Luce's Estate, In re

CourtUnited States Court of Appeals (Ohio)
Citation185 N.E.2d 559,116 Ohio App. 420
Parties, 89 Ohio Law Abs. 180, 22 O.O.2d 253 In the Matter of the ESTATE of George E. LUCE, Deceased. Alpheus W. SAUM, Executor, Exceptee-Appellant, v. Stanley J. BOWERS, Tax Commissioner, State of Ohio, Exceptor-Appellee.
Decision Date13 February 1962

Lawrence C. Pretzman, Columbus, for exceptee-appellant.

Mark McElroy, Atty. Gen., John J. Lokos, Asst. Atty. Gen., Columbus, for exceptor-appellee.

BROWN, Judge of the Fourth Appellate District, sitting by designation.

This is an appeal on questions of law from the judgment of the Probate Court of Franklin County sustaining exceptions of the Tax Commissioner to an order determining the inheritance tax in the estate of George E. Luce, deceased.

The record discloses that the decedent, a resident of Columbus, Ohio, died testate on November 19, 1959. On November 25, 1959 his will was admitted to probate. Item XVI of this will, which bequeaths $292,270.00, reads as follows:

'All the rest, residue and remainder of my estate I give and bequeath to Dessie M. Saum, to be expended by her for any charity or charities that she may select and as a memorial to me.'

All of the questions involved in this appeal relate to the taxation of this bequest.

On June 8, 1960, a journal entry determining inheritance tax was filed in the Probate Court, taxing this portion at the highest rate. On June 9, 1960, a second journal entry determining inheritance tax was filed setting aside the June 8 determination and entering instead a 'high-low' determination, the high determination taxing the bequest at the highest rate and the low determination exempting it altogether from tax.

The executor then filed exceptions to the determination at the highest rate. The State of Ohio, in turn, filed exceptions, which are in substance as follows:

'(1) Excepting to the allowance of an extraordinary fiduciary fee as a deduction in the amount of $41,164.73.

'(2) Excepting to the computation on a high-low entry on the ground that this is not an estate against which an inheritance tax is being assessed under Section 5731.28 of the Revised Code.'

On November 30, 1960, the Probate Court sustained both exceptions of the State of Ohio, and ordered the Ohio Inheritance Tax redetermined. Thereafter, this appeal was undertaken.

The first assignment of error is that the Probate Court erred in disregarding Section 5731.28 which is the statute providing for Taxation of Estates Dependent Upon Conditions: Refunds, and is applicable to contingency in Item XVI of the George E. Luce will, which is mandatory and not directory.

Section 5731.28 of the Revised Code provides:

'When, upon any succession, the rights, interests, or estates of the successors are dependent upon contingencies or conditions by which they may be wholly or in part created, defeated, extended, or abridged, a tax shall be imposed upon such successions at the highest rate which, on the happening of such contingencies or conditions, would be possible under sections 5731.01 to 5731.56, inclusive, of the Revised Code, and such taxes shall be due and payable forthwith out of the property passing, and the probate court shall enter a temporary order determining the amount of such taxes in accordance with this section; but on the happening of any contingency by which said property, or any part thereof, passes so that such ultimate succession would be exempt from taxation under such sections, or taxable at a rate less than that so imposed and paid, the successor shall be entitled to a refund of the difference between the amount so paid and the amount payable on the ultimate succession under such sections, without interest. The executor or trustee shall, immediately upon the happening of such contingencies or conditions apply to the probate court of the proper county, upon a varified petition setting forth all the facts, and giving at least ten days' notice by mail to all interested parties, for an order modifying the temporary order of said probate court, so as to provide for a final assessment and determination of the taxes in accordance with such ultimate succession. Such refund shall be made in the manner provided by section 5731.20 of the Revised Code.'

Assuming Section 5731.28 is mandatory and not directory, does Item XVI of the will set forth a contingency or condition of the nature contemplated by the statute?

Clearly the residue is bequeathed to Dessie M. Saum, in her representative capacity as trustee, with a charge that she expend the same on any charity or charities that she may select and as a memorial to George E. Luce.

In this succession, the rights, interests or estates of the successors are not dependent on conditions or contingencies by which they may be wholly or in part created, defeated, extended or abridged. Title to the residue is vested in Dessie M. Saum as trustee for the purpose of carrying out the trust.

