Miller v. State (In re Miller's Estate)

• Decision Date: 10 February 1942
• Citation: 2 N.W.2d 256,239 Wis. 551
• Parties: In re MILLER'S ESTATE. MILLER v. STATE.
• Court: Wisconsin Supreme Court

239 Wis. 551

2 N.W.2d 256

In re MILLER'S ESTATE.MILLER

v.STATE.

Supreme Court of Wisconsin.

Feb. 10, 1942.

Appeal from an order of the County Court of Dane County; James E. O'Neill, Judge.

Reversed.

Petition by the public administrator of Dane county for determination of inheritance tax alleged to be due from Caroline K. Miller who succeeded to the interest of Margaret W. Miller, deceased, in certain intangible property.

Margaret W. Miller, a citizen of the United States living in Italy, dying there on February 20, 1940, and her sister Caroline were the owners of equal undivided interests in some Wisconsin real estate. They sold this real estate taking in payment a note secured by a trust mortgage. The note reads:

“Within sixty (60) days after due notice and proof of the death of the survivor of Caroline K. Miller and Margaret W. Miller, for value received, I hereby promise to pay to the personal representatives or assigns of said survivor, at Milwaukee, Wisconsin the sum of One Hundred Four Thousand One Hundred Eighty-two and 54/100 Dollars ($104,182.54) and to pay to said Caroline K. Miller and Margaret W. Miller and the personal representatives or assigns of the survivor, interest hereon quarterly at the rate of five per cent. (5%) per annum from the date hereof until the date of payment of the principal. During the lifetime of said Caroline K. Miller and Margaret W. Miller, the interest payable hereunder shall be payable in equal portions to each of them, and after the death of one of them, it shall be payable to the survivor and her personal representatives and assigns. This note is one of a number of notes secured by and subject to the provisions of a certain first mortgage by me executed and delivered to First Wisconsin Trust Company as of the date hereof.

“Any payment of interest or principal under this note may be made, at my option, when or before due, to the Trustee under said mortgage, to be disposed of under the terms of said mortgage, by said Trustee, as agent or trustee, as the case may be, for any person or persons entitled to such payment.

“Upon payment of the principal of this note to the Trustee under said mortgage, said payment shall be held in trust for the person or persons entitled thereto under the terms hereof, and such payment shall discharge me of all liability hereon.”

The county court denied the petition holding that no inheritance tax is due the State of Wisconsin on the transfer of the property referred to in the petition.

John E. Martin, Atty. Gen., Harold H. Persons, Asst. Atty. Gen., and Neil Conway, Inheritance Tax Counsel, of Madison, for appellant.

Miller, Mack & Fairchild and J. Gilbert Hardgrove, all of Milwaukee, for respondent.

FAIRCHILD, Justice.

The law affecting taxation of intangibles involved in transfers intended to become effective as to “possession or enjoyment” at or after the death of the donor must be considered settled as giving power to the state to impose such tax where the legal interests created are within the control of the state. In Curry v. McCanless, 1939, 307 U.S. 357, at page 372, 59 S.Ct. 900, at page 908, 83 L.Ed. 1339, 123 A.L.R. 162, Mr. Justice Stone in treating with facts somewhat analogous to those in the present case said: “* * * In effecting her purposes, the testatrix brought some of the legal interests which she created within the control of one state by selecting a trustee there and others within the control of the other state by making her domicile there. She necessarily invokedthe aid of the law of both states, and her legatees, before they can secure and enjoy the benefits of succession, must invoke the law of both.”

It is likewise settled in Wisconsin that a transfer by means of a voluntary irrevocable trust whereby the donor retains the income for life and provides for the completion of a transfer of the corpus after death is taxable under sec. 72.01(3), Stats.1939 as a transfer intended to take effect in possession or enjoyment at or after death. Estate of Waite, 1932, 208 Wis. 307, 242 N.W. 173.

The record discloses that each sister, under a valid contract, united her interest with that of the other and so arranged matters that neither could use any part of the whole so created other than the income from what represented her share before the creation of the trust. Though the total property was bound by the agreement to the survivor, the transfer was so conditioned as to keep in each sister the enjoyment of her share until her death. Each owner gave up the management of her property to the trustee, but not for the sole benefit of the other contributor. There was no immediate transfer of complete economic enjoyment of either share. The present transfer was to the trustee who was to withhold a further transfer until one donor or settlor was a survivor of the other. The transfer of Margaret W. Miller's interest in the trust property to her sister became effective as to “possession or enjoyment at or after such death.”

There is a contention on respondent's part that the transfer was based “upon a valuable and adequate consideration” and therefore does not come within the intendment and purpose of the statute. But the character of the transaction excludes the possibility of the existence of a commercial dealing or of an exchange in which a valuable and adequate consideration, as that term is used in testing a transaction of this nature, has passed so as to bar the levying of this tax.

The transaction was essentially an arrangement whereby the two sisters combined their capital in order to facilitate investment and management. The fact that the method involved a transfer in trust has no effect upon the issue of taxability because the statute expressly includes such form of transfer as well as one that is direct. Each retained for her own benefit her proportionate share of the income. The pooling of the separate interests during both lives cannot change the very apparent nature of the transfer of decedent's share to her survivor. The result is the depletion after death of the estate of Margaret W. Miller and for this depletion she did not in her lifetime receive the adequate consideration necessary for an exemption from the succession tax; nor was her estate increased thereby.

The opinion of this court in the case of Will of Koeffler, 1935, 218 Wis. 560, 260 N.W. 638,261 N.W. 711,99 A.L.R. 944, in no way conflicts with the conclusion here reached. In that case it was held that a transfer of property through a marriage settlement whereby the beneficiary was to receive a cash settlement and a certain allowance during widowhood in lieu of dower was not taxable under the provisions of the inheritance tax law, the claim under the contract amounting to a debt against decedent's estate. That decision rests in part upon recognition given to the nature of such transactions so long familiar to the law.

Sec. 72.01(9), Stats.1939, provides for the exemption of transfers of property from nonresident decedents in case of reciprocal exemptions in other jurisdictions. Under this section transfers of personal property, except tangible personal property...