inheritance or similar taxes assessed with respect to such assets.


We disagree with appellees.  This clause, when read in conjunction with the rest of Rosen's will,
supports appellant's position because it directs that non-probate assets may be used to pay taxes that
those assets incur.  The will contains no provision, however, for payment of taxes out of the marital
trust.
	Section 322A provides that "the portion of each estate tax that is charged to each
person interested in the estate must represent the same ratio as the taxable value of that person's
interest."  Tex. Prob. Code Ann. § 322A(b)(1).  Here, under the directives of the will, the probate
assets qualify for the unlimited marital deduction and therefore are not taxable.  The non-probate
assets that did not qualify for the unified credit are the only taxable assets and must therefore bear
the burden of paying the taxes under section 322A(b)(1).  Having the non-probate assets bear the tax
burden results in less estate taxes, as the parties agree, in turn leaving more assets overall to pass to
the beneficiaries.  This comports with Rosen's overarching intent to have his estate pay as little
transfer taxes as possible.
	Having sustained appellant's first issue, we reverse the probate court's order that the
probate estate bear the tax burden and render that portion of the declaratory judgment in favor of
appellant, holding that only the non-probate assets of Rosen's estate bear the tax burden.

Interest, Penalties, Attorney's Fees, and Other Expenses
	In her second issue, appellant contends that the probate court erred in charging any
interest and penalties on transfer taxes against the probate estate.  She argues that the probate court
further erred in failing to award the estate its costs and legal fees in pursuing this matter.  Concerning
interest on transfer taxes, section 322A(m) of the probate code provides:

Interest on an extension of estate tax and interest and penalties on a deficiency shall
be apportioned equitably to reflect the benefits and burdens of the extension or
deficiency and of any tax deduction associated with the interest and penalties, but if
the assessment or penalty is due to delay caused by the negligence of the
representative, the representative shall be charged with the amount of assessed
penalty and interest.


Id. § 322A(m).  Section 322A(q) further provides for apportionment of the interest and penalties
"unless, on application by any person interested in the estate, the court determines that the proposed
apportionment is not equitable."  Id. § 322A(q).  Appellees made an application below that appellant
bear the costs of interest and penalties because the transfer taxes were not timely paid, but it is
unclear from the record whether the taxes have been paid.  In light of our decision to apportion the
taxes under section 322A, we reverse the probate court's order that the probate estate pay interest
and penalties and remand this issue to the probate court for further determination in accordance with
this opinion.
	Concerning the payment of appellant's costs, the probate court ordered that each party
bear its own attorney's fees, costs, and other expenses.  Section 322A(r) of the probate code states:

Expenses reasonably incurred by a representative in determination of the amount,
apportionment, or collection of the estate shall be apportioned among and charged
to persons interested in the estate in the manner provided by Subsection (b) of this
section unless, on application by any person interested in the estate, the court
determines that the proposed apportionment is not equitable.


Id. § 322A(r).  Section 322A(y) provides that prevailing party in an action to collect estate taxes from
a person "to whom estate taxes were apportioned and charged under Subsection (b) of this section
shall be awarded necessary expenses, including reasonable attorney's fees."  Id. § 322A(y). 
Appellees argued below that each party be responsible for its own costs and expenses, which the
probate court ordered.
	Normally, we review a court's decision of whether to award attorney's fees under an
abuse of discretion standard.  See Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998).  Despite the
mandatory nature of the word "shall" in the probate code provisions, section 322A(r) allows a court
to take equitable considerations into account in apportioning fees and costs.  Appellant also sought
costs under section 37.009 of the civil practice and remedies code, under which a court has discretion
to award attorney's fees in a declaratory judgment action.  Tex. Civ. Prac. & Rem. Code Ann.
§ 37.009 (West 1997).  Construing these provisions together, we hold that it was within the probate
court's discretion to award fees and costs.  Because appellant presents no evidence on appeal that
the probate court abused its discretion, we affirm the probate court's order that each party bear its
own costs and expenses.

CONCLUSION

	We hold that Rosen's directive that all transfer taxes be paid out of the residuary
estate failed because the residue contained no assets, and therefore the default statutory
apportionment provisions of section 322A of the probate code must apply.  Tex. Prob. Code Ann.
§ 322A.  We further hold that under section 322A(b)(1), only the taxable assets of the estate bear the
burden of the transfer taxes.  Id. § 322A(b)(1).  Here, under the directives of the will, the probate
assets qualify for the unlimited marital deduction and therefore are not taxable.  The non-probate
assets that did not qualify for the unified credit are the only taxable assets and must therefore bear
the burden of paying the taxes under section 322A(b)(1).  Accordingly, we reverse the probate
court's order to the extent that it ordered the probate estate to bear the tax burden and render
judgment that only the taxable assets of the non-probate estate bear the tax burden.
	We affirm that part of the probate court's order directing each party to bear its own
costs and expenses.  Finally, we remand the issue of who bears the burden of paying any interest and
penalties on the transfer taxes to the probate court for further determination in accordance with this
opinion.


					__________________________________________
					Jan P. Patterson, Justice
Before Justices Kidd, Yeakel and Patterson:  Opinion by Justice Patterson;
     Dissenting Opinion by Justice Kidd

Affirmed in Part; Reversed and Rendered in Part; Reversed and Remanded in Part
Filed:   July 30, 2003
1.   After his divorce, Rosen was initially required to maintain the larger policy.  Pursuant to
a subsequent agreement, he was only required to maintain the smaller policy, which was to cover
child support obligations in the event of his death.  However, Rosen voluntarily continued to
maintain the larger policy.
2. 	The only Texas case holding that probate code section 322A did not apply when a will
contained a directive to pay all taxes from the residuary estate declined to decide whether the section
would apply if the residuary estate were insufficient to pay the transfer taxes.  See Peterson v. Mayse,
993 S.W.2d 217, 222 (Tex. App.--Tyler 1999, pet. denied).  See also Estate of Miller v.
Commissioner, 76 T.C.M. (CCH) 892 (1998) (holding that, when residuary estate funded, clause
similar to that in instant case sufficient to override section 322A default apportionment provisions).
3. 	One commentator suggests a directive to pay all taxes from the residuary estate is too
general to be a specific directive that circumvents section 322A and that the Peterson and Miller
holdings make it "clear that [section 322A] isn't working as intended."  Johanson's Texas Probate
Code Annotated 334 (West 2002).
4.   In arriving at this holding, we note that the majority of states deciding this issue have held
that the default apportionment statute applies if the residuary estate is insufficient to pay the taxes. 
See In re Estate of Fogelman, 3 P.3d 1172, 1182 (Ariz. Ct. App. 2000, rev. denied); Estate of
Cochran, 30 Cal. App. 3d 892, 897 (Cal. Ct. App. 1973); Naffziger v. Cook, 137 N.W.2d 804, 806-07 (Neb. 1965); In re Estate of Thompson, 386 A.2d 1280, 1282 (N.H. 1978); In re Estate of
Kramer, 356 N.Y.S.2d 984, 988 (N.Y. Sur. Ct. 1974); Barker v. Barker, 672 P.2d 370, 372-73 (Or.
Ct. App. 1984, rev. denied); but see Stickley v. Stickley, 497 S.E.2d 862, 864 (Va. 1998)
(apportionment statute did not apply when will directed all debts and taxes to be treated same).

