Hershey's Estate, In re

Decision Date16 March 1965
Citation205 N.E.2d 590,1 Ohio App.2d 511
Parties, 30 O.O.2d 535 In re ESTATE of HERSHEY. HERSHEY, Exrx., Appellant, v. BOWERS, Tax Commr., Appellee.
CourtOhio Court of Appeals

Boehm & Rance and Naren Biswas, Columbus, for appellant.

William B. Saxbe, Atty. Gen., for appellee.

DUFFEY, Judge.

This is an appeal from an order of the Probate Court of Franklin County determining Ohio inheritance taxes. The basic issue is whether tax liability for certain joint and survivorship bank accounts should attach as a succession to the named survivor on the account, or attach as a succession to the legatte who receives the account as a result of its reversion to the estate. The case was submitted on its merits on an agreed stipulation of facts, plus exhibits 9 and 10. No objection has been raised to the exhibits.

Appellee has questioned the executrix's standing to appeal. The court is unanimous in holding that the executrix is a proper person to bring this appeal.

The decedent, William G. Hershey, died December 12, 1961. Surviving him were his wife (the executrix-appellant) and three adult children. The decedent's will left all property to his wife for life, with a remainder over to his children.

At the time of decedent's death, there were several joint and survivorship bank accounts in the names of decedent and his daughter Ethel Mae Wilcox, and in the names of decedent and his daughter Ruth Faye Knight. The entire funds in these accounts were contributed solely by the decedent, and neither daughter had any interest other than that created by the accounts themselves. There is nothing in the stipulation to show that either daughter exercised any right to the accounts or expressed any intent to accept the accounts during the decedent's life. There is nothing in the stipulation to show that either daughter even knew of the existence of the accounts prior to decedent's death.

After the death, both daughters filed a petition in declaratory judgment and for instructions asking that they be found to have disclaimed and renounced any interest in the accounts. The defendants were the executrix and all of the banks holding the accounts. The Probate Court held that the renunciation was valid and effective, and that the accounts belonged to the decedent's estate 'as fully as though no rights of survivorship had existed.' The court also held that the renunciation was not for any improper or illegal purpose. The executrix was ordered to collect and administer the accounts or assets of the estate 'as fully as if no joint and survivorship arrangements had been effectively provided.' The Tax Commissioner was not a party to that proceeding.

In this present tax case, the Probate Court appears to have adopted its previous findings. However, the exact wording or form of the disclaimer and renunciation is not clearly shown in the record. One member of this court doubts the sufficiency of the disclaimer. However, appellee did not question it by brief or in argument, and it is apparent that both parties wish to have the issue of taxation determined on the basis of a valid disclaimer. Upon a review of the record, the majority of this court considers the record sufficient to support a finding of an effective renunciation. Accordingly, this opinion and the concurring opinion both take as a fact that the daughters did not at any time, by word or act, either during decedent's life or after his death, accept the accounts, and that they did renounce and disclaim any interest in the accounts.

In the Probate Court's preliminary determination of Ohio inheritance taxes, the court found the accounts were taxable as a succession passing under decedent's will. Upon exceptions by the Tax Commissioner, the court reversed its position. It held that, regardless of renunciation, the accounts were taxable as a 'deemed succession' to the daughters under Section 5731.02(E), Revised Code. The court held that the tax 'is imposed upon the accrual of the right,' that the right 'accrued upon the decedent's death,' and that the subsequent renouncing of their interests 'cannot alter the tax consequences.'

One sidelight is the actual effect on tax liability. If the accounts are taxable as a succession passing through the estate, the federal estate tax may be reduced by about $10,000. On the other hand, the effect on Ohio inheritance taxes in this estate is negligible. While the persons taxed by Ohio would change, the total taxes collected will be approximately the same under either view. The significant factor is the federal marital deduction law. Depending on the status of a particular estate, appellant's view of the use of renunciation by a donee-beneficiary of a joint account might either increase or decrease the total Ohio taxes, although the difference would seldom be very significant. The effect on federal taxes can be substantial.

In the opinion of the majority, the Probate Court was in error, the order must be reversed, and the cause remanded for determination of taxes as a succession under the will.

