In re: Estate of Harold Jenkins , 1999 Tenn. App. LEXIS 383 ( 1999 )

IN THE COURT OF APPEALS OF TENNESSEE,
AT NASHVILLE
_______________________________________________________
FILED
June 18, 1999
Cecil W. Crowson
) Appellate Court Clerk
IN RE: ESTATE OF HAROLD L. ) Sumner County Chancery
JENKINS, Deceased ) Probate Court No. 93P-30
)
)
) C.A. No. 01A01-9804-PB-00223
)
______________________________________________________________________________
From the Chancery Probate Court of Sumner County at Gallatin.
Honorable Tom E. Gray, Chancellor
Timothy L. Warnock,
BOWEN, RILEY, WARNOCK & JACOBSON, PLC, Nashville, Tennessee
Michael D. Sontag,
BASS, BERRY & SIMS, PLC, Nashville, Tennessee
Attorneys for Appellant Dolores Henry Jenkins.
Charles W. McElroy,
WHITE & REASOR, Nashville, Tennessee
Brenda Rhoton Little,
PARKER & CROFFORD, Nashville, Tennessee
Attorneys for Appellees/Cross Appellants Joni L. Jenkins and Kathy A. Jenkins.
Denty Cheatham,
Rose Palermo,
CHEATHAM & PALERMO, Nashville, Tennessee
Attorneys for Appellee Co-Executors of the Estate Of Harold L. Jenkins, Deceased, Hugh C.
Carden and Donald W. Garis.
Jimmy Harold Jenkins, Pro Se
Michael Lloyd Jenkins, Pro Se
OPINION FILED:
AFFIRMED IN PART, REVERSED IN PART AND REMANDED
FARMER, J.
HIGHERS, J.: (Concurs)
CANTRELL, J.: (Concurs)
Factual and Procedural History
Harold L. Jenkins (“Decedent”), professionally known as Conway Twitty, died on
June 5, 1993. Prior to his death, the Decedent executed a last will and testament and two codicils
bequeathing $50,000.00 to Velma Dunaway, the Decedent’s mother, and the remainder of his estate
to Joni Jenkins, Kathy Jenkins, Jimmy Jenkins, and Michael Jenkins (“Children”), the Decedent’s
four adult children. On June 14, 1993, these documents were admitted to probate and Hugh Carden
and Donald Garis (“Co-Executors”) were appointed to serve as the co-executors of the Decedent’s
estate.
The Decedent’s surviving spouse, Dolores Henry Jenkins (“Surviving Spouse”), filed
a petition for an elective share of the Decedent’s estate on December 10, 1993. A dispute
subsequently arose among the parties regarding the proper calculation of the Surviving Spouse’s
elective share. Consequently, the Decedent’s daughters Joni and Kathy Jenkins filed a motion
requesting that the trial court make a determination regarding the value of the Surviving Spouse’s
elective share. Additionally, the Co-Executors filed a motion seeking partial summary judgment
regarding certain legal issues pertinent to the calculation of the Surviving Spouse’s elective share.
After a hearing, the trial court held (1) that the Decedent’s net estate did not include proceeds of
certain life insurance policies that had been assigned to and were paid directly to Temple Medley,
the Decedent’s ex-wife, (2) that, when calculating the amount of the Decedent’s net estate, the value
of the Decedent’s real property should be reduced by the amount of indebtedness secured by this
property, (3) that the value of the Decedent’s net estate should reflect any appreciation or
depreciation of the Decedent’s assets occurring prior to the setting aside of the Surviving Spouse’s
elective share, and (4) that the Surviving Spouse is entitled to receive a one-third fixed share of the
income earned by the Decedent’s assets prior to the distribution of her elective share. The Surviving
Spouse filed a motion to reconsider, arguing that the changing fraction method, rather than the fixed
fraction method, should be used when calculating her share of the income generated by the assets
in the Decedent’s estate prior to the distribution of her elective share. The trial court granted the
motion and amended its prior ruling to reflect that the Surviving Spouse’s share of this income
should be calculated using the changing fraction method.
The Co-Executors subsequently filed a motion seeking instructions from the court
regarding the disposition of the Decedent’s intellectual property.1 After a hearing on the matter, the
trial court entered an order allowing the Children and the Surviving Spouse to determine the fair
market value of the intellectual property by bidding on this property. The court’s order further
provided that the intellectual property would be distributed to the highest bidder and that the amount
of the winning bid would be charged against that party’s share of the Decedent’s estate. After
placing the highest bid, the Children filed a motion requesting the court to direct that the Surviving
Spouse is not entitled to a share of the income generated by the Decedent’s intellectual property.
