Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Sunday, November 19, 2017

Court: Kids of Divorced Stepparent Must Pay Inheritance Tax

285px-StepByStepOpeningPaula Tyler and Mark Alcorn were raised by their mother, Connie Smith, and stepfather, Donald Hitzhusen. The couple later divorced, but Hitzhusen remained close to Tyler and Alcorn. Close enough, in fact, that he left them 77% of his $1.9 million estate. Because the distribution occurred in Iowa, Tyler and Alcorn were subject to a $200,000 inheritance tax. The pair challenged the validity of the tax, claiming that they were essentially being punished for the divorce of their parents. The court did not buy the argument and held that the Iowa Legislature’s goal to promote family cohesion was legitimate.

See David Pitt, Court: Kids of Divorced Stepparent Must Pay Inheritance Tax, Los Angeles Times, November 17, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.


Current Events, Estate Planning - Generally, Estate Tax, New Cases, Wills | Permalink


No. 16–1731
Filed November 17, 2017
Appeal from the Iowa District Court for Polk County, Robert J.
Blink, Judge.
Taxpayers appeal from a district court order upholding the constitutionality of a definition used
in an inheritance tax exemption.
Erich D. Priebe and David J. Dutton of Dutton, Braun, Staack &
Hellman, P.L.C., Waterloo, for appellant.

Thomas J. Miller, Attorney General, Donald D. Stanley Jr., Special Assistant Attorney General, and
Hristo Chaprazov, Assistant Attorney
General, for appellee.


This administrative review proceeding requires us to decide whether Iowa may constitutionally deny
an inheritance tax exemption for bequests to stepchildren when the marriage between parent and
stepparent was dissolved before the stepparent’s death, while granting an exemption when the
marriage was not dissolved. We conclude that this differential treatment based on divorce of the
parent and stepparent does not violate article I, section 6 of the Iowa Constitution. The different
tax treatment of these two categories is rationally related to the legislature’s legitimate state
interest in promoting and preserving family relationships through the tax laws. Accordingly, we
affirm the judgment of the district court and the administrative ruling of the Iowa Department of
I. Background Facts and Proceedings.
Petitioners Paula Tyler (born 1963) and Mark Alcorn (born 1958) are the biological children of
Joseph and Constance Alcorn. Joseph and Constance divorced in 1964. Joseph paid child support after
the divorce but did not have regular visitation with Paula and Mark. Joseph died in 2007 or 2008.
In 1966, Constance married the decedent, Donald Hitzhusen. Constance, Paula, and Mark moved to
Rockwell to reside with Donald on his family farm. Donald treated Mark and Paula as his own
children. He helped pay for them to attend college. Both Mark and Paula eventually moved to Texas.
Each of them married in Texas, but they maintained a close personal relationship with Donald.
In 2001, Constance and Donald divorced after thirty-five years of marriage. Yet Donald remained
close with both Paula and Mark. In 2007, Donald gave both Paula and Mark his power of attorney so
they could assist him with financial matters. Donald also executed a medical


power of attorney, designating Mark primary agent and Paula secondary agent as to health care
In 2008, Donald executed a will and revocable trust leaving his estate to Paula, Mark, and
Constance, with Paula and Mark receiving larger shares than Constance. In 2012, Donald passed
The inheritance tax return originally filed with the State of Iowa in October 2013 reported tax due
on the bequests going to all three beneficiaries—Paula, Mark, and Constance. The tax due on Paula’s
and Mark’s shares was paid under protest. Approximately five months later, in March 2014, the
estate filed an amended tax return claiming no inheritance tax was actually due on Paula’s and
Mark’s shares. Thus, under the amended return, inheritance tax would be due only on the 23% of the
$1.823 million estate going to Constance, not on the 77% of the estate being divided equally
between Paula and Mark. The estate therefore sought a refund of approximately $203,000 for
inheritance tax previously paid on Paula’s and Mark’s shares.
For many years prior to 1997, the Iowa inheritance tax had an unlimited exemption for any share of
the estate passing to the surviving spouse, limited exemptions for lineal descendants and lineal
ascendants, and no exemption for stepchildren. See Iowa Code § 450.9 (1997). That year, the general
assembly enacted legislation that eliminated the inheritance tax on property passing to parents,
grandparents, great- grandparents, children, stepchildren, grandchildren, and great- grandchildren,
among others. See 1997 Iowa Acts ch. 1, § 2 (codified at Iowa Code § 450.9 (1999)).
In 2003, the general assembly passed legislation making a series of changes to the inheritance tax
and the probate code. See 2003 Iowa Acts


