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Click here for the full text of this decision FACTS:When Daniel Rosen died in 2000, he was married to his second wife, Ricki Rosen. He had two children from a marriage that ended in 1996. His will was executed in 1997. When he died, his estate was valued at over $2.632 million. Article III of the will left the bulk of the Daniel’s personal property to Ricki. Articles IV and V placed the remainder of the estate in two trust: a marital trust whose income was to benefit Ricki during her lifetime and a family trust for the benefit of both Ricki’s and Daniel’s descendants. The remainder of both trusts was to go to Daniel’s descendants. Article VIII directed that all transfer taxes “shall be paid out of the residue of my estate without apportionment.” However, because the probate assets were disposed of through the will, no residue existed. A $963,000 life insurance policy was made payable to Wells Fargo as trustee for Daniel’s children and a $216,000 policy payable to Wells Fargo as the children’s guardian. Ricki filed a declaratory judgment action on the ground that because there was no residue to the estate, the transfer taxes should be apportioned under Probate Code �322A, the default statutory apportionment provisions. The parties agreed that if the probate assets bear the taxes, the total will be $224,447, but if the non-probate assets bear the burden, the total will be $132,442. The probate court ordered that the transfer taxes be borne solely by the probate assets. Ricki appeals. HOLDING:Affirmed in part; reversed and remanded in part; reversed and rendered in part. The court notes that Daniel’s will was constructed with the overarching intent to pay as little in transfer taxes as possible, using the unified credit and the unlimited marital deduction. The personal property transferred to Ricki was subject to an unlimited marital deduction that is deducted from the value of the decedent’s taxable estate. In turn, the marital trust was to reduced by any amount to achieve the lease of federal estate taxes. The clause also ensured that assets would fund the statutorily defined $675,000 unified credit, also deducted from the value of the taxable estate, before funding the marital trust. “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.” The court then explains that Article V placed the residue in the family trust, and Article VIII directed the transfer taxes be paid out of the residue. 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. In the face of an ineffective directive of payment of taxes out of the residue of the estate, when there is no residuary, the court concludes that the (ineffective) specific directions must be ignored and the default apportionment provisions of �322A should apply instead. Applying those provisions, the court reverses the probate court and concludes that only the non-probate assets should bear the tax burden. The unlimited marital deduction is not taxable, and the non-probate assets exceed the unified credit. The overage of the unified credit is taxable and should bear the tax burden. The court affirms the probate court’s order that the parties should bear their own costs and expenses, however it reverses the probate court’s order that the probate estate pay interest and penalties and remands that issue. OPINION:Patterson, J. DISSENT:Kidd, J. After quoting extensively from the will, the dissent disagrees with the majority’s characterization of the marital trust; the dissent does not find it to be a specific bequest. Instead, the dissent would find that the marital trust contains the estate’s residue.

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