The trial court entered an order denying the motion. Additionally, the court entered an order
designating several of its prior rulings as final and appealable. This appeal followed.
Issues and Standard of Review
The issues raised on appeal, as we perceive them, are as follows:
I. Whether the proceeds of certain life insurance policies
that had been assigned to and were paid directly to the
Decedent’s ex-wife should be included in the
Decedent’s net estate.
II. Whether, when calculating the Decedent’s net estate,
the value of the Decedent’s property should be
reduced by the amount of indebtedness secured by
this property.
III. Whether the Surviving Spouse is entitled to a share of
the income earned by the Decedent’s assets prior to
the distribution of the Surviving Spouse’s elective
share.
IV. Assuming that the Surviving Spouse is entitled to a
share of this income, whether her share should be
determined using the changing fraction method of
calculation.
V. Assuming that the changing fraction method should be used
1
This asset consists of three categories of property including (1) the right to receive future
songwriter royalties, (2) the right to receive future recording artist royalties, and (3) the right to
receive income from licensing agreements and other enumerated intellectual properties.
when calculating the Surviving Spouse’s share of this income,
whether the changing fraction method should also be used
when calculating her share of the administrative expenses
associated with the generation of the income.
VI. Whether the Surviving Spouse is entitled to a share of
the income generated by the Decedent’s intellectual
property.
Each of the foregoing issues involves a question of law. Thus, we review the ruling of the trial court
de novo with no presumption of correctness. See, e.g., Bell v. Icard, Merrill, Cullis, Timm, Furen
and Ginsburg, 986 S.W.2d 550, 554 (Tenn. 1999)(citations omitted); T.R.A.P. 13(d).
Life Insurance Proceeds
Prior to his marriage to the Surviving Spouse, the Decedent was married to Temple
Medley. In conjunction with their divorce, the Decedent and Ms. Medley entered into a property
settlement agreement requiring the Decedent to assign to Ms. Medley life insurance proceeds
sufficient to pay his outstanding alimony obligation. The Decedent then executed collateral
assignments of five insurance policies purchased by the Decedent from Executive Life Insurance
Company (“Executive Life”). With these assignments, the Decedent transferred to Ms. Medley “all
right, title and interest” in these policies, including the following enumerated rights:
1. The sole right to collect from the Insurer the net
proceeds of the Policy when it becomes a claim by
death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the
terms of the Policy and at such other times as the
Insurer may allow;
3. The sole right to obtain one or more loans or advances
on the Policy, either from the Insurer or, at any time,
from other persons, and to pledge or assign the Policy
as security for such loans or advances;
4. The sole right to collect and receive any and all
distributions or shares of surplus, dividend deposits or
additions to the Policy now or hereafter made or
apportioned thereto, and to exercise any and all
options contained in the Policy with respect thereto;
provided, that unless and until the Assignee shall
notify the Insurer in writing to the contrary, the
distributions or shares of surplus, dividend deposits
and additions shall continue on the plan in force at the
time of this assignment; and
5. The sole right to exercise all nonforfeiture rights
permitted by the terms of the Policy or allowed by the
Insurer and to receive all benefits and advantages
derived therefrom.
However, the Decedent expressly reserved the following specific rights:
1. The right to collect from the Insurer any disability
benefit payable in cash that does not reduce the
amount of insurance;
2. The right to designate and change beneficiary; and
3. The right to elect any optional mode of settlement
permitted by the Policy or allowed by the Insurer; but
the reservation of these rights shall in no way impair
the right of the Assignee to surrender the Policy
completely with all its incidents or impair any other
right of the Assignee hereunder, and any designation
or change of beneficiary or election of a mode of
settlement shall be made subject to this assignment
and to the rights of the Assignee hereunder.
The Decedent exercised the second of these reserved rights, naming his estate as the beneficiary of
each of the five life insurance policies. After the Decedent’s death, Executive Life paid
$2,045,000.00 of the proceeds of these policies directly to Ms. Medley. After receiving a release
from Ms. Medley, Executive Life then paid the remaining $2,090,488.80 of these proceeds to the
Co-Executors of the Decedent’s estate.
The amount of a surviving spouse’s elective share is governed by section 31-4-101
of the Tennessee Code Annotated. Under the version of this statute that was in effect on the date of
the Decedent’s death, the Surviving Spouse’s elective share is equal to one-third of the Decedent’s
net estate. See Tenn. Code Ann. § 31-4-101(a) (Supp. 1993).2 This statute defined the term “net
estate” as follows:
2
In 1997, the Tennessee General Assembly eliminated this provision and replaced it with
an accrual-type elective share statute. See 1997 Tenn. Pub. Acts ch. 426, § 17. Under the current
statute, the surviving spouse’s share of the decedent’s net estate is calculated according to the
length of time that the decedent was married to the surviving spouse. See Tenn. Code Ann. § 31-
4-101(a) (Supp. 1998)(effective January 1, 1998).
