30 P.2d 617 | Cal. Ct. App. | 1934
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *313 THE COURT.
On February 14, 1930, James L. Gordon and Lillian J. Gordon, his wife, with the Farmers' and Merchants' National Bank of Los Angeles, a corporation, executed a declaration of trust by which certain community personal property, acquired by the Gordons previous to the enactment in 1927 of section 161a of the Civil Code, was transferred to the bank as trustee, the spouses reserving to themselves the income therefrom during their joint lives. The trust was revocable during the lives of both spouses, but became irrevocable upon the death of either, in which event the survivor was given a life estate in the corpus of the trust, and upon the death of the survivor the trust was to terminate, and the corpus distributed one-half to designated organizations and persons, among whom are the relatives of James L. Gordon, and one-half to designated organizations and persons, among whom are relatives of Lillian J. Gordon but strangers in blood to James L. Gordon.
The latter died on October 11, 1930. The State Controller then filed a petition for the determination, under the provisions of section 17 of the Inheritance Tax Act, of the amount of inheritance tax due by reason of the transfer. The referee filed a report, in which he found that the transfer was a taxable transfer by the husband; that Mrs. Gordon had a life estate in the corpus of the trust, which interest was exempt from tax; and that the remainder was divisible into two equal parts, one portion being taxable to organizations and persons, among whom are the relatives of decedent, and the other taxable to organizations and persons, among *314 whom are relatives of Mrs. Gordon but strangers in blood to decedent. Subsequently objections to the report were filed, by which it was urged that the portion of the trust property passing to the group last mentioned was not taxable upon the death of James L. Gordon and becomes taxable only upon the death of Mrs. Gordon; or, if now taxable, the persons taking this portion of the trust property should be taxed according to their relationship to Mrs. Gordon and not as strangers in blood.
The objections were sustained. The court found that the property transferred was community property acquired by the spouses prior to 1927; that the transfer was made without valuable or adequate consideration, and as to decedent was made by him in contemplation of death. It determined that the one-half of the trust estate passing to the group among whom are the relatives of decedent is now taxable, and judgment was entered fixing the tax upon this portion of the estate alone.
The Controller, who has appealed therefrom, contends that in view of the facts the transfer was taxable in its entirety upon the death of Gordon.
[1] The interest of the wife in community property has been declared to be a more definite and present interest than that of an ordinary heir (Stewart v. Stewart,
[4] The court having found that the transfer was made by Gordon in contemplation of death and without a valuable or adequate consideration, the same would appear to be within the provisions of section 2 of the Inheritance Tax Act, which reads in part as follows: "A tax shall be and is hereby imposed upon the transfer of any property, real, personal or mixed, or of any interest therein or income therefrom, in trust or otherwise, to persons, institutions or corporations not hereinafter exempted, to be paid to the treasurer of the proper county as hereinafter directed, for the use of the state, said tax to be upon the market value of such property, at the rates hereinafter prescribed, and only upon the excess over the exemptions hereafter granted, in the following cases . . . (3) when the transfer is of property made by a resident, or by a nonresident when such nonresident's property is within this state, by deed, grant, bargain, sale, assignment or gift, made without an adequate consideration (i.e., a consideration equal in money or in money's worth to the full value of the property transferred), (a) in contemplation of the death of the grantor, vendor, assignor or donor, or (b) intended to take effect in possession or enjoyment at or after such death." In 1923, subdivision 2 of section 1 of the act was amended by the insertion of the following: "Provided that for the purpose of this act, upon the death of the husband one-half of the community property is taxable under the provisions of this act" (Stats. *317 1923, p. 693). Respondents claim that the proper interpretation of this provision requires the exemption of one-half of the trust estate notwithstanding that the property passed from the husband to others than his wife.
Before 1917 a widow received no community exemption. In that year subdivision 2 of section 1 of the Inheritance Tax Act was amended as follows: "provided that for the purpose of this act one-half of the community property which goes to the surviving wife upon the death of the husband under the provisions of section 1402 of the Civil Code shall not be deemed to pass to her as heir but shall for the purpose of this act be deemed to go, pass or be transferred to her for a valuable and adequate consideration, and her said one-half of the community shall not be subject to the provisions of this act; provided further, that in case of a transfer of community property from the husband to the wife within the meaning of subdivisions (3) or (5) of section 2 of this act one-half of the community property so transferred shall not be subject to the provisions of this act." This provision covered only community property passing under the intestacy section of the code; and the second proviso exempts but one-half of the community property transferred.
These provisions were re-enacted in 1921 and remain unchanged. The intestacy section referred to in these enactments is section 1402 of the Civil Code.
[5] As stated, the provision in question was adopted in 1923. It is clear that this was made necessary by reason of the amendment in that year of sections 1401 and 1402 of the Civil Code. Previously the one-half of the community property passing to the widow in case of intestacy was exempt, and no tax was payable by the husband upon the death of his wife. Before 1923, section 1401 of the Civil Code provided that in case of the death of the wife the community property should belong to the husband; and section 1402 that upon his death one-half thereof should go to the surviving wife. By amendments in 1923 of these sections it was provided by section 1401 that upon the death of either spouse "one-half of the community property belongs to the surviving spouse"; and by section 1402 that property passing from the husband by reason of his death or testamentary disposition to the wife "is subject to administration, *318 his debts, family allowance and charges and expenses of administration". After these amendments the latter section no longer provided for the inheritance of the community property by the wife, this being covered by section 1401 At the same time the legislature adopted the provision here involved, and further enacted that "the one-half of the community property which passes to the surviving spouse under the provisions of section one thousand four hundred and one of the Civil Code and, in case of the death of the wife, the community interest which goes to her husband under the provisions of section one thousand four hundred and two of the Civil Code in the absence of her testamentary disposition thereof to another or others, shall not be deemed to pass to such surviving spouse as heir, but shall for the purpose of this act be deemed to pass or be transferred for a valuable consideration; and said one-half of the community property and the interest last mentioned going as aforesaid to the surviving husband shall not be subject to the provisions of this act". (Stats. 1923, p. 694.) It was also provided that these amendments "should become effective and in force contemporaneously with the taking effect of amendments to sections one thousand four hundred and one and one thousand four hundred and two of the Civil Code, which amendments were enacted at the forty-fifth session of the legislature of the State of California and known as chapter eighteen of the Statutes of 1923, and not otherwise". (Stats. 1923, p. 695.) Under the second proviso inserted in subdivision 2 of section 1 of the act in 1917 and 1921 quoted above — and which, as stated, remains unchanged — one-half of the property actually transferred to a spouse is exempt from taxation, but not one-half of all the community property without regard to the person to whom the transfer is made.
As held in Estate of Parrott,
We are satisfied that the purpose of the several enactments when read together was rather to harmonize the Inheritance *319 Tax Act with the provisions of sections 1401 and 1402 of the Civil Code, as the same were amended in 1923, and they reasonably bear this construction. The effect of this is to provide that at least one-half of the community property shall be taxable on the death of the husband.
[6] It is clear, we think, that the transaction in question was in effect the transfer by decedent of a life estate in the community property to his wife contingent upon her survivorship, and, with her consent, of vested though defeasible interest, in remainder, and that no title or estate passed from her to anyone. This being true, it was a transfer within subdivision 3 of section 2 of the act, and was taxable in its entirety to the husband's estate upon his death. Consequently no community exemption attached to the transfer to the beneficiaries other than the wife, and these beneficiaries should be taxed according to their relationships to decedent Gordon.
The order appealed from is reversed.