In re Knight's Estate

• Decision Date: 08 November 1948
• Docket Number: 30578.
• Citation: 31 Wn.2d 813,199 P.2d 89
• Court: Washington Supreme Court
• Parties: In re KNIGHT'S ESTATE.

199 P.2d 89

31 Wn.2d 813

In re KNIGHT'S ESTATE.

No. 30578.

Supreme Court of Washington

November 8, 1948

Department 1

Rehearing Denied Dec. 14, 1948.

Proceeding in the matter of the estate of Martha J. Knight, deceased, on exceptions by executor to findings made by the supervisor of the inheritance tax and escheat division wherein the supervisor determined that the surrender value of certain life insurance policies constituted community property and that one-half of such cash surrender value should for inheritance tax purposes be included in the estate of the deceased beneficiary named in the policies. From a judgment approving and confirming the supervisor's findings fixing the amount of inheritance tax due, the executor appeals.

Judgment reversed and cause remanded with directions to sustain the executor's exceptions and to enter judgment accordingly.

Appeal from Superior Court, Skagit County; W. L. Brickey, Judge.

Allen Hilen, Froude & DeGarmo, of Seattle, for appellant.

Smith Troy and Philip W. Richardson, both of Olympia, for respondent.

STEINERT Justice.

This proceeding arose upon exceptions taken by the executor of a decedent's estate to findings made by the supervisor of the inheritance tax and escheat division, wherein the supervisor determined that the cash surrender value of certain life insurance policies constituted community property and that one-half of such cash surrender value should, for inheritance tax purposes, be included in the estate of the deceased beneficiary named in the policies. A hearing was had Before the court upon the exceptions taken by the executor, and thereafter the court entered judgment approving and confirming the supervisor's findings fixing the amount of inheritance tax due. The executor appealed.

The facts in the case are undisputed. Martha J. Knight, a resident of Mount Vernon, Washington, died testate on June 3 1945, leaving as her survivors her husband, P. F. Knight, and three sons. In her will she appointed her husband as executor thereof. The will was duly admitted to probate and, upon the confirmation of his appointment, the executor duly qualified as such. Thereafter, the executor proceeded to administer upon the estate of his deceased wife. He prepared and filed an inventory and appraisement of the estate, and served a copy thereof upon the inheritance tax and escheat division of the Washington state tax commission. Later, he prepared and submitted to the tax division an inheritance tax report and paid the state the sum of $10,796.30, which was the amount computed and transmitted by him as being due under that report.

Sometime after receiving the inheritance tax report and the amount of tax paid thereunder, the supervisor of the inheritance tax and escheat division made and filed in the probate cause his findings wherein he determined that, in addition to the amount already paid, there was due and owing from the estate a balance of $1,163.14.

This claim for additional inheritance tax was based upon information, contained in the executor's inheritance tax report, concerning the existence of certain life insurance policies and the cash surrender value thereof.

It appears that during the married life of P. F. Knight, the executor and appellant herein, and Martha J. Knight, now deceased, Mr. Knight took out seven policies of insurance on his own life, naming his wife as beneficiary in each of them. All premiums thereon were paid entirely from community funds, down to the date of Mrs. Knight's death and on that date the policies were in full force, having a total cash surrender value of $25,847.60. These facts were revealed by the executor in his inheritance tax report, although, in making his computation of the amount of inheritance tax due and owing from the estate, he did not include this item of cash surrender value of the policies, nor did he pay any inheritance tax on the admitted amount of the cash surrender value.

Upon the information thus furnished by the inheritance tax report, the supervisor made findings determining that an additional inheritance tax was due, on the theory that the cash surrender value of the policies was properly to be considered as part of the gross community estate. The effect of this was to subject one-half of the cash surrender value of the insurance policies to an inheritance tax imposed against the estate of the deceased beneficiary. The executor took formal exceptions to these findings and, upon a hearing Before the superior court, judgment was entered as hereinBefore stated, from which the executor appealed.