The net estate includes all of the decedent’s real and personal
property subject to disposition under the terms of the decedent’s will
or the laws of intestate succession reduced by funeral and
administrative expenses, homestead, exemptions and year’s support.
Tenn. Code Ann. § 31-4-101(b) (Supp. 1993).3 The crucial question in the instant case is whether
the life insurance proceeds that were paid directly to Ms. Medley qualify as “property subject to
disposition under the terms of the decedent’s will or the laws of intestate succession.” Noting that
the Decedent’s estate was the named beneficiary of these policies, the Surviving Spouse contends
that the proceeds paid to Ms. Medley are subject to disposition under the Decedent’s will. The Co-
Executors and the Children, however, argue that these proceeds never became part of the Decedent’s
estate and thus are not subject to disposition under the Decedent’s will.
In Phipps v. Watts, 781 S.W.2d 863 (Tenn. App. 1989), this Court considered a life
insurance issue similar to the one raised in the case at bar. The decedent’s estate received
$94,000.00 as the beneficiary of a life insurance policy. See id. at 864. The executor argued that
the proceeds of this policy qualified as “exemptions” within the meaning of section 31-4-101(b) and
thus should not be included in the decedent’s net estate when calculating the amount of the surviving
spouse’s elective share. See id. at 865. We disagreed, finding that these exemptions include only
the items of personal property listed in section 30-2-101. See id. We recognized, however, that
there are some circumstances under which life insurance proceeds should not be included in the
decedent’s net estate, stating as follows:
[T]here have been cases where insurance proceeds have been held to
be exempt from the claims of the dissenting widow. But, these cases
turned on the fact that the insurance never became a part of the
decedent’s estate—not on the fact that the insurance was one of the
exemptions mentioned in Tenn. Code Ann. § 31-4-101(b).
3
This provision was also amended in 1997. See 1997 Tenn. Pub. Acts ch. 426, § 17.
Currently, subsection (b) provides as follows:
The value of the net estate includes all of the decedent’s real and personal
property subject to disposition under the provisions of the decedent’s will or the
laws of intestate succession, reduced by the following: secured debts to the extent
that secured creditors are entitled to realize on the applicable collateral, funeral
and administration expenses, and award of exempt property, homestead allowance
and year’s support allowance.
Tenn. Code Ann. § 31-4-101(b) (Supp. 1998)(effective January 1, 1998).
Id. at 866. We then concluded as follows:
We think that the plain language in the 1972 amendment
makes the proceeds of life insurance payable to a testate estate a part
of the estate regardless of the disposition of the insurance proceeds in
the will. The insurance is still exempt from the claims of creditors
but is an asset of the estate “as ordinary cash.” Thus, the insurance
would be part of the estate for the purpose of calculating the
dissenting widow’s elective share.
Id.
Applying Phipps to the facts of the case at bar, we agree with the Co-Executors and
the Children that the life insurance proceeds that were paid directly to Ms. Medley should not be
included in the Decedent’s net estate. Unlike the insurance proceeds in Phipps, these funds were
not “payable to a testate estate.” Each of the collateral assignments executed by the Decedent
transferred to Ms. Medley “[t]he sole right to collect from the Insurer the net proceeds of the Policy
when it becomes a claim by death or maturity.” Thus, the insurance proceeds were payable to Ms.
Medley rather than to the Decedent’s estate. Recognizing its obligation under the assignments,
Executive Life paid $2,045.000.00 of the insurance proceeds directly to Ms. Medley. These funds
were not deposited into the estate’s bank account and at no time did they become subject to the
control of the Co-Executors. Consequently, the insurance proceeds paid directly to Ms. Medley
never became part of the Decedent’s estate and thus were not “subject to disposition under the terms
of the decedent’s will” as required by section 31-4-101(b). Accordingly, we affirm the trial court’s
conclusion that these proceeds should not be included in the Decedent’s net estate when calculating
the amount of the Surviving Spouse’s elective share.
Secured Debts
At the time of his death, the Decedent owned certain assets that were encumbered by
secured debt. The trial court held that, for purposes of calculating the Surviving Spouse’s elective
share, only the Decedent’s equity in this property should be included in the net estate. The Co-
Executors and the Children agree with the ruling of the trial court. The Surviving Spouse, however,
contends that her elective share should be calculated without regard to the secured debts of the
Decedent.
