State v. Pelletier (In re Brown's Estate), 8868.

Docket NºNo. 8868.
Citation122 Mont. 451
Case DateJune 08, 1949
CourtUnited States State Supreme Court of Montana


Appeal from District Court, Eighth District, Cascade County; J. W. Speer, Judge.

Proceeding in the matter of the estate of Clara Bullard Brown, wherein Clara B. Pelletier and Marcia Brown were executrices of the last will of Clara Bullard Brown, deceased. From an order refusing to impose an inheritance tax on savings bonds, the State of Montana appeals.

Cause remanded for assessment of inheritance tax.R. V. Bottomly, Atty. Gen., Clarence Hanley, Asst. Atty. Gen., and H. O. Vralsted, Counsel Board of Equalization, of Helena, for appellant.

Jardine, Chase & Stephenson, of Great Falls, for respondents.

METCALF, Justice.

This is an appeal from an order of the district court determining inheritance tax. The court refused to impose an inheritance tax upon twenty-four United States savings bonds having a maturity value of $60,000 and an aggregate value of $57,135. The bonds are in four groups. Three of the groups consist of seven bonds each, each group having a maturity value of $10,000. One such group is made payable to the decedent, Clara Bullard Brown, or in the alternative, to her daughter, Marcia B. Brown. The second group in made payable to the decedent or in the alternativeto her daughter Clara B. Pelletier, and the third group is made payable to the decedent or in the alternative to her son, Herbert W. Brown. The fourth group consists of three bonds of a maturity value of $10,000 each, purchased during the month of January 1942 and dated January 1, 1942. They were purchased for the decedent by the United States Trust Company of New York, decedent's bank in New York, upon her instructions, and at her request. She also requested that registration to be ‘$10,000 each in my name and names of my children.’ In accordance with this request, the three bonds were issued in her name with each of her three children designated as an alternative payee on one of the bonds.

The record shows February 3, 1941, the Great Falls National Bank of Great Falls rented a safety deposit box in the joint names of the decedent and her daughter Marcia Brown. Marcia testified that she had been familiar with her mother's business affairs since 1940 and had handled a great deal of her mother's business for her. Marcia further testified that since the rental of the joint safety deposit box in February of 1941 she had had complete access and entry to the safety deposit box in her own right and as joint owner thereof, had her own key and used the box to store her valuables as well as to safeguard the valuables of her mother. The decedent rarely called at the box for any purpose but her daughter Marcia visited the box on an average of once a month, either on errands for herself or for her mother.

The actual purchase of the remaining bonds of the face value of $30,000 was handled by Marcia Brown. In December of 1941 three $5,000 bonds were purchased and registered in the names of Clara Bullard Brown and one of the three children was named as co-owner on each of the bonds. The remaining $15,000 worth of bonds was purchased at various times between December 1941 and November 1945. The trial court decided that there was no tax due on these bonds and from thais decision the state board of equalization has appealed.

In the case of State Board of Equalization v. Cole, 195 P.2d 989, this court held that United States savings bonds were taxable under the inheritance tax statutes of the state of Montana. In that case the donor with her own funds purchased United States savings bonds and designated various donees as co-owners. Complete control and possession of the bonds was retained by the donor so that the bonds themselves as physical instruments of title remained under her control. We held that subsection 6 of section 10400.1, R.C.M.1935, did not apply to savings bonds of this type because they were not held in the joint names of two or more persons as that phrase is used in the statute; that where there was no delivery of possession of the bonds themselves the donor could not make a completed gift inter vivos by registering the bonds in the name of the donee and the name of another as co-owner or alternate payee. We did indicate, however, that if there had been an actual delivery of the bonds after such registration, a completed gift would have been made.

The federal regulations in this respect are contained in Cumulative Bulletin, 1941-2 of the Internal Revenue Bulletin, Regulation 80, Ruling 1941-28-10776: ‘If John Jones' purchases with his separate funds savings bonds and has them registered in his name and that of another individual in the alternative as co-owners for example, John Jones or Mrs. Ella S. Jones,’ there is no gift for Federal gift tax purposes, unless or until he during his lifetime gratuitously permits Mrs. Ella S. Jones' to redeem them and retain the proceeds as her separate property, in which event a gift of the then redemption value of the bonds would be made. Of course, such bonds if not previously redeemed would, on the death of John Jones' be includible in his gross estate for estate tax purposes at their full redemption value.’

