Ryan's Estate, In re

• Decision Date: 04 March 1960
• Docket Number: No. 7862,7862
• Citation: 102 N.W.2d 9
• Parties: In re ESTATE of Gerald C. RYAN, also known as G. C. Ryan, Deceased. STATE of North Dakota and County of Grand Forks, Appellants, v. FIRST NATIONAL BANK OF MINNEAPOLIS and Janet Heinrich, Executors of the Estate of Gerald C. Ryan, also known as G. C. Ryan, Deceased, Respondent.
• Court: North Dakota Supreme Court

Page 9

102 N.W.2d 9

In re ESTATE of Gerald C. RYAN, also known as G. C. Ryan, Deceased.

STATE of North Dakota and County of Grand Forks, Appellants, v. FIRST NATIONAL BANK OF MINNEAPOLIS and Janet Heinrich,

Executors of the Estate of Gerald C. Ryan, also

known as G. C. Ryan, Deceased, Respondent.

No. 7862.

Supreme Court of North Dakota.

March 4, 1960.

Rehearing Denied April 7, 1960.

Syllabus by the Court

1. Vendee in possession under a contract for deed is the equitable and beneficial owner of the land, the vendor holds naked legal title in trust for vendee and as security for his compliance with the conditions of the contract.

2. This classification controls for the purpose of characterizing and classifying the property in a nonresident vendor's estate for North Dakota estate tax purposes.

3. Nonresident vendor's interest under executory contract for sale of North Dakota land is classified as intangible personal property for estate tax purposes.

4. North Dakota estate tax statutes impose an excise upon the transfer of or shifting in relationship to property at death and by statute exempts intangible personal property of nonresident deceased, except shares of stock in domestic corporations, and then only in the absence of reciprocity.

5. The tax being on the transfer, and not the property itself, the character of the property must be determined from the position the deceased occupied in relation thereto at the time of death.

Leslie R. Burgum, Atty. Gen., and Kenneth M. Jakes, Special Asst. Atty. Gen., for appellant State of North Dakota.

Shaft, Benson & Shaft, Grand Forks, for the estate of Gerald C. Ryan, deceased.

TEIGEN, Judge.

The question involved in this appeal is whether or not real property located in North Dakota, sold on a contract for deed, is includible in the estate of a nonresident decedent for North Dakota estate tax purposes.

The facts were stipulated. The salient facts are: The decedent, Gerald C. Ryan, during his lifetime entered into a contract for deed for the sale of certain farmlands located in Grand Forks County, North Dakota, to his sons, Thomas W. Ryan and Gerald C. Ryan, Jr. He also took an installment note for the payments provided to be made under the contract. Decedent died March 23, 1955, a resident of the State of Minnesota. Domiciliary proceedings were had in Minnesota and ancillary proceedings were instituted in county court, Grand Forks County, North Dakota. Included in the inventory in the ancillary proceedings was a description of the real property listed subject to the contract for deed referred to, and appraised at 'security value only' no amount being set forth. The unpaid balance of the contract for deed at time of death was $176,000 principal and $7,137.78 accrued interest.

The vendees paid to the domiciliary executors of the estate the full balance due plus the accrued interest and an executor's deed was duly executed and delivered by the ancillary executors and the conveyance duly confirmed by the county court of Grand Forks County, North Dakota. The county court made an estate tax assessment and included in the gross estate, for the purposes of said assessment, as real property, the real estate described in the aforementioned contract for deed at a value equal to the unpaid principal plus the accrued interest as of day of death. The assessment thereafter was approved by the state tax commissioner for the State of North Dakota.

It was also stipulated that the amount of $176,000 balance of principal and $7,137.78 accrued interest was included in the inventory filed in the domiciliary proceedings in Minnesota and included as a part of the Minnesota estate for Minnesota tax purposes, and described as the unpaid balance upon an installment note secured by contract on certain land in North Dakota.

The contract for deed provided the sale price, the interest to be charged, the manner of payment; that the vendees were to pay all taxes thereafter levied or assessed upon the premises, the vendees were to keep all buildings and improvements insured with loss payable to the first and second parties as their several interests may appear; and it also contained a forfeiture clause, provided that the vendor would convey the property by deed of warranty upon the prompt and full performance by the vendees of their part of the agreement, and provided for possession of the premises by the vendees.