ch. 95. Among those changes was the insertion of the following definition of “stepchild”:
“Stepchild” means the child of a person who was married to the decedent at the time of the
decedent’s death, or the child of a person to whom the decedent was married, which person died
during the marriage to the decedent.

See id. § 1 (codified at Iowa Code § 450.1(1)(e) (2005)).
Thus, as of 2003, “stepchild” for purposes of the inheritance tax exemption was limited to
stepchildren of a decedent who had not divorced the parent prior to the decedent’s death.
Based on this statutory definition, the Iowa Department of Revenue denied Donald’s estate’s
request for a refund in a letter dated April 10, 2014. The letter explained that because Constance
and Donald were divorced at the time of Donald’s death, Paula’s and Mark’s shares of the estate
were not eligible for the stepchild tax exemption.
Paula and Mark then filed a protest with the department on May 7, challenging the denial of the tax
refund on the ground that the statute’s classification of stepchildren violated their equal
protection rights under article I, section 6 of the Iowa Constitution.
Following a contested hearing on April 10, 2015, an administrative law judge issued a proposed
decision on February 26, 2016, setting forth findings of fact and conclusions of law and rejecting
the equal protection challenge. This decision became final when Paula and Mark declined to appeal
to the director of the department.
Paula and Mark thereafter filed a timely petition for judicial review with the Iowa District Court
for Polk County. On September 14, the district court issued a ruling affirming the department’s
decision. The court reasoned,

The challenged classification is rationally related to the legitimate state interests of promoting
the development of close legal relationships and stability in families raising stepchildren. Close
legal relations and stability within the family unit created by the parents’ marriage are vital to
proper child-rearing, and providing stable homes for children is undoubtedly a legitimate state
interest. Approximately four and one half percent of all households in the United States with
children under the age of eighteen are blended families raising stepchildren and biological
children. Granting an inheritance tax exemption to stepchildren (as defined in section 450.1(1)(e))
of blended households in Iowa puts the stepchildren and the biological children in such families on
equal footing when it comes to their inheritance tax obligations, should one of the parents pass
away during the marriage. The legislature may have concluded that removing such inequality would
help strengthen the legal relations in blended families. Once a blended family is terminated by
divorce, however, there no longer is any need to strengthen the legal relations within the family
unit because the divorce dissolved the family unit. The legitimate governmental interest of
providing stable homes for raising children in blended families disappears upon divorce.
. . . .
. . . With respect to taxpayers whose biological parent and stepparent divorced prior to the death
of either parent the legislature may have concluded that the balancing of these competing
considerations weighed against granting an exemption.
. . . .
. . . The challenged classification is neither extremely overinclusive nor extremely
underinclusive, and, therefore, section 450.1(1)(e) should be upheld as constitutional.

(Citations and footnote omitted.)
Paula and Mark appealed, and we retained the appeal.
II. Standard of Review.
“We generally review a district court’s decision on a petition for judicial review of agency action
for correction of errors at law. However, in cases . . . where constitutional issues are raised,
our review is de novo.” LSCP, LLLP v. Kay-Decker, 861 N.W.2d 846, 854 (Iowa 2015)