The statutory procedure for calculating a surviving spouse’s elective share is set forth
in section 31-4-101 which, on the date of the Decedent’s death, provided as follows:
(a) A decedent’s surviving spouse has the right to elect to take
an elective share. The elective share is one third (1/3) of the
decedent’s net estate as defined in subsection (b). The right to elect
an elective share is available to the surviving spouse of an intestate
decedent and a testate decedent if the surviving spouse elects against
the decedent’s will. When the elective share is determined, it is
exempt from the unsecured debts of the decedent incurred after April
1, 1977. In determining the elective share, it is not reduced by any
estate or inheritance taxes.
(b) The net estate includes all of the decedent’s real and
personal property subject to disposition under the terms of the
decedent’s will or the laws of intestate succession reduced by funeral
and administration expenses, homestead, exemptions and year’s
support.
Tenn. Code Ann. § 31-4-101 (Supp. 1993). When construing this statute, we must attempt to
ascertain and give effect to the intent of its drafters, looking primarily to the natural and ordinary
meaning of the words used. See, e.g., Browder v. Morris, 975 S.W.2d 308, 311 (Tenn. 1998). If,
after examining these words, the purpose of section 31-4-101 remains unclear, we may then look to
the history of this provision as evidence of legislative intent. See Kendrick v. Kendrick, 902 S.W.2d
918, 923 (Tenn. App. 1994)(citations omitted).
Section 31-4-101(a) specifically provides that the surviving spouse’s elective share
is exempt from the decedent’s unsecured debts. See Tenn. Code Ann. § 31-4-101(a) (Supp. 1993).
The Co-Executors and the Children argue that this language implicitly suggests that the elective
share is not exempt from the Decedent’s secured debts and that, therefore, the value of the
Decedent’s encumbered property must be reduced by the amount of the Decedent’s secured debt
before this property is included in the net estate. Although we agree that there is no exemption under
section 31-4-101(a) for the secured debts of the Decedent, we do not think that this omission in any
way affects the calculation of the Surviving Spouse’s elective share. Rather, it affects only the
priority of payment. The unsecured debt exemption is preceded by the phrase “[w]hen the elective
share is determined,” indicating that the exemption becomes relevant only after the Surviving
Spouse’s elective share is calculated. Thus, we find that the failure of the drafters to provide an
exemption for the Decedent’s secured debts in section 31-4-101(a) has no impact on the resolution
of the case at bar.
In support of their position, the Co-Executors and the Children also rely on the
language in subsection (b) stating that the net estate includes all property that is “subject to
disposition under the terms of the decedent’s will or the laws of intestate succession.” Essentially,
they argue that only the equity in the Decedent’s encumbered property, rather than its full fair market
value, is subject to disposition under the terms of the Decedent’s will. This argument, however,
addresses the value that should be assigned to the Decedent’s encumbered property, not whether this
property should be included in the Decedent’s net estate. The encumbered assets were owned by the
Decedent at the time of his death. Although this property remained subject to valid security
interests, the Decedent was entitled to and did in fact dispose of the encumbered assets under his
will. Thus, we reject the contention of the Co-Executors and the Children that the “subject to
disposition” language in section 31-4-101(b) requires a reduction in the net estate by the amount of
the Decedent’s secured debt.
Contrary to the position of the Co-Executors and the Children, the Surviving Spouse
contends that section 31-4-101(b) does not require a reduction for the Decedent’s secured debts.
Subsection (b) expressly provides that, when calculating the net estate, the decedent’s property must
be reduced by certain enumerated items including (1) funeral and administration expenses, (2)
homestead, (3) exemptions, and (4) year’s support. See Tenn. Code Ann. § 31-4-101(b) (Supp.
1993). The drafters of this provision did not include the Decedent’s secured debts among the items
listed above. Although this omission does not conclusively resolve the issue in the case at bar, it is
consistent with the Surviving Spouse’s contention that the net estate should be calculated without
regard to the Decedent’s secured debts.
As stated above, the Decedent’s encumbered property is subject to disposition under
the Decedent’s will and thus should be included in the net estate. The parties disagree, however,
regarding the value that should be assigned to this property. Section 31-4-101 does not specifically
address this disputed issue. Consequently, we think that, with respect to the value that should be
assigned to a decedent’s encumbered property, there is more than one reasonable interpretation of
this provision. When a statute being construed does not yield a single, clear interpretation, it is
appropriate to consider the legislative history of the provision in order to ascertain the intent of its
drafters. See State v. Carter, 952 S.W.2d 417, 419 (Tenn. 1997) (citations omitted). See also State
v. Patton, 898 S.W.2d 732, 737 (Tenn. Crim. App. 1994) (“If, however, reasonably informed
persons could differ as to the meaning of that section in the context of the chapter, there must be an
authoritative interpretation.”). Thus, in the case at bar, we find it necessary to examine the
legislative history of section 31-4-101.
