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No.

89-605

IN THE SUPREME COURT OF THE STATE OF MONTANA 1990

IN THE MATTER OF THE ESTATE OF RALPH M. ELLISON, Deceased.

APPEAL FROM:

District Court of the Tenth Judicial District, In and for the County of Fergus, The Honorable Peter L. Rapkoch, Judge presiding.

COUNSEL OF RECORD: For Appellant: Carl A. Hatch, Small, Hatch, Doubek Montana For Respondent: Leonard H. McKinney, Lewistown, Montana William E. Berger, Wilkins and Berger, Lewistown, Montana
&

Pyfer, Helena,

Submitted: Decided:

April 5, 1990 May 8, 1990

Justice John C. Sheehy delivered the Opinion of the Court. Appellants, Nora Jean Scott, Gary Ellison, Larry Ellison, Scott Ellison and Pat Ellison appeal from an order of the Tenth Judicial District, Fergus County, construing the terms of the Will of Ralph M. Ellison. We affirm the District Courtls order. Appellants raise one issue on appeal: Whether the District Court erred in construing the phrase "tax-free municipal bondsv1 found in the decedent's Will? Ralph M. Ellison, a resident of Lewistown, Montana, died August 19, 1988. On August 31, 1988, his Will was admitted to probate by the Fergus County District Court. The Will provides the following in Paragraph 11: I have invested money in tax-free Municipal Bonds. I give, devise and bequeath one-half of all Municipal Bonds that I own at the time of my death to SCOTT ELLISON, GARY ELLISON, LARRY ELLISON, PAT ELLISON and NORMA JEAN SCOTT, in equal shares, share and share alike. I direct that any inheritance tax attributable to any of these people is to be paid by them from their individual bequests. The remaining one-half of the tax-free Municipal Bonds passed to Erma M. Ellison, his surviving spouse, as part of the rest, residue and remainder of the estate under Paragraph IV:

I give, devise and bequeath all of the rest, residue and remainder of my property of whatever nature, kind or description, whether real, personal or mixed, wheresoever situated, belonging to me or in which I am possessed, or to which I may have an interest, or to which I may be entitled at the time of my death, to my wife, ERMA M. ELLISON.
Ralph Ellison was a knowledgeable investor, with a large portfolio of municipal bonds, mutual funds and trusts. The

estate's Schedule B Inventory and Appraisement list sets forth 60 such investments. The question arises, "What did Ralph Ellison

intend by using the term "tax-free Municipal Bonds?11 Everyone concerned with the estate agrees that items 1-45 on the estate's inventory list are tax-free bonds issued by various local

government units of the state of Montana. However, with regard to items 50-60 of the estate's inventory list there is no agreement between the devisees. Those are securities found with names or

designations other than municipal bonds, but which have some, though not all, of the characteristics of municipal bonds. They

represent municipal obligations, but are not free of Montana inheritance tax, though they are of federal estate tax. Accordingly, the personal representative filed a petition requesting the District Court to construe the language "tax-free Municipal Bonds. After a full hearing on the matter, the District

Court issued its order on November 13, 1989, concluding that items 50-60 on the inventory list are not "tax-free Municipal Bondst1 to be distributed under paragraph I1 of the Will. The beneficiaries

named in paragraph 11, Scott Ellison, Gary Ellison, Larry Ellison, Pat Ellison and Nora Jean Scott, who under the court's construction of the Will have been deprived of a total of $125,499.63, appeal the District Court's order. I. Whether the District Court erred in construing the phrase "tax-free municipal bondsv1 found in the decedentls Will? The nieces and nephews contend that items 50-60 in the inventory list have the character of tax-free municipal bonds, are for all practical purposes municipal bonds, and therefore, 50

percent of the bonds should pass to them. Ellison, feels that these items,

In contrast, Erma having some

although

characteristics attributable to tax-free municipal bonds, are in fact different from tax-free municipal bonds and should be

distributed according to the Will's residuary clause. This Court must determine:
1)