(alteration in original) (quoting Qwest Corp. v. Iowa State Bd. of Tax Review, 829 N.W.2d 550, 557
(Iowa 2013)).
III. Analysis.
A. The Legal Standards. Article I, section 6 of the Iowa Constitution states, “All laws of a
general nature shall have a uniform operation; the general assembly shall not grant to any citizen,
or class of citizens, privileges or immunities, which, upon the same terms shall not equally belong
to all citizens.” Iowa Const. art I, § 6. This clause of our constitution “is essentially a
direction that all persons similarly situated be treated alike.” Varnum v. Brien, 763 N.W.2d 863,
878 (Iowa 2009) (quoting Racing Ass’n of Cent. Iowa v. Fitzgerald (RACI II), 675 N.W.2d 1,
7 (Iowa 2004)); accord Residential & Agric. Advisory Comm., LLC v. Dyersville City Council, 888
N.W.2d 24, 49 (Iowa 2016). “We may conclude [article I, section 6] is more protective [than the
Fourteenth Amendment].” LSCP, 861 N.W.2d at 856.
The parties agree that the rational basis test applies to our review of Iowa Code section
450.1(1)(e) (2017). See LSCP, 861 N.W.2d at 858 (“[W]e ensure uniform operation under the Iowa
Constitution by reviewing economic legislation—which includes tax statutes—under a rational basis
test.”). Under the rational basis test, “the statute need only be rationally related to a
legitimate state interest.” Qwest, 829 N.W.2d at 558 (quoting Sanchez v. State, 692 N.W.2d 812,
817–18 (Iowa 2005)). This standard “is especially deferential in the context of classifications
made by complex tax laws.” LSCP, 861 N.W.2d at 856 (quoting Nordlinger v. Hahn, 505 U.S. 1, 11, 112
S. Ct. 2326, 2332 (1992)). In tax matters, “the legislature possesses the greatest freedom in
classification.” Qwest, 829 N.W.2d at 558 (quoting Hearst Corp. v. Iowa Dep’t of Revenue & Fin.,
461 N.W.2d 295, 305 (Iowa 1990)). For this


reason, tax laws analyzed under the rational basis test “have generally been upheld without much
difficulty.” LSCP, 861 N.W.2d at 859 (quoting Qwest, 829 N.W.2d at 558).
Despite this deference, the state’s freedom in classification is not absolute. Under the rational
basis test, we must determine not only that the statute serves a legitimate governmental interest,
but also that the interest itself is “realistically conceivable” and has a “basis in fact.” See
RACI II, 675 N.W.2d at 7–8; see also Residential & Agric. Advisory Comm., 888 N.W.2d at 50. To meet
that requirement, “actual proof of an asserted justification [is] not necessary, but [we will]
not simply accept it at face value and [will] examine it to determine whether it [is] credible as
opposed to specious.” Qwest, 829 N.W.2d at 560. Further, the relationship between the
classification and the purpose must not be “so weak that the classification must be viewed as
arbitrary.” McQuistion v. City of Clinton, 872 N.W.2d 817, 831 (Iowa 2015) (quoting RACI II, 675
N.W.2d at 8).
In challenging the constitutionality of section 450.1, Paula and Mark face a heavy burden. “The
burden is not on the government to justify its action, but for the plaintiff to rebut a presumption
of constitutionality.” McQuistion, 872 N.W.2d at 831. Paula and Mark must “negate every
reasonable basis upon which the classification may be sustained.” Varnum, 763 N.W.2d at 879
(quoting Bierkamp v. Rogers,
293 N.W.2d 577, 579–80 (Iowa 1980)). Even if some inequality arises from the law’s application,
this does not invalidate the law. See Qwest, 829 N.W.2d at 555. “[T]he fit between the means chosen
by the legislature and its objective need only be rational, not perfect.” LSCP, 861 N.W.2d at
859; accord Qwest, 829 N.W.2d at 555; City of Waterloo v. Selden, 251 N.W.2d 506, 508–09 (Iowa
1977) (“An iron rule of equal


