In re Estate of Rising

• Decision Date: 22 April 1932
• Docket Number: 28,745
• Citation: 242 N.W. 459,186 Minn. 56
• Parties: IN RE ESTATE OF AUGUSTA C. RISING; HENRY N. BENSON, ATTORNEY GENERAL, PETITIONER
• Court: Minnesota Supreme Court

242 N.W. 459

186 Minn. 56

IN RE ESTATE OF AUGUSTA C. RISING; HENRY N. BENSON, ATTORNEY GENERAL, PETITIONER

No. 28,745

Supreme Court of Minnesota

April 22, 1932

Certiorari upon the relation of Henry N. Benson, attorney general, to review an order of the probate court of Winona county, Looby, J. determining the inheritance tax due from the estate of Augusta C. Rising. Reversed with directions.

SYLLABUS

Taxation -- inheritance tax -- gifts inter vivos.

1. Gifts inter vivos, but with reservation of income to donor for life, while not testamentary and assumed not to be in contemplation of death (in the strict sense), are intended to "take effect in possession or enjoyment" upon death of the donor, when the donees become "beneficially entitled" to the property and "the income thereof" so as to make them liable to a succession tax under G. S. 1923 (1 Mason, 1927) § 2292(1,3, and 4).

Taxation -- inheritance tax -- gifts inter vivos.

2. Such gifts are expressly taxable as substitutes for testamentary disposition -- properly made so to prevent evasion of the inheritance tax otherwise easily possible.

Taxation -- state succession tax and federal estate tax.

3. Our state tax on such gifts and successions in distinguished from the federal estate tax, which is neither gift nor succession tax, but only a transfer tax.

Taxation -- inheritance tax on remainder upon termination of life estate.

4. Although a gift inter vivos would not be taxable otherwise yet if the donor divide his estate into life use and remainder and transfer the latter only, there is upon termination of the life estate a taxable succession.

Constitution -- classification for taxation of gifts inter vivos.

5. The classification for taxation of such gifts with those testamentary, causa mortis, and in contemplation of death is not a denial of due process of law and offends no constitutional limitations upon state authority.

Henry N. Benson, Attorney General, and John F. Bonner, Assistant Attorney General, for relator.

Brown, Somsen & Sawyer, for respondent.

O'Brien, Horn & Stringer, amici curiae, filed a brief in support of the contention of respondent.

OPINION

STONE, J.

Certiorari to the probate court of Winona county, on petition of the attorney general, to review an order determining the inheritance tax due from the estate of Augusta C. Rising, lately a resident of Winona county. She died there testate December 14, 1930. Property worth $19,563.60, embraced within two trusts hereinafter referred to, was held not taxable. To review that conclusion is the sole purpose of the writ.

Under a trust agreement of June 1, 1918, two parcels of income-bearing securities were transferred by the deceased to a trustee, with full powers of reinvestment and management. The donor reserved all the income to herself for life. Upon her death the income from parcel A was to go to a daughter, Mary B. Rising, as long as she lived, together with such portion "of the corpus of the trust funds" as might be necessary in the judgment of the trustee to provide for the maintenance of Mary during her life. At her death the trust was to terminate, with remainder to another daughter, Kate Rising Coy. To her went also parcel B upon the death of the donor. The trust agreement of June 1, 1918, was amended October 3, 1928, in particulars not material now, save that the First National Bank of Winona became the trustee. It is also executor of the will of the deceased. The order under review is defended on the ground that our inheritance tax does not reach gifts such as these. By amici curiae it is argued that if our statute be construed to the contrary it will be pro tanto unconstitutional.

Our present inheritance tax law begins with L. 1905, p. 427, c. 288, entitled: "An act providing for taxation of and fixing the rate of taxation on inheritances, devises, bequests, legacies and gifts, * * *" All through the act it is plain that gifts in lieu of testamentary disposition were intended to be taxed.

That purpose has been emphasized and strengthened by L. 1911, p. 516, c. 372, amending §§ 1 and 2. Section 1 (G.S. 1923 [1 Mason, 1927] § 2292) as far as now material, reads as follows:

"A tax shall be and is hereby imposed upon any transfer of property, * * *:

"(1) When the transfer is by will or by the intestate laws of this state * * *.

* * *

"(3) When the transfer is of property made by a resident or by a nonresident when such nonresident's property is within this state, or within its jurisdiction, by deed, grant, bargain, sale or gift, made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.

