Petersen v. Iowa Ex Rel. State Treasurer

Background

Anna M. Anderson was born in Denmark but became a naturalized United States citizen and lived in Iowa, where she owned property. Her will left money to nephews and nieces who were Danish subjects living in Denmark. Iowa law charged a higher inheritance duty on legacies to nonresident aliens than on legacies to Iowa residents. The estate representative paid the higher duties, credited the payments in the estate accounting, and the foreign heirs objected, arguing a treaty between the United States and Denmark barred such discrimination. The Iowa courts rejected that claim, and the matter was reviewed by the national court.

Reasoning

The central question was whether the U.S.–Denmark treaty prevents Iowa from imposing a higher duty on legacies paid to Danish nonresidents when the decedent was an Iowa citizen. The Court explained that the treaty was designed to stop a country from discriminating against citizens of the other country who own or dispose of property located there, but it does not limit a state’s power to tax its own citizens and property within its borders. The Court also said the treaty’s favored-nation clause applies only to commerce and navigation, not inheritance duties, and it relied on earlier decisions to show the treaty did not cover the situation presented. For these reasons the Court affirmed the lower court’s ruling upholding the tax charge.

Real world impact

The decision means states may apply their own inheritance duties to estates of their citizens even when beneficiaries live in another country. Foreign heirs can expect smaller distributions after lawful state duties are paid. Executors and estate administrators should budget for state duties before distributing legacies to foreign beneficiaries.