Opinion
No. 33592
Decided June 16, 1954.
Taxation — Succession tax — Testamentary trust — Trust a charitable institution, when — Section 5334, General Code — Committee given discretion to designate beneficiaries — Single succession for purposes of charity, when — Succession exempt from taxation, when.
1. Where the residue of an estate is devised and bequeathed in trust to a named trustee, and the income and principal thereof are to be distributed from time to time for the purpose of "such public charitable or educational uses and purposes as will, in the absolute and uncontrolled discretion" of a specific distribution committee, "most effectively assist and promote the well being of the inhabitants, * * * regardless of race, color or creed," a trust so established is "an institution for purposes only of public charity," under the provisions of Section 5334, General Code (Section 5731.09, Revised Code).
2. Where discretion is given to a specific distribution committee to designate the beneficiaries of a testamentary charitable trust, having a named trustee and established under a will which incorporates by reference as a part thereof a trust agreement entered into by the testator during his lifetime and which provides that the distribution committee shall allocate, from time to time, at least 50 per cent of the income and principal to unnamed Ohio charities, and that not to exceed 50 per cent may be distributed to charities emanating from a specific point without the state, but such distribution not being required, such devise and bequest is a single succession for purposes only of public charity.
3. Where such a testamentary charitable trust contains an overriding geographical limitation that at least 50 per cent of the trust funds must be used for public charitable activities carried on within the state of Ohio, the succession as to such trust is exempt from taxation under Section 5334, General Code (Section 5731.09, Revised Code), as being a succession "for purposes only of public charity carried on in whole or in substantial part within this state."
APPEAL from the Court of Appeals for Cuyahoga county.
The will of Crispin Oglebay of Gates Mills, Ohio, was admitted to probate in the Probate Court of Cuyahoga County, Ohio, on November 3, 1949.
Item nine of his will reads as follows:
"I give, devise and bequeath all the rest, residue and remainder of the property which I may own or of which I may have the right to dispose at the time of my death, of whatsoever character and wheresoever situated, to Central National Bank of Cleveland, of Cleveland, Ohio, in trust, to be added by it to the trust estate held by it, and to be administered and distributed by it as trustee, under a certain trust agreement into which I entered with Central National Bank of Cleveland, on the 25th day of January, 1947. Said trust agreement is now in existence and, if necessary to give effect to the provisions herein contained, it shall be deemed to be incorporated herein and made a part hereof."
The trust referred to in item nine of the decedent's will was established on January 25, 1947, under a trust agreement between the decedent and the Central National Bank of Cleveland, Cleveland, Ohio.
On December 24, 1930, the Central National Bank of Cleveland adopted a "resolution," in which the bank adopted a plan — commonly known as "The Cleveland Foundation" — for the disbursement of the funds of trusts held by it under wills and other trust instruments.
Under this plan, the primary responsibility for selecting the particular charitable organizations to be benefited by a trust is entrusted to a five-man "distribution committee." Any person who gives property in trust for charitable purposes to be distributed under the allocation of the "distribution committee" does so by incorporating the "resolution" by reference in his will or trust agreement, and then the judgment of the "distribution committee" prevails in making distributions unless the trust agreement or the will of a decedent limits the distribution committee's power, or directs otherwise.
Under article V of the decedent's trust agreement, disbursements of income and, with the concurrence of the trustee, disbursements of principal may be made only for "such public charitable or educational uses and purposes as will, in the absolute and uncontrolled discretion of the Distribution Committee of The Cleveland Foundation, most effectively assist and promote the well being of the inhabitants of the community of Cleveland and its vicinity and of the state of Ohio generally, regardless of race, color or creed."
Under article IV of the trust agreement, the "distribution committee" is authorized to appropriate one-half of the net income and, with the concurrence of the trustee, such portion of the principal as it deems proper, but not to exceed 50 per cent thereof, for the support of "such exclusively public charitable and educational activities conducted at or emanating from Oglebay Park, near Wheeling, West Virginia, as will, in the absolute and uncontrolled discretion of the committee, most effectively assist and promote the well being of the people of the city of Wheeling and its vicinity, and the public at large, regardless of race, color or creed."
Following the filing in the Probate Court of Cuyahoga County, Ohio, of an application to determine the inheritance tax, that court on May 4, 1951, found that the charitable residue of Crispin Oglebay's probate estate passed, upon his death, in two equal successions; that the first succession in the amount of $789,981 was to The Central National Bank of Cleveland, as trustee, for the charitable purposes of The Cleveland Foundation, and was exempt from taxation under Section 5334, Ohio General Code; and that the remaining succession in the amount of $789,981 was to the Central National Bank of Cleveland, trustee, for Oglebay Park, and was a taxable succession.
Exceptions to this finding were filed by the executors, and thereafter the Probate Court sustained the exceptions and held that the entire succession of $1,579,962 to the trustee for charitable purposes was exempt from taxation.
The Department of Taxation thereafter took an appeal to the Court of Appeals for Cuyahoga county, which court, on April 17, 1953, reversed the judgment of the Probate Court sustaining the exceptions, and entered a judgment holding that there was a succession of $789,981 to Oglebay Park and that this succession was taxable at the highest possible rate under Section 5343, General Code (Section 5731.28, Revised Code).
The matter is now before this court following the allowance of a motion to certify the record.
Messrs. Thompson, Hine Flory, Mr. Robert F. Maskey, Mr. Harvey B. Hobson and Mr. William D. Ginn, for appellant.
Mr. C. William O'Neill, attorney general, and Mr. Thomas R. Lloyd, for appellee.