In 1977, the Tennessee General Assembly enacted a statute defining the term “net
estate” as follows:
The net estate shall include all of the decedent’s property reduced by
funeral and administration expenses, the payment of taxes,
homestead, exemptions, and year’s support.
1977 Tenn. Pub. Acts ch. 25, § 3 (codified as Tenn. Code Ann. § 31-602(b) (Supp. 1978)).4 As
originally drafted, this statute provided that the property in the net estate shall be reduced by “funeral
and administrative expenses, homestead, exemptions and year’s support, and debts and charges
against the estate.” H. R. 334, 90th General Assembly (1977)(emphasis added). The phrase “and
debts and charges against the estate” was removed, however, prior to the enactment of the statute.
This suggests that the General Assembly considered the secured debt issue raised in the case at bar
and concluded that, when calculating the net estate, the decedent’s property should not be reduced
by the amount of debt that is secured by this property.
Section 31-4-101(b) was further amended in 1997 and currently provides as follows:
The value of the net estate includes all of the decedent’s real
and personal property subject to disposition under the provisions of
4
This provision was renumbered in 1984. See Tenn. Code Ann. § 31-2-103(1984)(amended by 1985 Tenn. Pub. Acts ch. 140, § 28 (codified as Tenn. Code Ann. § 31-4-
101(b) (Supp. 1985))).
the decedent’s will or the laws of intestate succession, reduced by the
following: secured debts to the extent that secured creditors are
entitled to realize on the applicable collateral, funeral and
administration expenses, and award of exempt property, homestead
allowance and year’s support allowance.
Tenn. Code Ann. § 31-4-101(b) (Supp. 1998)(emphasis added). This version of the statute became
effective on January 1, 1998 and thus was not in effect on the date of the Decedent’s death. See
1997 Tenn. Pub. Acts ch. 426, § 26. Nevertheless, we think that this amendment is relevant to our
construction of the prior statute. Unlike the version of section 31-4-101(b) that applies to the case
at bar, the current version of this statute specifically provides that the surviving spouse’s elective
share should be reduced by the decedent’s secured debts. Although the drafters of the 1997
amendment included this language regarding secured debts, they did not alter the “subject to
disposition” language of the statute. This suggests that “all of the decedent’s real and personal
property subject to disposition under the provisions of the decedent’s will” must be included in the
net estate based on its fair market value rather that the decedent’s equity in this property. Otherwise,
the current version of section 31-4-101(b) would effectively provide for a double reduction in the
net estate by the amount of the decedent’s secured debt.5 Thus, the fact that the drafters of the 1997
amendment did not alter the “subject to disposition” language supports the Surviving Spouse’s
contention that this language does not require a reduction for the secured debt of the decedent before
inclusion of the decedent’s property in the net estate.
Although we are unaware of any Tennessee cases addressing the precise issue raised
in the case at bar, we have examined three cases involving a related estate and inheritance tax issue.
In Williams v. Commissioner of Internal Revenue, 103 T.C. 451 (1994)(“Williams I”), the probate
court calculated the surviving spouse’s elective share without regard to the decedent’s secured debts
5
Assume for example that the decedent died owning a piece of real property with a fair
market value of $200,000.00. At the time of the decedent’s death, however, this property was
subject to secured debt totaling $50,000.00. Under the interpretation of the “subject to
disposition” language espoused by the Co-Executors and the Children, this property would be
included in the decedent’s net estate only to the extent of the decedent’s equity in the property or
$150,000.00. The current version of section 31-4-101(b), which shares the same “subject to
disposition” language as the statute that is applicable to the case at bar, further provides for a
reduction in the net estate equal to the amount of the decedent’s secured debts. Thus, the
$150,000.00 in the decedent’s net estate would again be reduced by $50,000.00. Because we do
not think this was the result intended by the drafters of section 31-4-101(b), we decline to
construe the “subject to disposition” language of the statute in the manner suggested by the Co-
Executors and the Children.
and satisfied the elective share using certain unencumbered assets contained in the decedent’s estate.
See id. at 453, 453 n.4. In a subsequent action in federal tax court, the estate argued that its marital
deduction included the entire amount of the surviving spouse’s elective share. See id. at 453-54.
The tax court disagreed, holding that, when determining the marital deduction, the surviving
spouse’s elective share must be reduced by a proportionate share of the decedent’s secured debts.
See id. at 464. Additionally, in Estate of Williams v. Huddleston, 938 S.W.2d 415 (Tenn.
