In re Valma M. Hanson Revocable Trust
779 N.E.2d 1218 (2002)
Hanson executed a trust that
named her as the trustee.
It later named Bergstrom as
The trust stated that when
Hanson died, any real estate in the trust would be given to Bergstrom
and the rest of the trust assets would be split up amongst nine people
and a church.
The trust was governed by
the laws of Illinois.
Hanson also had a will.
The will gave all her
personal property to Bergstrom.
It gave all her residual
assets to the trust.
The will was governed by the
laws of Indiana.
Hanson died. Bergstrom paid
all of the taxes out of the residual assets in the trust, and then took
the real estate. That left no assets for the nine people and the church.
Bergstrom used the money
that had been intended to go to the church (and should therefore have
been tax free) to pay the taxes on the real estate that he took for
The nine people and the church
then sued Bergstrom charging that he inappropriately apportioned the
The nine people and the
church argued that the taxes should have been evenly distributed among
the assets, and therefore some of the tax money should have come out of
the value of the real estate. Bergstrom had acted improperly by taking
all that tax money out of the residual assets and leaving the real estate
Bergstrom made a motion to
Bergstrom argued that the
terms of the trust gave him discretion to pay the taxes as he saw fit.
The Trial Court denied the
motion to dismiss. Bergstrom appealed.
Indiana State law provides
that Federal taxes should be apportioned among all of the estate's
beneficiaries unless the decedent has otherwise directed in the will.
The Appellate Court affirmed.
The Appellate Court looked
to the plain language of the trust, which said that taxes are to be
charged generally against the principle of the trust.
Bergstrom failed to assess
a proportionate share against each beneficiaries' distribution.
Expenses must be born ratably by all heirs.
Bergstrom had gotten 3/4 of
a million dollars while other beneficiaries got $0. It was probably not
the intent of Hanson to make Bergstrom the sole beneficiary.
In a dissent, it was argued
that Hanson clearly intended Bergstrom to decide how the taxes were
It was further argued that
under Illinois law, they follow the "burden on the residue
rule," for assessing tax liability, as opposed to the
"principle of equitable apportionment," which is what this