It is the contention of the appellant that the gift of decedent's residuary estate, passing under his will, together with the corpus of the trust established on January 25, 1947, and intended for charitable purposes, constitutes a single succession to the Central National Bank of Cleveland, as trustee, for purposes only of public charity and, therefore, such succession is exempt from taxation.
The Department of Taxation contends that the gift of the portion of the residuary estate and the corpus of the trust constitutes two successions as follows:
1. A succession of at least one-half to the Cleveland Foundation, which is exempt from taxation.
2. A succession of not to exceed one-half to Oglebay Park near Wheeling, West Virginia, taxable at the highest rate.
It is agreed that the activities emanating from Oglebay Park and as fixed by the trust agreement come under the classification, "for purposes only of public charity."
Section 5334, General Code (Section 5731.09, Revised Code), exempts from taxation the "succession to any property passing * * * to or for the use of an institution for purposes only of public charity, carried on in whole or in substantial part within this state."
By the terms of the trust agreement and the decedent's will, all the charitable residue of the decedent's estate was devised and bequeathed to the Central National Bank of Cleveland as trustee, for purposes only of public charity. Under numerous decisions of this court, the organization of a trust constitutes an "institution."
In Tax Commission v. Paxson, Admr., 118 Ohio St. 36, 160 N.E. 468, the following appears in the opinion:
"The organization of the trust by turning over the estate from the executors to the trustees under the will constitutes an institution in being for the purpose of the trust. This is the holding of this court in a number of cases dealing with charitable trusts, which have been recently reconsidered and cited with approval, it being held in the case of Jones, Treasurer, v. Conn et al., Trustees, 116 Ohio St. 1, 155 N.E. 791, that the organization of a trust to execute a charitable purpose constitutes a charitable institution. Gerke, Treasurer, v. Purcell, 25 Ohio St. 229; Humphries, Auditor, v. Little Sisters of the Poor, 29 Ohio St. 201; Cleveland Library Ass'n v. Pelton, Treasurer, 36 Ohio St. 253; Davis, Auditor, v. Cincinnati Camp Meeting Ass'n, 57 Ohio St. 257, 49 N.E. 401; Little, Treasurer, v. United Presbyterian Theological Seminary, 72 Ohio St. 417, 74 N.E. 193; Wilson, Auditor, v. Licking Aerie No. 387, F.O.E., 104 Ohio St. 137, 135 N.E. 545."
Under the "resolution" of the Central National Bank, establishing The Cleveland Foundation, it was not intended that the foundation should be either a trust or a trustee. It is not a legal entity, nor does it have a governing board. It is not incorporated and holds no assets. It has no members. It was designed to encourage the establishment of trusts for charitable purposes and to facilitate the administration of such trusts. Unless limited by the instrument or instruments creating the trust, the sole function of the foundation is to designate the charitable beneficiaries of the trust, and this is done by five citizens designated as the "distribution committee." The responsibility for the administration of the trust is on the trustee. Any breach of trust is the liability of the trustee and not that of the "distribution committee."
It must, therefore, be concluded that the trust of which the Central National Bank is trustee is the "institution"; and The Cleveland Foundation is not.
Does the provision relating to Oglebay Park create a "succession" to the park as contemplated by the statute?
The term, "succession," is defined in Section 5331, General Code (Section 5731.01, Revised Code), as "the passing of property in possession or enjoyment, present or future."
In Tax Commission, ex rel. Price, Atty. Genl., v. Lamprecht, Admr., 107 Ohio St. 535, 140 N.E. 333, 31 A.L.R., 985, it is stated that the Ohio inheritance tax is a tax upon the right to receive property from the estate of a decedent. It is the succession that is taxed, and the word, "succession," means the "passing of property."
Under the trust agreement and the will of the decedent, there is no single charity or single group of charities entitled to receive distributions of either principal or income from the trust as a matter of right. There is no "passing of property" to any named charity by the mandatory provisions of the trust agreement or by the will of the decedent.
The "distribution committee" may distribute one-half of the net income and, with the concurrence of the trustee, such portion of the principal as it sees fit, not to exceed one-half, "for the support of such exclusively charitable and educational activities conducted at or emanating from Oglebay Park, near Wheeling, West Virginia, as will, in the absolute and uncontrolled discretion of the committee [distribution committee], most effectively assist and promote the well being of the people of the city of Wheeling and its vicinity, and the public at large, regardless of race, color or creed."
The trust agreement and the will of the deceased do not require that any part of the income or principal be allocated for any of the activities at Oglebay Park. All the principal and income could be allocated to charities in the state of Ohio to the exclusion of activities at Oglebay Park. There is no enforceable right in favor of Oglebay Park activities to the exclusion of those in the state of Ohio.
Since the trustee holds all the charitable residue, since there is no enforceable right in favor of any charity, and since all allocations are apportioned by the trustee on appropriations made by the "distribution committee," whether within or without the state, it must be held that there is only one charitable succession created by the trust and the decedent's will, and that is to the trust of which the bank is the trustee.
Under Section 5334, General Code, in order for a succession for purposes only of public charity to be exempt from taxation, such charity must be "carried on in whole or in substantial part within this state."
The trust agreement in this case contains an overriding geographical limitation which assures that at least 50 per cent of the trust funds must be used for charitable purposes within the state of Ohio. It cannot be argued that 50 per cent is not a substantial part. Since at least 50 per cent of charitable activities must be carried on within this state, this satisfies the "substantial part" requirement of the statute.
The judgment of the Court of Appeals is reversed and that of the Probate Court is affirmed.
Judgment reversed.
WEYGANDT, C.J., MIDDLETON, TAFT, HART, ZIMMERMAN and STEWART, JJ., concur.