1997)(“Williams II”), the Tennessee Supreme Court considered whether the entire amount of the
surviving spouse’s elective share qualifies for the marital deduction for purposes of calculating the
amount of state inheritance tax owed by the decedent’s estate. See id. at 418. The court reached a
different conclusion than the tax court in Williams I, holding as follows:
[A]ssuming that the elective share was determined and funded
according to law, which is not decided in this case, the property
constituting the elective share passed from the decedent to the
surviving spouse, and “an amount equal to” the full value of the
elective share qualifies for the marital deduction under Tenn. Code
Ann. § 67-8-315(a)(6).
Id. at 419. The court expressly stated that its holding does not serve as authority for the resolution
of certain pretermitted issues, including those related to the calculation of the surviving spouse’s
elective share. See id. at 418. Despite this limitation, the court stated by way of dicta that “if
property subject to the decedent’s secured debts is included in the elective share, as it may be, only
the value of the property in excess of the debt secured would be included in determining the value
of the elective share and also the marital deduction.” Id. at 419 (footnote omitted). Additionally,
the court commented that “[t]he procedure followed by the probate court constitutes a significant
departure from prior law and may invite examination of Section 31-4-101 by the legislature.” Id.
at 418 n.2. Finally, in Estate of Tenenbaum v. Commissioner of Internal Revenue, 112 F.3d 251(6th Cir. 1997), the Sixth Circuit Court of Appeals was presented with an issue identical to the one
raised in Williams I. See id. at 252. Relying on the ruling of the Tennessee Supreme Court in
Williams II, the Sixth Circuit held that, when calculating the federal marital deduction, the estate
is not required to reduce the surviving spouse’s elective share in order to reflect the extent to which
the elective share is burdened by the decedent’s secured debts. See id.
As noted above, the court in Williams II limited its holding to the narrow tax issue
with which it was presented. For the same reasons cited in Williams II, we think that Williams I
and Estate of Tenenbaum should be similarly limited. The specific issue raised in these cases
involved the calculation of the marital deduction, not the proper method of calculating the surviving
spouse’s elective share. Thus, although Williams I, Williams II, and Estate of Tenenbaum contain
dicta regarding the calculation of the elective share, we do not think that these comments are
controlling with respect to the secured debt issue raised in the case at bar.
Based on the legislative history of section 31-4-101, we find that, under the version
of this provision that was in effect on the date of the Decedent’s death, the net estate should be
calculated without regard to any debts that were secured by the Decedent’s property. Thus, the trial
court in the instant case erred in its conclusion that only the Decedent’s equity in this property, rather
than its fair market value, should be included in the net estate.
Income
During the administration of the Decedent’s estate, the Decedent’s assets have
generated a substantial amount of income. The trial court held that the Surviving Spouse was
entitled to a one-third fixed fractional share of this income. The court subsequently amended its
ruling to reflect that the Surviving Spouse’s share of this income should be determined using the
changing fraction, rather than the fixed fraction, method of calculation. As an initial matter, we must
determine whether the Surviving Spouse is entitled to a portion of the income received by the estate
after the death of the Decedent. Assuming that this question is answered in the affirmative, we must
then consider the proper method of calculating the Surviving Spouse’s share of this income.
In Merchants & Planters Bank v. Myers, 644 S.W.2d 683 (Tenn. App. 1982), this
Court was presented with facts somewhat analogous to those of the case at bar. On the date of his
death, the decedent owned a one-half undivided interest in the Myers Chevrolet Building. See id.
at 685. On tax returns filed by the estate, the executor estimated that the value of the decedent’s
interest in this property was $95,000.00. See id. at 686. For purposes of determining the surviving
spouse’s elective share, however, the parties stipulated that the value of the decedent’s interest was
$120,000.00. See id. at 685. The trial court subsequently granted a petition to sell the decedent’s
interest in the Myers Chevrolet Building for $97,500.00, finding that this amount was equal to the
“fair and reasonable market value” of the decedent’s one-half interest. Id. at 686. Thereafter, the
executor filed a petition seeking instructions from the trial court regarding the calculation of the
surviving spouse’s elective share. See id. at 685. The trial court ruled that the effective date for
purposes of determining the surviving spouse’s elective share was the date of the decedent’s death.
See id. at 686. Although this Court upheld the trial court’s ruling on appeal, we further commented
as follows:
An adjustment is required when there is either appreciation or
depreciation of assets prior to distribution of the spouse’s elective
share. . . .
....
The evidence adduced at the partition hearing suggests the
stipulated value of the Myers Chevrolet Building did not reflect the
property’s true value as the parcel was valued on tax returns at
$95,000.00. The estate has been under administration for
approximately four years and the widow should properly share in any
gains or losses experienced prior to the distribution of her share.
Upon remand, the executor is directed to take into account all gains
and losses as of the time of the distribution and adjust the widow’s
elective share accordingly.
