Castle v. Castle

• Decision Date: 05 June 1922
• Docket Number: 3833.
• Citation: 281 F. 609
• Parties: CASTLE et al. v. CASTLE et al.
• Court: U.S. Court of Appeals — Ninth Circuit

281 F. 609

CASTLE et al. v. CASTLE et al.

No. 3833.

United States Court of Appeals, Ninth Circuit.

June 5, 1922

Rehearing Denied August 7, 1922.

In Error to the Supreme Court of the Territory of Hawaii.

A. G M. Robertson, Alfred L. Castle, W. A. Greenwell, and Arthur Withington, all of Honolulu, T.H., for plaintiffs in error.

Harry Irwin, Atty. Gen., of Honolulu, T.H., for Territory of Hawaii.

Robbins B. Anderson, of Honolulu, T.H., and E. B. McClanahan and S H. Derby, both of San Francisco, Cal., for defendant in error Castle.

Before MORROW and HUNT, Circuit Judges, and BEAN, District Judge.

BEAN District Judge.

This is a writ of error to the Supreme Court of the territory of Hawaii, issued on the petition of the trustees of the estate of James Bicknell Castle, deceased, and is concerned with the assessment and payment of an inheritance tax under the laws of the territory. Castle, a resident of the territory, died in April, 1918, leaving a large estate, which (except a small piece of land devised to his wife) he devised and bequeathed to trustees. The will is long and involved, but for present purposes the trustees were directed and empowered, after payment of debts and funeral expenses:

(a) To manage, control, invest, and reinvest the property, and to pay from the income $1,500 a month to the widow, and to subsequently increase this if, in their judgment, the income justified, to a sum not to exceed $40,000 a year.

(b) Upon the death of the widow to pay to the testator's son Harold not 'less than $5,000 per annum, unless caused by financial embarrassment or inconvenience (of which the trustees shall be the absolute judges), and not to exceed $40,000, which latter sum shall include the income he may receive from certain other property.'

(c) To carry on and develop certain business enterprises in which the testator was engaged, and such other related lines of business as the trustees, or the majority of them, may approve, 'in harmony with the ultimate object of my remaining in active business, namely, to accumulate sufficient land and capital to systematically establish an effort to introduce a high-class agricultural immigration of the Northern races,' and, after the fulfilment of this and other special objects, 'to apply any excess of income, and after the death of my wife and son the whole income (always subject to the decision of the executors to devote same to any business enterprise whatever which they may approve), to accumulate toward any educational purpose to be initiated at such time as their judgment will determine, the estate amply able to carry on without closing its commercial character,' namely, a coeducational boarding school devoted primarily to agricultural and domestic science, and--

'I hereby declare that nothing herein contained shall be construed to require my executors and trustees to engage in or carry on any business enterprise herein enumerated, or, if they do carry them on, nothing herein contained shall be construed as limiting their discretion in the ways and means, or the extent to which the same shall be carried on. I wish, and hereby declare that they shall have the widest discretionary powers in continuing or discontinuing said enterprises, or either of them; and in the ways, means and methods of conducting or carrying them on; and of engaging in and conducting any other business enterprise or enterprises, which they, in their discretion, may consider for the best interest of my estate.

'I also more particularly give them discretion to abandon the attempt to introduce and settle emigrants of the Northern races, if, after trial thereof, they, in their sole discretion, shall become convinced that it is impracticable or not successful enough to warrant further expenditure of money.

'I hereby specifically authorize and empower my executors and trustees to buy, lease or otherwise acquire any property, real, personal or mixed, which, in their discretion, they may deem necessary or proper to carry into effect any of the objects or purposes herein set forth. * * *

'And also, the power to invest, change investment and reinvest any moneys at any time belonging to my estate, with sole discretion as to the character of such investments.'

The widow waived her rights under the will and elected to take dower, and a certain part of the estate was set off to her. Castle v. Castle (C.C.A.) 267 F. 521. This was held to have accelerated the provisions in favor of the son (Castle v. Irwin, 25 Hawaii, 786), and, by agreement between him and the trustees the amount of his annuity was capitalized and paid over to him. While the estate was in course of administration the Attorney General of the territory moved for the appointment of appraisers in order to fix the inheritance tax thereon. The facts were thereupon stipulated, and, among other things, that the value of the estate, for inheritance tax, after deducting the widow's dower, federal income tax, expenses of administration, etc., is $317,244.11, and the aggregate value of the life estate of the son is $183,165.53.

The questions for decision were: (1) Did the devise and bequest to the trustees, according to the terms and conditions of the trust, create a taxable transfer under the statute, or was it a public charity within the meaning of the law, and hence exempt from the tax? and (2) if taxable, is the tax on the agreed value of the annuity to the son payable by him or by the trustees?

The statute (Rev. Laws Hawaii 1915, Sec. 1323, as amended by Act No. 223, Laws of 1917) provides that all property which shall pass by will from any person who may die seized or possessed of the same, while a resident of the territory, to any person or persons in trust or otherwise, shall be subject to a tax of 3 per cent. on amounts between $100,000 and $250,000,...