Estate of Brooks v. Comm'r of Revenue Servs., SC 19577

325 Conn. 705

159 A.3d 1149

ESTATE OF Helen B. BROOKS, et al.

v.COMMISSIONER OF REVENUE SERVICES

SC 19577

Supreme Court of Connecticut.

Argued December 5, 2016

Officially released May 23, 2017

Dennis A. Zagroba, with whom were Heather Spaide and Patricio Suarez, for the appellants (plaintiffs).

Dinah J. Bee, assistant attorney general, with whom were Matthew Budzik, assistant attorney general, and, on the brief, George Jepsen, attorney general, Hartford, for the appellee (defendant).

Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js.

EVELEIGH, J.

The plaintiffs, the coexecutors of the estate of Helen B. Brooks,¹ appeal from the trial court's rendering of summary judgment in favor of the defendant, the Commissioner of Revenue Services.² The trial court upheld the decision of the defendant to deny the plaintiffs' request for a refund of estate taxes paid by the estate of the decedent, Helen B. Brooks (decedent). On appeal, the plaintiffs claim that the trial court incorrectly concluded that the defendant had statutory authority to include in the decedent's gross estate the value of certain qualified terminable interest property (QTIP) in which the decedent enjoyed a life interest and levy an estate tax upon such property. The plaintiffs also assert that the defendant's construction of the statute resulted in a violation of the plaintiffs' due process rights. We disagree with the plaintiffs and, accordingly, affirm the judgment of the trial court.

The following facts and procedural history are relevant to this appeal. The material facts in this case are not in dispute. The decedent died on September 22, 2009, domiciled in Connecticut. She was predeceased by her husband, Everett Brooks (Everett), who died January 31, 2000. Everett was a resident of Florida at the time of his death. At that time, Florida and Connecticut each had an estate tax based on the amount of the federal credit allowed for state death taxes. See 26 U.S.C. § 2011 (2000) ; General Statutes (Rev. to 1999) § 12–391; Fla. Stat. § 198.02 (2000). Everett's will was probated in Florida. Pursuant to Everett's will, two trusts were created to hold certain assets of the estate.³ The decedent, acting as executor of Everett's estate, elected to qualify both trusts as QTIP marital deduction trusts. See 26 U.S.C. § 2056(b)(7) (2000). Pursuant to Everett's will, the decedent enjoyed a beneficial life interest in the assets of the trusts. Everett's will also granted the decedent a testamentary limited power of appointment to direct the remainder of the trusts among Everett's children. In the absence of such an appointment by the decedent, the principal of the trusts was to be distributed according to Everett's will. The trusts consisted of intangible personal property—namely, cash and publicly traded stocks and bonds. The decedent and Attorney Herbert J. Hummers were appointed trustees of the trusts. Hummers was given the power to invade the principal of the trusts for the benefit of the decedent.⁴ The decedent did not have the power to invade the principal of the trust. In or about 2002, the decedent moved to Connecticut and lived in the state continuously until her death.

After the decedent's death, the plaintiffs timely filed a request for extension and made an estimated tax payment of $1,435,000. On November 4, 2010, the plaintiffs timely filed a Connecticut estate tax return for the decedent's estate that intentionally omitted the value of the trusts and claimed a refund in the amount of $988,827. The plaintiffs included a statement on the return asserting that the value of those assets was not properly includable in the Connecticut gross estate of the decedent. The defendant's audit division disallowed the plaintiffs' request for a refund. The plaintiffs subsequently filed a timely appeal to the defendant's appellate division, which affirmed. The plaintiffs then filed a timely appeal from that decision to the trial court pursuant to General Statutes §§ 12–395(a)(1) and 12–554. See generally Coyle v. Commissioner of Revenue Services , 142 Conn.App. 198, 203–205, 69 A.3d 310 (2013), appeal dismissed, 312 Conn. 282, 91 A.3d 902 (2014). On cross motions for summary judgment, the trial court concluded that the assets of the trusts were properly included in the decedent's gross estate and, therefore, were subject to the estate tax. In addition, the trial court concluded that the imposition of the tax upon the estate did not violate the due process clause of the fourteenth amendment to the United States constitution. Accordingly, the trial court denied the plaintiffs' motion for summary judgment and granted the defendant's motion. The trial court then rendered judgment thereon in favor of the defendant. This appeal followed. Additional facts and procedural history will be set forth as necessary.

