Adams' Estate, In re

• Decision Date: 30 October 1958
• Citation: 164 Cal.App.2d 698,331 P.2d 149
• Court: California Court of Appeals Court of Appeals
• Parties: In re ESTATE OF Arthur E. ADAMS, Deceased. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, Contestant and Appellant, v. Robert C. KIRKWOOD, State Controller, Petitioner and Respondent. Civ. 23196.

Page 149

331 P.2d 149

164 Cal.App.2d 698

In re ESTATE OF Arthur E. ADAMS, Deceased.

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, Contestant and Appellant, v. Robert C. KIRKWOOD, State Controller, Petitioner and Respondent.

Civ. 23196.

District Court of Appeal, Second District, Division 3, California.

Oct. 30, 1958.

Hearing Denied Dec. 23, 1958.

Austin, Austin, Jones & Chaffee and Irving P. Austin, Compton, for appellant.

James W. Hickey, Chief Inheritance Tax Atty., Scramento, J. D. Lear, San Francisco, and Walter H. Miller, Chief Asst. Inheritance Tax Attys., Los Angeles, for respondent.

VALLEE, Justice.

Appeal from a judgment fixing an inheritance tax.

Arthur E. Adams died testate on June 10, 1956. His only heir is Bertha A. Sill, a sister. His will, executed May 28, 1956, less than 30 days before his death, was admitted to probate. The will, after bequeathing a number of pecuniary legacies, bequeathed and devised the residue of the estate in trust to pay the income to Bertha A. Sill; on her death, to her daughter; and on the death of both to distribute the principal of the trust estate and undistributed income to four charities: American Cancer Center of Cleveland, Ohio, National Foundation of Infantile Paralysis of Cleveland, Ohio, Multiple Sclerosis Society of Cleveland, Ohio, and Crippled Children Home and Hospital of Elyria, Ohio, in equal shares. The will directed that all inheritance taxes be paid out of the residue and not charged against or collected from any beneficiary.

On July 15, 1957 the probate court made an order for preliminary distribution of the estate which, after ordering distribution of cash legacies, ordered that $9,120.78 cash and stocks of the value of $131,802.50 be distributed to Bank of America in trust for the following uses and purposes:

'(a) Distribution of income to Bertha A. Sill, sister of deceased, and upon her decease to her daughter Mary L. Linnane;

'(b) Upon the death of the survivor of said Bertha A. Sill and her daughter Mary L. Linnane, to distribute the entire principal of the trust estate together with the undistributed income in equal shares to the four charities mentioned in the Last Will and Testament of said Arthur E. Adams, to wit: American Cancer Center of Cleveland, Ohio; National Foundation of Infantile Paralysis of Cleveland, Ohio; Multiple Sclerosis Society of Cleveland, Ohio; and Crippled Children's Home & Hospital of Elyria, Ohio.'

There was no objection by Bertha A. Sill or by any other person to this order, and it became final.

On September 23, 1957 the inheritance tax appraiser filed his report in which he taxed to Bertha A. Sill the remainder bequeathed, devised, and distributed to the four charities. Bank of America, the trustee, filed objections to the report, alleging that the bequest to Bertha A. Sill was improperly charged with the tax on the remainder.

At the hearing the matter was submitted on a stipulation of the facts we have stated. The objections to the report were overruled, the report was approved and confirmed, and the court charged the tax on the remainder to Bertha A. Sill. Bank of America, as trustee, appeals.

Appellant contends the remainder which goes to the four charities is tax-free and that Mrs. Sill was erroneously charged therewith. Respondent asserts 'the right of an heir to avoid a bequest to charity pursuant to Probate Code, sec. 41 is taxable under the inheritance tax law as a transfer to the heir by succession.' He argues: the inheritance tax is levied on the transmission of rights to property at death and that the state's right to the tax vests at the instant of death; it may not be affected by subsequent events; what actually passed to the charities was a right to take the entire property in the event Bertha Sill did not want to take it herself; the market value of this right was nil; what passed to Bertha Sill was the right to take the entire property, the market value of which is the value of the whole thereof. He says that since the will was executed less than 30 days before death, 'the charitable gifts are absolutely void.'

