Daum v. Inheritance Tax Commission of Kansas

• Court: Kansas Supreme Court
• Writing for the Court: HARVEY, J.
• Citation: Daum v. Inheritance Tax Commission of Kansas, 135 Kan. 210, 9 P.2d 992 (Kan. 1932)
• Decision Date: 09 April 1932
• Docket Number: 30420.
• Parties: DAUM et al. v. INHERITANCE TAX COMMISSION OF KANSAS et al.

9 P.2d 992

135 Kan. 210

DAUM et al. v. INHERITANCE TAX COMMISSION OF KANSAS et al.

No. 30420.

Supreme Court of Kansas

April 9, 1932

Syllabus by the Court.

Property recovered by wife's heirs pursuant to contract between husband and wife that survivor would devise property equally to heirs of both held subject to inheritance tax on surviving husband's death (Rev. St. 1923, 79--1501).

D. and wife had no living issue, but had substantial property. They agreed between themselves they would make no disposition of it while both were living, but the survivor would, by will leave one-half of it to his next of kin and the other half to her next of kin. D. survived his wife and on his death left a will giving all the property to his next of kin. The next of kin of Mrs. D. sued and recovered one-half of the property less expenses of administration. Held, the property was liable to an inheritance tax, for the reasons: First, that in effect it passed by will; and, second, by grant or gift in contemplation of death, or by grant or gift made and intended to take effect in possession and enjoyment after the death of Mr. and Mrs. D.

Appeal from District Court, Shawnee County, Division No. 2; Geo. H Whitcomb, Judge.

Action by P. C. Daum and others against the Inheritance Tax Commission of the State of Kansas and others. Judgment in favor of the defendants, and the plaintiffs appeal.

Hugh MacFarland, of Topeka, for appellants.

J Glenn Logan, Co. Atty., and Ernest E. Blincoe, Atty. for Inheritance Tax Commission, both of Topeka, for appellees.

HARVEY J.

This is an action to recover inheritance taxes paid under protest. The trial court sustained a demurrer to plaintiffs' petition, and they have appealed.

The facts are not in controversy and are so alleged that the action may be disposed of on the demurrer. Briefly, they are as follows: Natham I. Dalton and his wife, Louise C. Dalton owned, individually and collectively, a substantial amount of property. They had no living issue. They entered into a contract between themselves under the terms of which it was agreed that no disposition of their property should be made while both were living, but that the survivor of them should make a will leaving all of the property one-half to next of kin of Natham I. Dalton and the other one-half to the next of kin of Louise C. Dalton. Natham I. Dalton survived his wife. At his death he left a will leaving all the property to his next of kin. The next of kin of Louise C. Dalton brought an action against the executor of the will, and the beneficiaries threin named, contending that by virtue of the contract above mentioned they were entitled to an undivided one-half of all the property owned by Natham I. Dalton at the time of his death. Issues were joined, and upon a trial the court found for plaintiffs and decreed that they were the owners of one-half of the property, and that they recover the same from the defendants, subject to administration of the estate in the probate court. No appeal was taken from that judgment. It was duly certified to the probate court, where administration was being had on the estate of Natham I. Dalton, and that court directed the executor to make distribution of the estate in accordance with the judgment so certified. The report of this distribution was made to the Inheritance Tax Commission, which made an order assessing an inheritance tax against the next of kin of Louise C. Dalton on the amount of money they received by reason of this distribution. They paid the tax under protest and later brought this action to recover the amount of the tax so paid.

In this action plaintiffs contend that they acquired the property referred to under and by virtue of the contract entered into between Natham I. Dalton and Louise C. Dalton prior to their death, and that the property acquired is not subject to an inheritance tax. The trial court held that the former action by plaintiffs, as a result of which they acquired the property, "was in the nature of an action for specific performance; that is, the plaintiffs there were claiming the right they would have had if Dalton had made a will. *** While no will was made, the plaintiffs in this case take practically on the theory that what was agreed to be done was in fact done. The devisees under Dalton's will were, in effect, charged as trustees"--citing Matter of Kidd, 188 N.Y. 274, 80 N.E. 924. The trial court further held: "In addition the right or grant given by Dalton to his wife was made in contemplation of death, and was intended to take effect in enjoyment after his death, within the meaning of section 79--1501, R. S. 1923."

Judgment was rendered for defendants.

The portion of the statute (R. S. 79--1501) necessary to be considered reads as follows: "All property, *** which shall pass by will or by the laws regulating intestate succession, or by deed, grant or gift made in contemplation of death, or made or intended to take effect in possession or enjoyment after the death of the grantor, to any person, absolutely or in trust, except in case of a bona fide purchase for full consideration in money or money's worth; *** shall be taxed as herein provided."

Generally speaking, the design of the statute is that the tax shall be levied upon all property which passes to one person by reason of the death of another, unless there has been a bona fide purchase of the property for which there has been full payment in money or money's worth. This last situation, of course, could arise only by contract (although the word "contract" is not used in the statute), and the person to whom the property passes is, in effect, a creditor, having become entitled to specific property, or to a specific sum of money, by reason of having paid for the same in money or money's worth. The law does not contemplate that the creditor of an estate shall be taxed on the sum due him, hence the specific exception is made. It is not contended in this case that the plaintiffs had, by any contract which they made with Mr. or Mrs. Dalton, or both of them, paid in money, or money's worth, the value of the undivided half interest in the property; hence, it is clear they do not come within the exception named in the statute. They made no contract with any one. The contract was one between Mr. and Mrs. Dalton. Between them there was a consideration for it. These plaintiffs paid no consideration. They were beneficiaries of the contract made between Mr. and Mrs. Dalton. That contract was that these plaintiffs were to receive a half interest in the property by a will. Mr. Dalton made a will. They did not seek to set that will aside. Had that been attempted and accomplished, all the property would have passed under the laws of descent to the next of kin of Mr. Dalton, and these plaintiffs would have received nothing. Stated in one way, their action was to modify the will, enlarge it, or reform it, so that it would conform to the contract made between Mr. and Mrs. Dalton for their benefit. Legally speaking, they charged the executor and devisees under the will as trustees for them. They succeeded in that action, and the half interest in the property, subject to its administration in probate court, passed to them, just as it would have passed had Mr. Dalton made the will as he had agreed with his wife he would make it. It is not inappropriate, therefore, to say that the property passed to them under the will of Mr. Dalton.

The precise question was before the Court of Appeals of New York in the case of Matter of Kidd, 188 N.Y. 274, 80 N.E 924. In that case George W. Kidd died possessed of a substantial estate. He left a will by which a stepdaughter, Mrs. Dickinson, was a beneficiary to a limited extent. Mrs. Dickinson brought an action against the executor and beneficiaries under the will alleging an antenuptial agreement between her mother and George W. Kidd, whereby, in consideration of the marriage and the promise of her mother to turn over to him $40,000 to be used in his business, he agreed, in certain contingencies which existed, to make a will leaving all the property to her, and alleging the performance of the agreement by her mother and the failure of George W. Widd to perform the same on his part. She recovered judgment as prayed. Thereafter she instituted a proceeding to have the estate declared exempt from tax, contending she had received the property by virtue of a contract. The court held against that contention. In the opinion it was said: "The contract between the plaintiff's mother and the deceased, *** was to bequeath and devise to his stepdaughter by will. *** It was not a contract to convey, but a contract to make a will in her favor. *** It does not affect the...