taxation is neither attainable nor necessary.”). Only a “rough correspondence between the asserted
state interest and the classification” must be shown. Qwest, 829 N.W.2d at 559.
B. Applying Those Standards to This Case. Although most states have abolished their death taxes,
six states (including Iowa) still have an inheritance tax. See Iowa Code § 450.9; Ky. Rev.
Stat. Ann.
§ 140.010 (West, Westlaw through 2017 Reg. Sess.); Md. Code Ann. Tax– Gen. § 7-202 (West, Westlaw
through 2017 Reg. Sess.); Neb. Rev. Stat. Ann. § 77-2001 (West, Westlaw through 1st Reg. Sess
2017); N.J. Stat. Ann. § 54:34-1 (West, Westlaw through L. 2017, c.237 & J.R. No. 18) 2017); 72 Pa.
Stat. and Cons. Stat. Ann. § 9106 (West, Westlaw through 2017 Reg. Sess. Acts 1–36, 41 & 45). All
of these state laws favor family beneficiaries in a variety of ways. Nebraska does not have an
exemption or special inheritance tax rate for stepchildren, but confers a special rate on “any
person to whom the deceased for not less than ten years prior to death stood in the acknowledged
relation of a parent.” See Neb. Rev. Stat. Ann. § 77-2004.
The department contends that Paula and Mark are not “similarly situated” as compared with
stepchildren whose natural parent has not been divorced from the stepparent. This inquiry is a
threshold question for determining whether an equal protection violation has occurred. See
Timberland Partners XXI, LLP v. Iowa Dep’t of Revenue, 757 N.W.2d 172, 175 (Iowa 2008); see also
Baker v. City of Iowa City, 867 N.W.2d 44, 56 (Iowa 2015) (“The first step in determining whether a
statute violates equal protection is to determine whether the statute creates different
classifications between similarly situated persons.”).
Paula and Mark counter they are similarly situated because their close relationship with Donald
continued after the legal relationship


between their mother Constance and their stepfather Donald had been severed. They also maintain
that based on the doctrine of relation by “affinity,” we previously indicated in two statutory
interpretation cases that a stepchild retains that status notwithstanding the termination of the
marriage by death or divorce. See Farnsworth v. Iowa State Tax Comm’n, 257 Iowa 280, 284, 132
N.W.2d 477, 480 (1965); Simcoke v.
Grand Lodge of A.O.U.W. of Iowa, 84 Iowa 383, 388, 51 N.W. 8, 9 (1892). From this, they urge they
are similarly situated to stepchildren whose parent and stepparent did not undergo a divorce.
We will assume for this appeal that both categories of stepchildren are similarly situated. As we
have said, “No two groups are identical in every way, and ‘nearly every equal protection claim
could be run aground onto the shoals of a threshold analysis if the two groups needed to be a
mirror image of one another.’ ” Qwest, 829 N.W.2d at 561 (quoting Varnum, 763 N.W.2d at 883); see
also LSCP, 861 N.W.2d at 860 (assuming without deciding for purposes of the analysis that the
plaintiff was similarly situated). “The purposes of the law must be referenced in order to
meaningfully evaluate whether the law equally protects all people similarly situated with respect
to those purposes.” Varnum, 763 N.W.2d at 883. So we will pass over the “similarly situated”
inquiry and focus instead on the grounds justifying the law. See LSCP, 861 N.W.2d at 860
(assuming without deciding that “LSCP has identified a class of similarly situated taxpayers
subjected to allegedly different treatment”); Qwest, 829 N.W.2d at 561 (same).
As noted, we do not simply take the purported governmental interests at face value but will examine
them ourselves to determine whether they are realistically conceivable and have a proper basis in
fact. See Qwest, 829 N.W.2d at 560. Although raising revenue is not


sufficient on its own to be a legitimate interest, see RACI II, 675 N.W.2d at 13, we have held that
generating tax revenues may be a sufficient governmental interest when paired with the goal of
achieving a fair distribution of the tax burden, see Dickinson v. Porter, 240 Iowa 393, 406, 35
N.W.2d 66, 75 (1948).
Here, we agree with the department and the district court that promoting family relationships and
close connections among relatives are legitimate state goals. As seen above, family-based tax
exemptions or favorable tax rates are commonplace in inheritance tax laws. They are intended to
promote and preserve the family relationship while balancing that interest against the goal of
raising revenue. Favorable tax treatment of intrafamily transfers, at the most basic level, allows
more assets to remain within the family. This strengthens the family and helps the family maintain
financial security. Such tax laws also incentivize persons to keep their wealth within that group
rather than transferring it outside. In addition, these laws promote harmonious intrafamily
Paula and Mark do not really dispute that protecting the family unit is a legitimate state
interest. They do not contend, for example, that the inheritance tax laws need to treat all
beneficiaries the same or cannot favor family over nonfamily beneficiaries. In this case, for
instance, no one is claiming it is improper for Donald’s testamentary transfer to his ex-wife
Constance to be taxed, although he obviously maintained an amicable enough relationship with her to
bequeath her over $418,000 worth of assets.
The purpose of the statute, however, could just as easily be characterized as the promotion of
close family relationships: bequests to close relatives are encouraged by

taxing those bequests at a lower rate than are bequests to more distant relatives and nonrelatives.