The question now presented for decision is this: Where a husband procures a policy of insurance upon his own life, making his wife the beneficiary therein, and all premiums on the policy are paid with community funds, and the wife subsequently dies, leaving her husband, the insured, surviving her, and at the time of her death the policy is still in force, may the state, for inheritance tax purposes, include any portion of the cash surrender value of the policy as part of the estate of the deceased wife, the beneficiary named in the policy, and thereby subject such cash surrender value to an inheritance tax levied against the deceased wife's estate?

For a better understanding of the problem here involved, we think it well, at this point, to define some of the terms used in the foregoing question.

'Insurance,' in its general sense, may be defined as an agreement by which one person, for a consideration, promises to pay money or its equivalent, or to perform some act of value, to or for the benefit of another person, upon the destruction, death, loss, or injury of someone or something as the result of specified perils. 29 Am.Jur. 47, Insurance, § 3; 44 C.J.S., Insurance, § 1, page 471; 1 Joyce, Law of Insurance 73, § 2. In section .01.04, p. 189, of the present insurance code of the state of Washington, Laws of 1947, chapter 79, 'insurance' is defined as a contract whereby one undertakes to indemnify or pay a specified amount to another upon determinable contingencies.

'Life insurance' is defined generally as a contract wherein a person called the insurer, for a certain sum of money, agrees that if another person, named in the insurance policy as the insured, shall die within the period limited therein, the insurer will pay the sum specified in the contract, according to the terms thereof, to the person designated in the policy as the beneficiary. 1 Couch, Cyclopedia of Insurance Law, 49, § 34; 44 C.J.S., Insurance, § 25, page 484.

The term 'cash surrender value' means the cash value, ascertainable by established rules, of a contract of insurance which has been abandoned and given up for cancellation to the insurer by the person having contract right to do so. In re Welling, 7 Cir., 113 F. 189, 51 C.C.A. 151.

An 'inheritance tax' is a special tax, being an excise or impost laid upon the privilege of receiving property by inheritance; it is a tax on the right or privilege of succession. In re Fotheringham's Estate 183 Wash. 579, 49 P.2d 480; City of Walla Walla v. State, 197 Wash. 357, 85 P.2d 676, 119 A.L.R. 1327.

It will be borne in mind that these policies of insurance were not upon the life of Martha J. Knight, who is now deceased, but upon the life of P. F. Knight, who is still living; that the policies became payable to Martha J. Knight only upon the death of P. F. Knight; and that, under the terms of the policies, nothing was to become due or payable to P. F. Knight upon the death of Martha J. Knight.

An inheritance tax, like any other tax, is a legal imposition exclusively of statutory origin and consequently, any liability for payment thereof must be found in the statute, or else it does not exist. Bente v. Bugbee, 103 N.J.L. 608, 137 A. 552, 58 A.L.R. 1137.

The statute which designates the kind or classes of property subject to inheritance tax is § 1, p. 534, chapter 184, Laws of 1945, Rem.Supp.1945,§ 11201, the applicable portion of which reads as follows: ' All property within the jurisdiction of this state, and any interest therein, whether belonging to the inhabitants of this state or not, and whether tangible or intangible, which shall pass by will or by the statutes of inheritance of this or any other state or by deed, grant, sale or gift made in contemplation of the death of the grantor, or donor, or by deed, grant or sale or gift made or intended to take effect in possession or in enjoyment after death of the grantor or donor, to any person in trust or otherwise, or by a transfer in trust or otherwise, under which the grantor or donor has retained for his life or for any period not ascertainable without reference to his death, or for any period which does not in fact end Before his death, the possession or enjoyment of any part of the property * * * shall, for the use of the state, be subject to a tax measured by the full value of the entire property * * *.' (Italics and Arabic numerals appearing in this quotation have been added.)

It is apparent, as well as conceded, that the property here sought to be taxed does not fall within any of the classes designated above by the Arabic numerals 3, 4, and 5, for no deed, grant, sale, or gift made in contemplation of death or intended to take effect after death, or transfer in trust for the grantor is here involved. The inquiry therefore narrows itself to the question whether the cash surrender value of the insurance policies here involved is property which passes either (1) by will or (2) by the statutes of inheritance.

No case from this jurisdiction has been brought to our attention which specifically answers the question presented. However the case of In re Killien's Estate, 178 Wash. 335, 35 P.2d 11, 14, is, in our opinion,...