                      IN THE SUPREME COURT OF MISSISSIPPI

                                 NO. 2003-CA-02811-SCT


IN THE MATTER OF THE ESTATE OF ANTHONY
WALKER SMITH, DECEASED:
W. E. DAVIS, ADMINISTRATOR,
FIRST SECURITY BANK AND
BANK OF HOLLY SPRINGS

v.

RAYMOND SMITH AND RUTH SMITH


DATE OF JUDGMENT:                          04/24/2003
TRIAL JUDGE:                               HON. PERCY L. LYNCHARD, JR.
COURT FROM WHICH APPEALED:                 DESOTO COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS:                  JOHN T. LAMAR, JR.
                                           BRYAN E. DYE
                                           WILLIAM F. SCHNELLER
ATTORNEYS FOR APPELLEES:                   JOHN B. TURNER
                                           M. DARIN VANCE
                                           WILLIAM A. BASKIN
NATURE OF THE CASE:                        CIVIL - WILLS, TRUSTS, AND ESTATES
DISPOSITION:                               REVERSED AND REMANDED - 01/20/2005
MOTION FOR REHEARING FILED:
MANDATE ISSUED:


       BEFORE WALLER, P.J., GRAVES AND DICKINSON, JJ.

       WALLER, PRESIDING JUSTICE, FOR THE COURT:

¶1.    When Anthony W. Smith died without a will, he had three life insurance policies in full

force and effect. The aggregate value of the proceeds of these policies was $2,155,000. The

beneficiaries were Raymond Smith, Anthony’s father, who received $2,000,000; Ruth Smith,

Anthony’s ex-wife, who received $125,000; and Vickie Smith, Anthony’s wife at the time of
his death, who received $30,000. Raymond filed a petition in the Chancery Court of DeSoto

County seeking a declaratory judgment from the chancery court that: (a) the administrator of

Anthony’s estate must first pay any estate taxes out of the estate; and (b) if the estate did not

have enough funds to pay the taxes in full, only then could the administrator seek contributions

from the three life insurance proceeds beneficiaries.          W. E. Davis, as administrator of

Anthony’s estate, responded that the tax liability of the estate increased substantially because

of the pay-out of $2,000,000 of the life insurance proceeds. He averred that the beneficiaries’

proportionate tax liability amounted to $561,354 for Raymond; and $35,085 for Ruth, 1 and that

Raymond and Ruth should be ordered to interplead these amounts into the registry of the court.

Davis also argued that, without the amount of the insurance proceeds added in, the estate would

not have had any estate tax liability, so the entire tax liability should be paid by the insurance

beneficiaries.

¶2.       After a hearing, the chancellor found that (1) the gross value of the estate was

$9,395,811, including the insurance proceeds; (2) at that time the estate had a tax liability of

$596,439, but all of the estate’s assets had not been secured and valued; (3) the estate could

recover from the insurance beneficiaries a portion of the tax liability, but it could not recover

the full tax liability; (4) to impose all of the tax liability on the insurance beneficiaries would

be inequitable inasmuch as other valuable, unencumbered assets of the estate would not be

taken into consideration; (5) each insurance beneficiary should contribute toward the estate

tax liability a percentage of the insurance proceeds equal to the proportion of the insurance



          1
           The $30,000 received by Vickie was not taxable because she was the surviving
spouse.

                                                   2
proceeds to the value of the gross estate, meaning Raymond must pay 21.8% of the tax liability

because the insurance proceeds paid to him constituted 21.8% of the gross estate, and that

Ruth must pay 1.3% of the tax liability because the insurance proceeds paid to her constituted

1.3% of the gross estate; and (6) Raymond owed $130,023 (21.8% of the tax liability) and

Ruth owed $7,753 (1.3% of the tax liability) to the estate.

                                            DISCUSSION

¶3.     Miss. Code Ann. § 27-10-7 (Rev. 2003) provides that estate tax liability shall be

apportioned “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,” meaning

that apportionment would be based on the gross estate. However, Miss. Code Ann. § 27-10-21

(Rev. 2003) provides as follows:

                         If the liabilities of persons interested in the estate as
                prescribed by this chapter differ from those which result under
                the Federal Estate Tax Law, the liabilities imposed by the federal
                law will control and the balance of this chapter shall apply as if
                the resulting liabilities had been prescribed herein.




                                                    3
26 U.S.C. § 22062 provides that if an estate consists of assets which include, inter alia, the

proceeds of life insurance policies, the beneficiaries of the proceeds are liable for “such

portion of the total tax paid as the proceeds of such policies bear to the taxable estate,”

meaning that apportionment would be based on the taxable estate.

¶4.     Therefore, because federal law controls, the apportionment of the estate’s tax liability

should be based on the amount of the taxable estate, not the gross estate as the chancellor held.

See, e.g., Estate of Cohen v. Crown, 954 S.W.2d 409, 411-12 (Mo. Ct. App. 1997) (federal

tax law controls on issue of apportionment of tax liability when life insurance proceeds are

part of an estate’s assets).

¶5.     Smith argues that equity demands that the apportionment be based on the gross estate,

not the taxable state. However, courts have consistently held that under the equitable doctrine

that "equity follows the law," courts of equity cannot modify or ignore an unambiguous




        2
         26 U.S.C. § 2206 provides as follows:

                 Liability of life insurance beneficiaries. Unless the decedent
                 directs otherwise in his will, if any part of the gross estate on
                 which tax has been paid consists of proceeds of policies of
                 insurance on the life of the decedent receivable by a beneficiary
                 other than the executor, the executor shall be entitled to recover
                 from such beneficiary such portion of the total tax paid as the
                 proceeds of such policies bear to the taxable estate. If there is
                 more than one such beneficiary, the executor shall be entitled to
                 recover from such beneficiaries in the same ratio. In the case of
                 such proceeds receivable by the surviving spouse of the decedent
                 for which a deduction is allowed under section 2056 (relating to
                 marital deduction), this section shall not apply to such proceeds
                 except as to the amount thereof in excess of the aggregate
                 amount of the marital deductions allowed under such section.

                                                 4
statutory principle in an effort to shape relief.   In re Estate of Miller, 840 So. 2d 703, 708

(Miss. 2003).

                                           CONCLUSION

¶6.     We reverse the chancellor’s decision to apportion tax liability to the life insurance

beneficiaries based on the gross estate, rather than the taxable estate.   We remand this matter

to the chancellor to determine the amount of the taxable estate and then to apportion the tax

liability according to this opinion.

¶7.     REVERSED AND REMANDED.

      SMITH, C.J., COBB, P.J., CARLSON, GRAVES, DICKINSON AND RANDOLPH,
JJ., CONCUR. EASLEY, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION.
DIAZ, J., NOT PARTICIPATING.




                                                    5