The pertinent portions of Section 5731.02, Revised Code, provide:

'A tax is hereby levied upon the succession to any property passing, in trust or otherwise, to or for the use of a person * * * in the following cases:

'* * *

'(E) Whenever property is held by two or more persons jointly, so that upon the death of one of them the survivor has a right to the immediate ownership or possession and enjoyment of the whole property, the accrual of such right by the death of one of them shall be deemed a succession taxable under this section, in the same manner as if the enhanced value of the whole property belonged absolutely to the deceased person, and he had bequeathed the same to the survivor by will * * *.' (Emphasis added.)

In my opinion, the interpretation of this statute requires a review of the still developing legal nature of joint and survivorship accounts. The account is a chose in action--a right to receive or recover a debt arising out of contract. Since the obligation to pay a third party arises from a contract with the bank, the tendency in many states, especially Ohio, has been to emphasize the aspects of a third party beneficiary contract rather than the property aspects of a gift of a chose. See Rhorbacker, Exr., v. Citizens Building Assn. Co. (1941), 138 Ohio St. 273, 34 N.E.2d 751, 135 A.L.R. 988; Fecteau v. Cleveland Trust Co. (1960), 171 Ohio St. 121, 167 N.E.2d 890. Such accounts can have the effect of a testamentary disposition without the formal requirements of a testament. In actual practice, they are often very analogous to the 'Totten' trust. See 25 Ohio State Law Journal 283.

The leading case upholding such accounts and rejecting the attack on their testamentary character is Cleveland Trust Co. v. Scobie, Admr. (1926), 114 Ohio St. 241, 151 N.E.2d 373, 48 A.L.R. 182. The court there found that the establishment of the account by the contract of the depositor and the bank created an 'interest' in the noncontributing 'joint owner.' However, Judge Allen's opinion emphasizes not only the present intent of the donor to transfer an interest, but also that the depositor notified the other party of the account and secured her signature. The court held that this participation by the noncontributing party was an evidencing of her 'assent to the arrangement.' 114 Ohio St., at 253, 151 N.E.2d 373. (Emphasis added.)

Since Scobie was based on the assent of the noncontributing party, it left uncertain the validity of such an account where the donee had not participated in the arrangement. That question was presented for the first time in Rhorbacker, Exr., v. Citizens Building Assn. Co. (1941), 138 Ohio St. 273, 34 N.E.2d 751, 135 A.L.R. 988. The court upheld the validity of the account even though there was no evidence of participation. In doing so, the court followed other states which had accepted the social utility of such accounts and refused to apply a restrictive approach to their use. However, it is important to note that the requirement of assent was not eliminated. Rather, the court created a presumption of the fact of assent analogous to that found in general gift law. Both in the syllabus and in the opinion, the court specifically stated that 'full assent to the contract' by the nonparticipating party 'may be presumed' since it is generally advantageous to him.

The basis of the donee's interest in such an account therefore clearly lies in (1) a present intent of the donor-depositor to transfer an interest and (2) the assent of the noncontributing donee. Assent may be by actual assent, or by sufficient participation (Scobie), or by a rebuttable presumption of fact (Rhorbacker).

In my opinion, the mere establishment of the account does not create any ownership interest or right in a nonparticipating party to the account. It creates only a power to withdraw by virtue of being the third party beneficiary under the depositor's contract with the bank. The creation of an ownership interest requires both the present intent to transfer and an assent. The confusion arises from a failure to distinguish the underlying legal doctrine from the evidentiary problem.

Where the only evidence produced is the account itself, a present intent can be inferred from the establishment, and an assent inferred from either participation or by the presumption of fact. However, either inference can be rebutted by additional evidence, and the party shown to hold only a bare power of withdrawal.

In the present case, a present intent can be inferred, but the only basis for assent, the presumption, has been rebutted by renunciation and refusal. Accordingly, I believe that there was no 'accrual' of a 'right' for probate purposes nor within the meaning of Section 5731.02, Revised Code.

Even assuming a nonparticipating party may be said to acquire some type of ownership interest regardless of his assent, there is...

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    ...names is proof that Sandra renounced her rights and interests in the Skrl Companies. {¶12} Sonja relies on In re Estate of Hershey, 1 Ohio App.2d 511, 205 N.E.2d 590 (10th Dist.1965) in support of her argument. In Hershey, the court held that two beneficiaries of joint and survivorship bank......

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