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In re Estate of Deems

December 4, 2008

IN THE MATTER OF THE ESTATE OF RAY K. DEEMS ET AL., (APPELLANTS).


APPEAL from the Franklin County Court of Common Pleas, Probate Division. (Prob. No. 478431)

The opinion of the court was delivered by: McGRATH, P.J.

(REGULAR CALENDAR)

OPINION

{¶1} This appeal is from a judgment of the Franklin County Court of Common Pleas, Probate Division, overruling the exceptions by the administrator of the estate of Ray K. Deems ("appellant").

{¶2} Ray K. Deems died testate on December 16, 2000. At the time of his death, Mr. Deems held an undivided one-half interest in real property located at 409 South Columbia Avenue, Bexley, Franklin County, Ohio ("the residential property"). The residential property was purchased by Mr. Deems and his wife jointly in November 1964. In 1999, Mr. Deems and his wife executed an open-end mortgage on the residence in the amount of $412,500. Following Mr. Deems's death, the residence was appraised at a fair market value of $480,000. Thus, Mr. Deems's undivided one-half interest equaled $240,000. The December 2000 mortgage statement listed the principal balance owing on the mortgage as $405,487.34. Therefore, Mr. Deems's interest with respect to the mortgage liability was $203,000. None of these numbers are in dispute.

{¶3} On January 30, 2001, Mr. Deems's last will and testament ("the will"), was admitted into probate. Item II of the will provides:

If my spouse, Dorothy R. Deems, survives me, I give and devise to my spouse, absolutely and in fee simple, all my interest in any real property, condominium, cooperative, or similar residential property occupied by us as a principal or seasonal residence, subject to any mortgage or other lien thereon at my death. If my spouse fails to survive me, this devise shall lapse and such property shall pass as part of the residue of my estate.

{¶4} On March 15, 2002, appellant filed an Ohio tax return ("the return"), which listed the residential property as an undivided interest value at $240,000 on a Schedule A. Appellant claimed a $203,000 mortgage deduction on a Schedule J, and a $240,000 marital deduction on a Schedule M; both with respect to the residential property. The Tax Commissioner reviewed the return and disagreed with appellant's valuation of Mr. Deems's interest in the residential property that passed to Mrs. Deems and was listed on the Schedule M. The Tax Commissioner stated appellant should have taken the net value of the residential property, i.e., $37,000, as a marital deduction instead of the whole $240,000 appraised value. Consequently, on June 25, 2004, pursuant to R.C. 5731.26, the Tax Commissioner issued a deficiency assessment in the amount of $12,515.50, plus interest, from September 16, 2001.

{¶5} Appellant filed exceptions to the determination of the Tax Commissioner. After an evidentiary hearing, a magistrate ruled the marital deduction on the Schedule M was limited to the value of the residential property less the mortgage deduction taken on the Schedule J. Appellant filed objections to the magistrate's decision on December 6, 2004. On February 22, 2005, the trial court held a hearing on appellant's objections. On December 31, 2007, the trial court issued a decision overruling appellant's objections and adopting the magistrate's findings of fact and conclusions of law.

{¶6} This appeal followed, and appellant brings a single assignment of error for our review:

THE PROBATE COURT ERRED BY ADOPTING AND APPROVING THE MAGISTATE'S FINDINGS OF FACT AND CONCLUSIONS OF LAW, ENTERING JUDGMENT SUSTAINING THE TAX COMMISSIONER'S CERTIFICATE OF DETERMINATION OF OHIO ESTATE OR ADDITIONAL TAX, AND FINDING THAT THERE WAS A DEFICIENCY IN ESTATE TAX DUE FROM THE ESTATE OF RAY K. DEEMS IN THE AMOUNT OF $12,515.50, PLUS INTEREST FROM SEPTEMBER 16, 2001.

{¶7} At issue is the marital deduction provided for in R.C. 5731.15, which states, in relevant part:

For purposes of the tax levied by section 5731.02 of the Revised Code, the value of the taxable estate shall be determined by deducting from the value of the gross estate:

(A) If the decedent dies on or after July 1, 1993 and is survived by a spouse, a marital deduction which shall be allowed in an amount equal to the value of any interest in property that passes or has passed from the decedent to the surviving spouse, but only to the extent the interest is included in the value of the gross estate. For purposes of the marital deduction, an interest in property shall be considered as ...


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