If the items 50-60 on the

inventory list are tax-free; and, 2) whether those securities fall under the definition of "municipal bonds." The testator specifically stated that the securities devised in paragraph I1 of his Will must be "tax-free." It is clear from

reviewing the record that items 50-60 of the estate's inventory list are not tax-free. Larry Van Atta, Ralph Ellison's stockbroker and investment counselor, testified that these securities were only partially tax-free. Unlike the securities in items 1-45, which

were income tax-free both under federal law and Montana law, items 50-60 were exempt only from federal income tax. The appellants

agree the securities are income tax-free only under federal law, but continue to argue that the testator still intended items 5060 to be devised as tax-free municipal bonds under paragraph I1 of his Will. expressed It is well settled that intention of a testator, as in his Will, controls the legal effect of his

disposition.

Section 72-2-501, MCA; In Re the Estate of DeLong

(Mont. 1990), - P . 2 d I 47 St.Rep. 496, 498; In Re the Estate of Erdahl (Mont. 1981), 630 P.2d 230, 231; State Fish
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Game

Comm'n. v. Keller, Etc. (1977), 173 Mont. 523, 526, 568 P.2d 166, 168. The facts are inescapable, the Will states tax-free municipal

bonds, not partially tax-free municipal bonds.

Thus, we adopt the

District Court finding that items 50-60 are only partially taxfree, and therefore fail to meet the intention of the testator as set forth in Paragraph I1 of his Will. Even if we consider fixed items 50-60 as tax-free, the securities fail to qualify as Municipal Bonds. Van Atta, at the

hearing, described the following principle characteristics of municipal bonds. QUESTION: Can you tell me and the Court, what is the principle characteristic of a municipal bond? ANSWER (MR. VAN ATTA) : A municipal bond would be a bond issued by a municipality, it could be a state government or it could be I.D.R. bonds, which are things that are not allowed by law now. The bonds are an obligation by that issuer to pay principal and interest, bank at a certain percent, it has a fixed maturity rate, and it has a fixed amount that they are to pay you back. So those are three characteristics that are very much a part of municipal bonds. As Mr. Van Atta testified to at the hearing, the securities found in items 50-60 are not municipal bonds, but mutual funds or mutual bond trusts. Mr. Van Atta explained the differences between the municipal bonds and mutual fund or mutual bond trusts. QUESTION: Okay. Items 50-60, are they municipal as defined by the term municipal bonds? In my opinion, they're not ANSWER (MR. VAN ATTA) : because - the reason being is that you dont have a fixed t interest rate, you dontthave a fixed maturity, and you don't have a fixed amount that you're going to get back. The only thing you have in common is tax-free from federal, and that's the only requirement or the only thing that's similar.

The evidence is overwhelming that

items 50-60 are not

Municipal Bonds but were investments in mutual funds, or municipal bond trusts. The only expert called in this case, stockbroker

Larry Van Atta, testified that items 50-60, Schedule B, Inventory and Appraisement, are not municipal bonds. It is also undisputed

that the Testator was a shrewd investor and knew the difference between a municipal bond and mutual fund or mutual trust. made his Will he chose the words gvmunicipalbonds." When he If the

testator had meant to include in his devise to the appellants the proceeds of the mutual funds or mutual bonds trusts, items 50-60, he, a knowledgeable investor, could have used other terms, or simply said mutual funds or mutual bond trusts. The testator executed his Will on June 28, 1988, and died shortly thereafter on August 19, 1988. The testator at the time

of executing his Will already had his portfolio completed and knew his investments; he used the words "municipal bondsg1 knowing he had items 50-60 which were not municipal bonds. On June 28, 1988, the

date of the Will, the only conclusion is that he employed the words vvmunicipal bondsvvin their ordinary sense and therefore, did not intend to include items 50-60 of Schedule B of the Inventory and Appraisement in paragraph I1 of his Will. To decide otherwise

would side-step the intent of the testator as set forth in his Will. Accordingly, we affirm the District Court.

U*1Vc PJusticeL k ..&

We Concur:

,4

Justices



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Montana Law