Estate of Kunkel v. United States, 689 F.2d 408, 416 (3d Cir. 1982) (rejecting an equal protection
challenge to a Pennsylvania state inheritance tax that subjected bequests to stepgrandchildren to a
higher rate of taxation than bequests to grandchildren or stepchildren); see also Mueller Estate v.
Transfer Inheritance Tax Bureau, 5 N.J. Tax 642, 649, 653 (1983) (rejecting an equal protection
challenge to a New Jersey law that made a similar distinction).
We ourselves have indicated that the state has a legitimate interest in “promoting the sanctity and
stability of the family.” Callender v. Skiles, 591 N.W.2d 182, 191 (Iowa 1999) (stating also that
it is “an important value in our society”); see also Varnum, 763 N.W.2d at 883 (recognizing a
legitimate state interest in a “stable framework” for couples raising children); State v. Mitchell,
757 N.W.2d 431, 438–39 (Iowa 2008) (finding a legislative distinction between married and unmarried
cohabitation in the sex offender laws met the rational basis test). When a parent of a child
marries someone who is not a parent of that same child, the state has an appropriate interest in
promoting this network of intrafamily relationships, including the stepparent–stepchild
relationship. A tax exemption for testamentary transfers from stepparent to stepchild serves this
The question, therefore, is not the legitimacy of the end, but whether a line drawn between
stepchildren whose parent previously divorced the stepparent and stepchildren whose parent had not
divorced the stepparent meets the rational basis test. This is the “fit” question.
We think the fit is adequate for article I, section 6 purposes. It is “neither overinclusive nor
underinclusive to an extreme degree.” LSCP,


861 N.W.2d at 862. Nor is it “illogical.” Qwest, 829 N.W.2d at 561 (quoting RACI II, 675 N.W.2d at
10). When a divorce occurs, the parent and the stepparent no longer form a single family unit.
Thus, favorable tax treatment of transfers from stepparent to stepchild is no longer needed to
promote or protect that family. Also, to the extent beneficial tax treatment is intended to
promote certain close relationships among relatives, it is not illogical to assume that—on
average—the relationship between the stepparent and stepchild is closer during a marriage than
after a divorce.
Indeed, Webster’s Dictionary defines stepchild as “a child of one’s wife or husband by a former
partner.” Stepchild, Merriam-Webster’s Collegiate Dictionary (11th ed. 2014). By that definition,
Paula and Mark ceased to be stepchildren of Donald upon his divorce from Constance. This is the
same result provided by Iowa Code section 450.1(1)(e).1
As the district court put it,

The challenged classification does not punish (by imposing inheritance tax) former stepchildren for
the parents’ decision to divorce. It merely removes an incentive that promotes the development of
close legal relations within the family unit once that unit is dissolved by divorce. The
legislat[ure] may have concluded that once the family unit is dissolved upon divorce, there is less
likelihood that the former stepchild and stepparent will have an ongoing personal relationship.

True, in this particular case, Donald regarded Paula and Mark as his children. The three of them
were close. But the fit can be “far from perfect,” so long as the relationship “is not so
attenuated as to render the

Here is the link to the opinion: https://www.iowacourts.gov/iowa-courts/supreme-court/supreme-court-opinions/case/16-1731

2As we reiterated in Mitchell, “[P]ractical problems of government permit rough accommodations.”
757 N.W.2d at 437 (quoting State v. Mann, 602 N.W.2d 785, 792 (Iowa 1999)). “As long as the
classificatory scheme chosen by [the legislature] rationally advances a reasonable and identifiable
governmental objective, we must disregard the existence of other methods of allocation that we, as
individuals, perhaps would have preferred.” Id. at 438 (alteration in original) (quoting Sanchez,
692 N.W.2d at 818).