Likewise, for income tax purposes when bonds are registered to two persons as coowners, for example, Mr. Mohn Jones or Mrs. Ells S. Jones,’ the interest is assessed to the person who contributed the purchase price of the bonds. Internal Revenue Bulletin, Income Tax Rulings, Cumulative Bulletin, 1939-2, Ruling 1939-31-9929.

Our ruling in State Board of Equalization v. Cole, supra, is not quite so harsh in its application as that of the Internal Revenue Bureau. We hold that if there has been an actual delivery of the bonds themselves it constitutes a present inter vivos gift of the bonds. Since our inheritance tax laws do not impose a tax upon a gift unless it is a gift intended to take effect at or after death or is a gift in contemplation of death, it is first necessary to determine whether there was a completed gift of these bonds, and then to ascertain the nature of that gift.

A gift is defined by section 6882, R.C.M. 1935, as ‘A transfer of personal property, made voluntarily, and without consideration.’

To constitute a gift of a chattel there must be (1) an intention on the part of the donor to make the gift; (2) delivery by the donor of the subject matter of the gift, and (3) acceptance of the gift by the donee. State Board of Equalization v. Cole, supra;Fender et al. v. Foust et al., 82 Mont. 73, 78, 265 P. 15.

This court has held that an irrevocable gift causa mortis may be made of a right represented by shares of stock by delivery of unendorsed certificate, Leyson v. Davis, 17 Mont. 220, 42 P. 775,31 L.R.A. 429, and savings bank books and negotiable notes endorsed in blank, Fender v. Foust, supra. The question of a gift of a chose in action by delivery has been the subject of a good deal of speculation by judges and text writers. See for example, Bruton, ‘The Requirement of Delivery as Applied to Gifts of Choses in Action,’ 39 Yale Law Journal 837, and the articles and cases therein cited; 24 Am.Jur., ‘Gifts,’ sec. 83, p. 773. The Contracts Restatement sums up the rule as follows: Sec. 158. In What Cases Gratuitous Assignments are Revocable. (1) The right acquired by the assignee under a gratuitous assignment is terminated by the assignor's death, by a subsequent assignment by the assignor, or by notification from the assignor received by the assignee or by the obligor, unless

(b) the assigned right is evidenced by a tangible token or writing, the surrender of which is required by the obligor's contract for its enforcement, and this token or writing is delivered to the assignee * * *.’

Delivery of the instrument representing the chose in action may be actual delivery, constructive delivery, or symbolical delivery. Nelson v. Wilson, 81 Mont. 560, 264 P. 679. See Muir v. Gregory, 2 Cir., 168 F. 641. A constructive gift of instruments can be made by giving them to a third party with instructions to turn them over to the transferee on transferor's death or some other happening, but delivery is valid only if the deposit is irrevocable and the documents are placed entirely out of the transferor's power. Wilson v. Davis, 110 Mont. 356, 103 P.2d 149. ‘If there be no delivery (actual, constructive or symbolical) [of a chose in action] a written assignment is essential.’ Nelson v. Wilson, supra [81 Mont. 560, 264 P. 682].

The three ‘children’ are mature individuals. The youngest at the date of death of the decedent was 39. During the period these bonds were purchased Marcia Brown lived with her mother; Herbert W. Brown was in the army; Clara Pelletier resided at Choteau, Montana. Marcia testified without objection that as the bonds were purchased the decedent attempted to keep approximately the same amount in the name of each of the children. She said, We made an effort to keep it even at all times. She [Mrs. Clara B. Brown] wanted it to be the same amount in case we wanted to cash them. We would each have the same amount to be fair on it, so I always had my sister's and my brother's ahead of mine just to be proper about it.’

Marcia was asked, if during the time she had access to the box either Clara or Herbert had wanted the bonds, would she have given them to him. Her answer was as follows: ‘If mother had been here I would have consulted her, but had she been away I would not have hesitated if I felt that they needed the money at that time to let them have it.’ Further on Marcia testified, ‘She [decedent] wanted to be very sure that she had it phrased correctly on the bond. There was a contention as to whether it should be ‘and’ or ‘or’. As to that I had made a mistake and made it in such a way that she would have to be dead before the money could be collected. She did not want it that way. If for instance I ever...

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