Id.The issue considered by the court in Myers was whether appreciation and
depreciation should be taken into account when calculating the surviving spouse’s elective share.
Thus, the Myers court did not specifically address whether income received during the
administration of the decedent’s estate should also be considered when calculating the surviving
spouse’s elective share. Nevertheless, we find that the rationale applied in Myers is equally
applicable to the case at bar. The Decedent’s estate has been under administration for nearly six
years. As a result of various disputes among the parties, the Co-Executors have yet to distribute the
Surviving Spouse’s elective share. Like the court in Myers, we think that the Surviving Spouse
should share in any gains or losses experienced by the Decedent’s estate prior to the distribution of
her elective share.6 Such gains include income generated by property owned by the Decedent at the
time of his death. In light of the lengthy period of administration in the case at bar, we think this
result is equitable for all interested parties. This result also encourages the prompt administration
of estates. Thus, we conclude that the trial court properly determined that the Surviving Spouse is
entitled to a share of the income received by the Decedent’s estate prior to the distribution of her
elective share.
When ruling that the Surviving Spouse’s share of the aforementioned income should
be determined using the changing fraction method of calculation, the trial court relied on the
rationale set forth in Estate of Greenfield, 398 A.2d 983 (Pa. 1979). In Greenfield, the trial court
directed that the changing fraction method, rather than the fixed fraction method, should be used
when allocating appreciation of the decedent’s assets that occurred during the administration of the
decedent’s estate.7 See id. at 986. The trial court explained the difference between the fixed fraction
and the changing fraction method as follows:
When the fixed fraction method is used, the principal is
distributed and the gains and losses are charged according to the
statutory percentage. . . . In essence, the fixed fraction method treats
the legacies and taxes which had been paid and the advance
distributions which have been made as if they were still part of the
corpus, when, in fact, they no longer are part of the estate. As a
result, in many instances, the non-elective portion shares in gains and
losses in a proportion which did not in fact exist when the gains or
losses were realized.
[T]he changing fraction method allocates the gains and losses
realized on the principal of an estate among those who are in fact
owners of the principal at that time in the same proportions as their
respective interests in the existing balance.
Id. at 985-86.8 On appeal, the Pennsylvania Supreme Court affirmed the ruling of the trial court,
6
At least fourteen other jurisdictions also recognize that a surviving spouse is entitled to a
share of the profits or income earned prior to the distribution of his or her elective share. See
Charles C. Marvel, Annotation, Extent of Rights of Surviving Spouse Who Elects to Take
Against Will in Profits of or Increase in Value of Estate Accruing After Testator’s Death, 7
A.L.R.4th 994-95 (1981)(citations omitted).
7
The appellant in Greenfield did not challenge the trial court’s ruling with respect to
proper method of calculating income earned during the administration of the decedent’s estate.
See Greenfield, 398 A.2d at 986 n.3.
8
The trial court in Greenfield illustrated the difference between these two methods of
calculation as follows:
finding that the changing fraction method is equitable in that it provides for the allocation of growth
in estate assets in proportion to the parties’ actual interest in the fund that generated the growth. See
id. at 987, 990.
When determining whether the changing fraction method of calculation should be
utilized in the instant case, we must focus on the express language of section 31-4-101. On the date
of the Decedent’s death, this statute provided that a surviving spouse is entitled to an elective share
equal to one-third of the decedent’s net estate. See Tenn. Code Ann. § 31-4-101(a) (Supp. 1993).
As stated above, the Surviving Spouse is also entitled to receive a one-third share of income
generated by the Decedent’s property prior to the distribution of her elective share. If the Surviving
Spouse’s share of this income was calculated using the changing fraction method, the Surviving
Spouse would ultimately receive more than a one-third share of the Decedent’s estate.9 This result
is contrary to the language of section 31-4-101. We agree with the Pennsylvania court in Greenfield
that, under certain circumstances, the changing fraction method may be more equitable than the fixed
fraction method of calculation. However, we also recognize that there are potential administrative
difficulties associated with this method of distributing income. Despite our equitable concerns, we
decline to adopt the changing fraction method in Tennessee. Accordingly, we reverse the trial
court’s ruling to the contrary.
Let us assume that the net probate estate of a decedent is $300,000 and the
widow’s statutory elective share is one-third. Thus, upon her election she
becomes entitled to $100,000. If federal taxes and legacies are paid out of the
non-elective share (as they must be) in the amount of $100,000, there remains in
the estate $200,000 in principal. The elective and non-elective shares then are
$100,000 each. However, if this principal increases by $150,000 and becomes
$350,000, under the fixed fraction method, the widow receives one-third of the
increase and her distributive share is $150,000. The non-elective share would get
two-thirds of the increase, and its distributive share would be $200,000. Thus, the
value of the non-elective share increased by 100% [a]nd the value of the elective
share increased 50% [a]lthough both shares had exactly the same amount of
money attributable to their respective shares in the estate. . . .