A separate memorandum agreement was also made between the parties to the contract for deed, delaying date of possession until the downpayment provided for by the contract for deed was made. However, before the death of decedent-vendor, the vendees had been in possession under the contract for deed for a period of about one year.

The County Court of Grand Forks County, for the purposes of making the estate tax assessment, on its own motion included the land described in the contract for deed within the gross estate and classified it as real property within the State of North Dakota. An appeal was taken to the District Court of Grand Forks County and it entered its order directing that the order of the county court be amended to eliminate therefrom the estate tax imposed by it on the valuation of the amount represented by the foredescribed installment note or contract for deed. It did so on the premises that the property was not real property located within this state but intangible personal property belonging to a nonresident decedent and therefore not includible within the gross estate pursuant to Section 57-3703 of the 1957 Supplement to the North Dakota Revised Code of 1943. An appeal was taken to this court by the State of North Dakota, demanding a review of the entire case.

'The Estate Tax Act, the statute here under consideration, was enacted as Chapter 267, Session Laws 1927. It superseded Article 36 of Chapter 34 of the Political Code 1925 Supplement, providing for the imposition of inheritance taxes.' In re Black's Estate, 74 N.D. 446, 23 N.W.2d 35, 36.

We here are concerned with the same statute. It states:

'A tax is hereby imposed upon the transfer of the net estate of every decedent, whether in trust or otherwise, under the conditions and subject to the exemptions and limitation in this chapter prescribed.' Sec. 57-3701 NDRC 1943.

This is an estate tax, as distinguished from an inheritance tax.

An estate tax is not levied upon the property of which an estate is composed. It is an excise imposed upon the transfer of or shifting in relationships to property at death. United States Trust Co. of New York v. Helvering, 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104; Reinecke v. Northern Trust Co., 278 U.S. 339, 347, 49 S.Ct. 123, 73 L.Ed. 410, 414, 66 A.L.R. 397; Chase National Bank of City of New York v. United States, 278 U.S. 327, 334, 49 S.Ct. 126, 73 L.Ed. 405, 407, 63 A.L.R. 388; United States v. Jacobs, 306 U.S. 363, 59 S.Ct. 551, 83 L.Ed. 763.

For the purpose of determining the estate of a non-resident decedent in North Dakota we have the following statute:

'57-3703. Gross Estate Of Non-Resident Decedent; Exception, Reciprocity With Other States. The value of the gross estate of a nonresident decedent shall be determined by including the following property:

'1. All real property located within this state;

'2. All tangible personal property having an actual situs within this state;

'3. Sheriff's certificate of sale of real estate situated in this state;

'4. Decedent's equitable interest in real estate within this state; and

'5. The full value of shares of stock in domestic corporations.

'However, no intangible personal property shall be included in determining the value of such gross estate if the nonresident decedent at the time of the transfer is a resident of a state or territory of the United States, or of a foreign country, which at the time of the transfer did not impose a transfer tax or death tax of any character in respect to intangible personal property of residents of this state, or if the laws of such state or territory of the United States or foreign country at the time of the transfer contained a reciprocal provision under which the intangible personal property of residents of this state was exempt from transfer taxes or death taxes of any character provided this state allowed a similar exemption to the residents of such state or territory of the United States or foreign country. The tax commissioner may enter into agreements with the authorized tax officials of other state to carry out the reciprocal provisions of this section.' 1957 Supp. NDRC 1943.

What is it that is taxable? It is the transfer of the net estate. See Sec. 57-3701, supra. What is the net estate of a nonresident decedent? It is the gross estate, as defined by Section 57-3703 above quoted, less the exemptions and deductions provided by Section 57-3711 of 1957 Supplement and Section 57-3712 of the North Dakota Revised Code of 1943. What did the deceased own upon his death to be transferred in this case? It was the right to receive certain payments in the form of principal and interest at certain designated times, evidenced by an installment promissory note and contract for deed secured by title to the real estate described in the contract. He also owned some additional rights, such as the right to have the taxes paid upon the real estate by the vendees, the right to have premiums upon insurance policies paid by the vendees, the right to partake of insurance payments in the event of loss as his interests might appear, and the right to declare a forfeiture and foreclose or cancel the contract in the event of noncompliance with its terms by the vendees. He did not have the right to the possession, use, benefits, or earnings of the land. He held mere naked legal title without the benefits of ownership, for security purposes only.

The doctrine of equitable conversion in land contract cases has been established by a number of cases in North Dakota. Nearing v. Coop, 6 N.D. 345, 70...