The contingency or condition referred to in this section is the technical type of contingency or condition which may vest, divert, or diminish as in the case of a will devising a widow a life estate in real property with power to consume, if necessary, for her support with remainder, if any, to two daughters. See Gregg v. Tax Commission, 113 Ohio App. 439, 177 N.E.2d 66, 16 O.O.2d 268.

They are used in the sense usually employed in conveyancing and with reference to the divesting or diminution of a presently vested or enjoyed estate by the vesting or coming into being of a contingent or conditional future estate. See In re Willis, 34 Cal.2d 782, 786, 215 P.2d 453, 456.

The Supreme Court of Ohio has interpreted this section in the case of Wonderly v. Tax Commission of Ohio, 112 Ohio St. 233, 238, 147 N.E. 509, 510, as follows:

'It is to be noted that the foregoing section relates to succession rights or interests in an estate which are dependent upon 'contingencies or conditions whereby they may be * * * created, defeated, extended or abridged.' Applying this language to the case at bar, the estates in the brothers and sisters are to be 'created' upon the contingency of Wilbur Francis Kingseed dying 'before arriving at the age of twenty-five years without leaving living heirs of his body,' and the estate of Wilbur Francis Kingseed may be 'defeated' by the same contingency, and the law provides for each of above contingencies that the tax shall be imposed upon such passing of property in possession or enjoyment, present or future, at the highest rate; in other words, when it appears that any successions are dependent upon a contingency, the rate that will make the highest return to the state by way of inheritance tax must be the one adopted, and such taxes shall be due and payable forthwith, subject to the refunder provided, etc.'

So, in the instant case, the remainder of the daughters in the real estate may be defeated in whole or in part by the exercise of the power to consume by the widow.

The purpose of the temporary order is set forth in the Wonderly case, supra, at p. 244, 147 N.E. at p. 512, as follows:

'* * * The frank purpose of the inheritance tax law seems to be to secure for the state the highest rate of taxation that any given succession is justly susceptible of in the legislative mind, and to secure the same to the state at the earliest moment, subject to such refunders as the Legislature has seen fit to allow. If its provisions seem harsh, the place to seek the remedy is in the Legislature and not in the courts. Judicial interpretation must be based upon legislative enactment, as the same is found in the statute books.'

No such condition or contingency is present here. The residue is vested in Dessie M. Saum as trustee, so Section 5731.28, supra, is inapplicable. This assignment of error is overruled.

The sixth assignment of error is that the Probate Court erred in approving an entry authorizing the high-low determination of the Ohio inheritance tax on the residue June 9, 1960 and reversing same on sustaining of exceptions of Tax Commissioner November 30, 1960.

Inasmuch as we have determined that Section 5731.28, supra, is inapplicable, the taxation of Item XVI of the estate of George E. Luce, deceased, must necessarily, unless it is exempt from taxation, be governed by Section 5731.02 of the Revised Code. In view of our so holding supra, this assignment of error is overruled.

As his second assignment of error, appellant asserts that the Probate Court erred in its decision to tax all the residue under Item XVI of George E. Luce's will, contrary to the Ohio law and legal authorities and in cases decided by the Court of Appeals and the Supreme Court of Ohio.

In order to avoid taxation of the residue, the latter must qualify as an exempt charity under Section 5731.09 of the Revised Code, which in part reads as follows:

'The succession of any property if passed to or for the use of the state, to or for the use of municipal corporation or other political subdivision thereof for exclusively public purposes, or any public institution of learning or any public hospital not for profit * * * within any state of the United States, which state does not impose an inheritance, estate or transfer tax on property given, devised, or bequeathed by a resident thereof to an institution of learning, or any public hospital not for profit, * * * within this state, or to or for the use of an institution for purposes only of public charity, carried on in whole or in a substantial part within this state, * * *.'

The Probate Court found:

'The language of Item XVI of the will is unambiguous. The residuary estate as such was not left to any public charity. The power of choice lies solely in Dessie M. Saum. She could, according to her own choosing, select all exempt charities or partly exempt charities, or all non-exempt charities. She could invest it in charities established outside the state of Ohio.'

Since no geographical limitation on...

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