"Because the decision to grant a motion for summary judgment is a question of law, our review of the trial court's decision is plenary." Dattco, Inc. v. Commissioner of Transportation , 324 Conn. 39, 44, 151 A.3d 823 (2016). "On appeal, we must determine whether the legal conclusions reached by the trial court are legally and logically correct and whether they find support in the facts set out in the memorandum of decision of the trial court." (Internal quotation marks omitted.) Cefaratti v. Aranow , 321 Conn. 637, 645, 138 A.3d 837 (2016).

I

We begin by discussing the background of the federal tax concepts implicated in the present case. In 1981, Congress enacted "the most dramatic and expansive liberalization of the [m]arital [d]eduction in history." Estate of Clayton v. Commissioner of Internal Revenue , 976 F.2d 1486, 1492 (5th Cir. 1992). Such a feat was achieved in two ways. First, Congress provided for the unlimited marital deduction. Economic Recovery Tax Act of 1981, Pub. L. 97–34, § 403 (a), 95 Stat. 301; see also 26 U.S.C. § 2056 (a).⁵ Federal law did not, however, previously allow for the deduction of terminable interests. Estate of Clayton v. Commissioner of Internal Revenue , supra, at 1492. Mindful of rising divorce and remarriage rates, Congress created an exception to the general rule against allowing a deduction for the interspousal transfer of terminable interests so that a decedent may exert more control over the ultimate disposition of certain assets while still financially providing for the surviving spouse with such assets unburdened by front end taxation. See id., at 1492–93 and n.26. Thus, the concept of QTIP was born. Id., at 1493.

Federal tax law currently operates by granting the marital deduction to the first to die spouse in the amount of the value of certain property, subject to certain qualifications, so long as the first to die spouse gives a beneficial life interest in such property to the surviving spouse. 26 U.S.C. § 2056(b)(7).⁶ In order to ensure that the property does not pass to the remainder beneficiaries untaxed, the federal tax code imposes a tax upon the happening of two events. During the life of the surviving spouse, any disposition of a qualifying life interest in property is treated as a transfer of the remainder interest in such property for purposes of the gift tax. See 26 U.S.C. § 2519(a).⁷ To the extent that the surviving spouse did not make any inter vivos disposition of any qualifying life interest in property, the entire value of the property in which the surviving spouse enjoyed a qualifying life interest is included in his or her gross estate and is treated as property passing therefrom. See 26 U.S.C. § 2044.⁸ In short, a fictional transfer occurs from the first to die spouse to the surviving spouse, and a second fictional transfer occurs upon the death of the surviving spouse to the remainder beneficiaries. We note that, in the present case, it is undisputed that the assets contained within the trusts established pursuant to Everett's will were properly included in the decedent's federal gross estate.

II

First, we address the plaintiffs' claim that, pursuant to General Statutes § 12–391(c)(3),⁹ the assets contained within the trusts are not includable in the decedent's gross estate. Specifically, the plaintiffs claim that the relevant federal estate tax provisions have been incorporated into the state estate tax provisions and, therefore, the assets contained within the trusts form part of the decedent's state gross estate only if the state allowed a deduction with respect to the transfer of such property to the decedent following Everett's death. The defendant claims that such an interpretation of § 12–391(c)(3) is inconsistent with the plain meaning of the provision—namely, that the gross estate for state estate tax purposes is the same as the gross estate for federal estate tax purposes. We agree with the defendant.

The plaintiffs' claim implicates a matter of statutory construction. Our standard of review for statutory construction claims is well established. "When construing a statute, [the court's] fundamental objective is to ascertain and give effect to the apparent intent of the legislature.... In other words, [the court seeks] to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply.... In seeking to determine that meaning ... [General Statutes] § 1–2z directs [the court] first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.... The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation." (Internal quotation marks omitted.) Allen v. Commissioner of Revenue Services , 324 Conn. 292, 307–308, 152 A.3d 488 (2016). "[A]long with these principles, we...