Under the changing fraction method, each would receive a proportionate
share, i.e. $175,000. The method would also function if there were a loss of
$150,000. Each would get $25,000, thus sharing in the loss proportionately.
Greenfield, 398 A.2d at 986 n.2.
9
The Surviving Spouse conceded that, if the changing fraction method of calculation was
used, she would be entitled to much more than a one-third share of the income received by the
Decedent’s estate prior to the distribution of her elective share.
In light of our conclusion that the Surviving Spouse’s share of the income earned by
the Decedent’s estate should not be calculated using the changing fraction method, we find it
unnecessary to discuss whether the Surviving Spouse’s share of the administrative expenses
associated with the generation of this income should similarly be determined using this method of
calculation.
Intellectual Property
Finally, we consider whether and to what extent the Surviving Spouse is entitled to
a share of income generated by the intellectual property in the Decedent’s estate. The parties
initially disagreed regarding the value of the Decedent’s intellectual property and to whom this
property should be awarded. In order to resolve these disputes, the trial court entered an order
allowing the Surviving Spouse and the Children to determine the value of the Decedent’s intellectual
property through a bidding process. The Co-Executors had previously retained the firm of Loeb &
Loeb to appraise the value of this property. Accordingly, Loeb & Loeb submitted a report to the Co-
Executors estimating the fair market value of the Decedent’s intellectual property as of June 1995.
Pursuant to the trial court’s order, the bidding would start at the Loeb & Loeb appraisal price and
would continue to increase by increments of $1,000.00 until either the Surviving Spouse or the
Children ceased bidding. The party placing the highest bid would receive the Decedent’s intellectual
property in kind and the amount of the winning bid would be charged against that party’s share of
the Decedent’s estate. At the conclusion of this process, the Children had submitted the highest bid.
The Children subsequently filed a motion requesting the trial court to direct that the Surviving
Spouse was not entitled to receive any of the income generated by the Decedent’s intellectual
property. This motion was denied by the trial court.
The Loeb & Loeb appraisal took into account the estimated future income that the
Decedent’s intellectual property was expected to generate over a twenty year period. Thus, the value
assigned to this property through the trial court’s bidding process also encompasses this future
income. The Children argue on appeal that the Surviving Spouse should not be permitted to receive
a share of the income generated by this property during the administration of the Decedent’s estate.
We agree. The Surviving Spouse is entitled to receive as part of her elective share assets equal to
one-third of the value assigned to the Decedent’s intellectual property. Included in this value is an
amount equal to the projected future income that this property is expected to earn over the next
twenty years. If the Surviving Spouse is also permitted to receive a one-third share of the income
received by the Decedent’s estate during its administration, she would effectively be receiving the
same income through two separate avenues. We decline to approve such a method of distribution
that allows the Surviving Spouse to take a “double-dip” of the income generated by the Decedent’s
intellectual property. Consequently, we reverse the trial court’s ruling with regard to this matter.10
Conclusion
For the reasons set forth above, we conclude (1) that the proceeds the insurance
policies that were paid directly to the Decedent’s ex-wife should not be included in the net estate,
(2) that, when calculating the net estate, the value of the Decedent’s property should not be reduced
by the amount of indebtedness secured by this property, (3) that the Surviving Spouse is entitled to
a share of the income received by the Decedent’s estate prior to the distribution of the elective share,
(4) that the Surviving Spouse’s share of this income should be determined using the fixed fraction,
rather than the changing fraction, method of calculation, and (5) that the Surviving Spouse is not
entitled to receive a share of the income earned by the Decedent’s intellectual property after June of
1995.
The ruling of the trial court is thus affirmed in part, reversed in part, and remanded
for further proceedings consistent with this opinion. The costs of this appeal are taxed to the Co-
Executors as representatives of the Decedent’s estate, for which execution may issue if necessary.
____________________________________
FARMER, J.
______________________________
10
In light of our ruling, we are compelled to offer guidance to the Co-Executors regarding
the proper method of distributing the income earned by the intellectual property during the
administration of the Decedent’s estate. The Loeb & Loeb appraisal estimated the value of this
property as it existed in June of 1995. Thus, any income generated by the Decedent’s intellectual
property between the Decedent’s date of death and June of 1995 should be distributed in the
same manner as all other income received by the estate. Any income earned by the intellectual
property after June of 1995, however, should be set aside and ultimately distributed to the
recipient of the Decedent’s intellectual property rights.
HIGHERS, J. (Concurs)
______________________________
CANTRELL, J. (Concurs)