"(4) Such tax shall be imposed when any such person or corporation become beneficially entitled, in possession or expectancy, to any property or the income thereof, by any such transfer whether made before or after the passage of this act."

In furtherance of the same general purpose, subd. 5 covers transfers by the exercise or nonexercise of powers of appointment. By § 3 (G.S. 1923 [1 Mason, 1927] § 2294) the tax is made effective upon the death of the transferor.

1. A testamentary transfer operates only on and by reason of the maker's death. Until then it is ambulatory and divests the maker of none of his estate. 7 Wd. & Phr. (3 ser.) 452. It declares a present will as to disposal of property at death without creating any prior rights. 8 Wd. & Phr. (1 ser.) 6931. So Mrs. Rising's gifts to her daughters were not testamentary. As a working hypothesis we assume also that in the strict sense they were not made in "contemplation of death." There is nothing to indicate that the donor was moved to make them by an apprehension of approaching death from then existing infirmity or impending peril as distinguished from the consciousness common to all that death must come. 26 USCA, c. 20, p. 429; 2 Wd. & Phr. (1 ser.) 1488; 1 id. (2 ser.) 946; 2 id. (3 ser.) 393. But there is authority that such transfers may be considered so far induced by contemplation of death as to be within an inheritance tax not embracing them by more explicit inclusion. Chambers v. Larronde, 196 Cal. 100, 235 P. 1024, 41 A.L.R. 980. See also annotations 7 A.L.R. 1028; 21 id. 1335; 41 id. 989; and 2 Wd. & Phr. (3 ser.) 394; Milliken v. U.S. 283 U.S. 15, 51 S.Ct. 324, 75 L.Ed. 809; U.S. v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867.

The determinative question is whether the Rising gifts were, within the language of subd. 3, as amplified and explained by subd. 4 of § 1 of the statute, "intended to take effect in possession or enjoyment at or after" the death of the donor. On that event, did the two daughters become "beneficially entitled, in possession or expectancy, to any property or the income thereof" within subd. 4? Unhesitatingly we answer in the affirmative. Gifts inter vivos, absolute except for the reservation of income to the donor for life, are expressly reached by the statute.

2. By no means does it follow from negation of both testamentary character and their making in contemplation of death that the transfers were not substitutes for testamentary disposition. Quite plainly they are just that. The donor's purpose was, while transferring title to others, to postpone their beneficial enjoyment until her death. A succession tax would miss many a fair and open target were it not well sighted directly upon all transfers which can be resorted to in lieu of testamentary disposition; or at least upon those plainly so motivated. Hence, the obvious aim of subds. 3 and 4 of § 1 of our 1911 law (G.S. 1923 [1 Mason, 1927] § 2292). The purpose was to prevent tax evasion by gifts, absolute except for reservations of income and/or possession to the donor for life. Both purpose and the manner of accomplishment characterize many such statutes. 26 R.C.L. 223; 37 Cyc. 1567; Blodgett v. Guaranty Trust Co. 114 Conn. 207, 158 A. 245, 249; Tyler v. U.S. 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758. See marginal note, Coolidge v. Long, 282 U.S. 607, 51 S.Ct. 306, 313, 75 L.Ed. 572.

3. The opposing argument seeks justification in May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244. Consideration of that decision must begin with Reinecke v. Northern Tr. Co. 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397, involving seven trusts. Two were revocable and so taxable. The other "five trusts," not revocable, were yet held not taxable because there was no transfer by reason of death, within the meaning of the federal law. Life interests in income were created but not for the settlor. There were provisions for accumulation of income but not for the donor. The gifts were instantly complete, inter vivos, because nothing of substance remained to pass from donor to or for the benefit or enjoyment of donees at or after death of the donor.

The reason why there was no transfer subject to the federal tax was thus stated :

"In its plan and scope the tax is one imposed on transfers at death or made in contemplation of death and is measured by the value at death of the interest which is transferred. * * * It is not a gift tax, * * *. One may freely give his property to another by absolute gift without subjecting himself or his estate to a tax, but we are asked to say that this statute means that he may not make a gift inter vivos, equally absolute and complete, without subjecting it to a tax if the gift takes the form of a life estate in one [other than the donor] with remainder over to another at or after the donor's death. It would require plain and compelling language to justify so incongruous a result and we think it is wanting in the present statute."

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