N.W.2d at 16. We rejected seriatim, under article I, section 6, each of the supposed rational basis
interests accepted by the United States Supreme Court for Fourteenth Amendment purposes. First, the
alleged purpose to promote river communities was “illogical”—there were casinos on the rivers and a
riverboat on a lake. Id. at 9–11. Nor could reliance interests justify the huge tax discrepancy.
Id. at 11–12. Under the legislation, “the taxation lines are drawn . . . regardless of the time
of investment.” Id. at 11. Finally, we rejected the alleged interest in aiding the financial
position of riverboats, because this rationale was fundamentally circular. Id. at 12–13. Any
classification in the tax laws always benefits the party on the right side of the classification.
Id. at 13. There must be some rational reason for favoring that party. Id. Here we noted that the
legislative history actually disproved claims that casinos could absorb a higher tax rate or that a
lower tax rate on gambling receipts at riverboats was designed as an incentive to keep them from
moving to another state. See id. at 14 (“[T]he legislative history indicates otherwise.”); id. at
15 (“[T]he legislative history belies that argument.”).
The case before us differs from RACI II. In the present case, it is not illogical to conclude the
tax classification furthers the objective of protecting and preserving families and family
relationships. Additionally, the asserted government interest is not simply a restatement of the
classification itself. Nor is the alleged government interest undermined by the actual legislative
history. Indeed, the parties have stipulated that there is no legislative history for the Iowa Code
section 450.1(1)(e) definition of stepchild. Although Paula and Mark made a narrow factual showing
in this instance, the individualized circumstances in this case do not convince us that there is
no factual basis for the legislature’s general classification scheme.


Since RACI II, we have twice upheld tax classifications against article I, section 6 challenges. In
Qwest, we sustained a personal property tax that fell only on the Iowa-based property of incumbent
local exchange carriers (ILECs), and not on the Iowa-based property of competitive long-distance
carriers (CLDCs) or wireless exchange carriers. 829 N.W.2d at 551. We reasoned that although ILECs
and CLDCs provide comparable services, the legislature could rationally conclude that ILECs
continue to have market dominance in wireline services, and that taxing ILECs but not CLDCs was a
reasonable way to spur competition while capturing some of the ILECs’ monopoly rents. Id. at
562–63. We further noted that the legislature could reasonably conclude wireless services already
operated in a competitive industry and, to some extent, comprised a separate market from wireline
services. Id. at 562–
64. That being the case, the legislature could rationally conclude a tax on the property of
wireless companies would not recover a monopoly rent but would simply be passed along to the
consumer in the form of higher prices. Id. at 563–64. These considerations were sufficient for the
classification to be upheld.
In LSCP, we overruled an article I, section 6 challenge to a state tax on interstate deliveries of
natural gas to direct customers. 861 N.W.2d at 862. The tax varied based upon the customer’s
location within Iowa, it grandfathered as exempt preexisting direct customers, and for each of
fifty-two geographic areas it effectively froze that area’s overall tax liability from 1998. Id. at
852–53, 861. The taxpayer argued instead for a single statewide tax rate. Id. at 854.
Nonetheless, we upheld the variable tax as a way to protect pre-1999 users from drastic change
while possibly reducing the effect of tax costs on a new prospective direct customer’s choice of
location. Id. at 862.

Qwest and LSCP illustrate the inherent difficulty in drawing lines for taxation purposes. Having a
single uniform rate may result in greater unfairness than having multiple rates. And eliminating
one discrepancy because of perceived unfairness may lead to another. For example, if the child of a
decedent’s ex-spouse is constitutionally entitled to preferential inheritance tax treatment, why
not a decedent’s nephew, niece, or foster
In sum, we find a rational basis exists for the legislature to exclude stepchildren postdivorce
from the inheritance tax exemption for surviving spouses, lineal descendants, lineal ascendants,
and other stepchildren. Iowa Code section 450.1(1)(e) therefore does not violate article I, section
6 of the Iowa Constitution.
IV. Conclusion.
For the foregoing reasons, we affirm the judgment of the district

Posted by: Len Sandler | Nov 20, 2017 7:08:24 AM


Posted by: Len Sandler | Nov 20, 2017 7:09:39 AM

Post a comment