Probate Code, section 41, rpovides that no estate may be bequeathed or devised to any charitable or benevolent society or corporation by a testator who leaves a sister surviving him, who, under the will, or the laws of succession, would otherwise have taken the property so bequeathed or devised, unless the will was duly executed at least 30 days before the death of the testator; and that all property bequeathed or devised contrary thereto shall go to the sister of the testator if and to the extent that she would have taken the property but for such devises or legacies; otherwise the testator's estate shall go in accordance with his will and such devises and legacies shall be unaffected. ¹

A testamentary gift to charity is valid, even though made within 30 days of the testator's death, but the gift may be avoided at the instance of an aggrieved heir of a designated class. In re Estate of Leymel, 103 Cal.App.2d 778, 781, 230 P.2d 48. In the absence of objection by an aggrieved party, the gift passes to the charity. In re Estate of Moran, 122 Cal.App.2d 167, 169, 264 P.2d 598; In re Estate of Haines, 76 Cal.App.2d 673, 679, 173 P.2d 693. Also see In re Estate of Leymel, 103 Cal.App.2d 778, 781, 230 P.2d 48; In re Estate of Davison, 96 Cal.App.2d 263, 266, 215 P.2d 504. The purpose of section 41 is to protect the heirs named therein; and not to discriminate against charities by limiting their power to take. Matter of Estate of Dwyer, 159 Cal. 680, 687, 115 P. 242; 26 Cal.Law Rev. 309.

A preliminary or partial decree of distribution which has become final is a conclusive determination of the rights of all parties under a testamentary trust even if erroneous. In re Estate of Buckhantz, 159 Cal.App.2d 635, 324 P.2d 317; In re Estate of O'Connor, 158 Cal.App.2d 187, 322 P.2d 616. The decree of distribution which distributed cash and stocks to Bank of America in trust is a final determination that the remainder passes to the charities on the termination of the life estates and is res judicata in the later proceeding to assess the inheritance tax. In re Estate of Barter, 30 Cal.2d 549, 558-559, 184 P.2d 305. In In re Estate of Barter, supra, the residue of the estate was left by will to the British Government in trust, to be used for charitable purposes. The court appointed as trustee Combined British Charitable Fund, a California corporation, exclusively engaged in and devoted to charitable work. That order became final. Had distribution been made to the British Government, it would have been taxable; if Combined British Charitable Fund was the recipient of the bequest, it would be exempt. Holding that the appointment of a California trustee exempted the transfer from liability within the scope of the inheritance tax law, the court stated (30 Cal.2d at page 555, 184 P.2d at page 308):

'There now remains for consideration the eligibility of the 'residue of [this] estate' for the inheritance tax exemption by virtue of the first alternative condition in the proviso above quoted. Appellant [Controller] maintains that settlement of this point depends on the testator's will rather than the probate court's order declaring the identity of the trustee. Accordingly, it is his theory that the transfer of the residue to the British Government was effected at the moment of the testator's death and of necessity the transfer tax thereupon became payable; that the right of the state to collect a tax on the residuary estate attached at the same time, and the probate court's action in 'diverting the funds' cannot affect the assessment. As authority for this position, he cites the cases of [In re] Estate of Kennedy, 157 Cal. 517, 108 P. 280, 29 L.R.A.,N.S., 428, and [In re] Estate of Steehler, 195 Cal. 386, 233 P. 972, where it was held that in the absence of express statutory provision, homesteads and family allowances, as property distributions made in the probate proceeding pending the administration of the estate and not passing by will or by the intestate laws of the state, were not subject to the burdens of the inheritance tax. But no such consideration of the severance and 'diverting' of funds from the inheritable estate arises here where the probate court, in the exercise of its 'control' over the decedent's property 'for the purposes of administration, sale or other disposition' (Prob.Code, sec. 300), made its order effectuating the testamentary trust. * * *

'[30 Cal.2d at page 556, 184 P.2d at page 308.] The inheritance tax is not a tax on the property of the decedent but is an excise imposed on the privilege of succeeding to property upon the death of the owner. [Citations.] In the light of such definition, the assessment of the tax against a trust estate is not to be governed solely by the language of the will, but also by such events as affect the beneficial succession to the estate.'

The court gave a number of illustrations of events occurring subsequent to the death of a testator which have been held to affect the inheritance tax assessment, and said (30 Cal.2d at page 556, 184 P.2d at page 308):

'The beneficiaries of the testamentary trust herein are an indefinite class of persons, that is, British refugee children. They are essentially the devisees under the will [citation] and the British Government was the designated trustee. But the British Government having been found to be incapacitated to act as such trustee, it was incumbent upon the probate court to fill the vacancy so resulting and to appoint a trustee which could qualify. Pursuant to such duty, the probate court designated the Combined British Charitable Fund, a California corporation. It qualified and the transfer of the residuary estate was to such trustee. Such residue did not for one moment pass to the British Government; that entity could not and did not make any attempt to assume the testamentary of...