Opinion
Page __
__ Cal.App.2d __ 236 P.2d 418 In re ADAMS' ESTATE. KUCHEL v. ADAMS. Civ. 18395. California Court of Appeals, Second District, First Division Oct. 16, 1951.Hearing Granted Dec. 13, 1951.
Subsequent opinion 246 P.2d 625.
[236 P.2d 419] Fleming, Robbins & Tinsman, Los Angeles, for appellant.
James W. Hickey, Sacramento, Morton L. Barker, Walter H. Miller, Los Angeles, for respondent.
HANSON, Justice pro tem.
The sole question which here presses for solution is whether, on the evidence adduced, it can be said that the trust here involved was created by the trustor in 'contemplation of death.' On the evidence we are unable to discern any substantiation whatever, as did the trial judge, for the claim of the State that the trustor created the trust because she 'contemplated death' as the phrase is used in our inheritance tax law. Revenue and Taxation Code, § 13301 et seq. To our minds there is not an iota of evidence which even circumstantially supports such a conclusion other than the legal conclusion of the trustee as to what perhaps was in the mind of the trustor which, even if accepted, is too unsubstantial to be regarded as substantive evidence of the fact.
The California statute subjects a transfer such as the one here made, to an inheritance tax if it be made (1) 'in contemplation of death' or (2) 'with the intention that it take effect in possession or enjoyment at or after the death of the transferor.'
The state concedes that the transfer was not made with the intention that it should take effect in possession or enjoyment at or after the death of the transferor, the decedent Lillian T. Adams. Accordingly, we are here concerned only with the narrow question whether the transfer was made by her in contemplation of her own death, and not someone else's death.
The meaning of the phrase 'in contemplation of death' is defined in part by the statute as including within the meaning thereof 'that expectancy of death which actuates the mind of a person on the execution of his will. The term is not restricted to that expectancy of death which actuates the mind of a person making a gift causa mortis.'
The transfer, which the controller here seeks to tax, was made in 1935 almost eleven years prior to the death of the transferor who at the time of the transfer and until shortly prior to her death was in perfect health and in complete possession of her mental faculties. The transfer was accomplished by a conveyance in trust to her only son, as trustee, wherein he as one of the beneficiaries was given all the income of the trust during his life and thereafter it was to be divided between his two sons until such time as each, respectively, attained the age of 35 years whereupon the share of such son in the principal was to be paid over to him. However, the trust provided that the trustee, if he elected to do so, could at any time in advance of the termination date of the trust, transfer in whole or in part the corpus to either or [236 P.2d 420] both of his sons in accordance with their then existing proportionate shares. Not only was the trust in every aspect irrevocable, so far as the transferor was concerned, but she retained no right, title or interest with respect to it and was not a beneficiary thereof. Several months prior to the death of the transferor the trustee exercised his right to terminate the trust completely and paid over to his sons their respective shares.
Plainly, the transfer itself was of a type which could have been taxed under our present gift tax act had that act been in effect--as it was not, being enacted in 1939, Revenue and Taxation Code, § 15101 et seq.--unless it can be said that the transfer was made in contemplation of death and hence taxable under the inheritance tax act.
An inheritance tax collector, whose compensation is by law measured by a percentage of the property he includes as taxable, made a return wherein he included as subject to the inheritance tax the trust estate and all its accumulations as of the date of the death of the transferor and not as of the date the trust had actually terminated or as of the date of its creation. The value of the total trust estate on the date of its creation was $302,364.01 and as of the death of decedent $457,521.75. The appraiser by the report he returned found that the transfer was made 'in contemplation of death, with life estate retained and as an advancement.' (Italics supplied.) There was not a scintilla of evidence to sustain the italicized portion of the quotation above. This much the controller concedes. But instead he now rests his claim merely on the contention that the transfer was made in contemplation of death.
With this brief background of the case we turn at once to set forth a statement of the salient and controlling facts as they are disclosed by the record before proceeding further to discuss the law that is here applicable.
In July, 1922, James H. Adams, a direct descendant of President John Adams, died leaving a substantial estate which he apparently left to his widow Lillian T. Adams, who at the time was 67 years of age and to his only child Morgan Adams. At the time of his father's death Morgan Adams had two sons, James H. Adams II, aged 7, and Morgan Adams, Jr., aged 5. Morgan Adams at the time had made his mark in the financial circles of Los Angeles, being president of the Mortgage Guarantee Co. and individually possessed of a very substantial fortune. The record before us makes it plain that the widow Lillian was not only exceedingly proud of her husband's lineage but also the financial ability of her son Morgan.
Mrs. Lillian T. Adams was not the type of woman who could not carry on her financial affairs without the help of a husband or son. She had distinct ideas of her own and the record is that she exercised good business judgment. She valued highly the financial and business ability of her own son, but was not by reason thereof in the least inclined to yield her judgment to his, even though she entrusted the management of her financial estate to him so far as investments and re-investment were concerned, but otherwise personally handled all her own business affairs. Not only did she succeed her husband as a director in the corporation of which her son was president, but she was active in attending the board meetings. The board was an outstanding board of businessmen. When in the meetings of the board she demanded that some particular thing should be done, then, as a director expressed it, 'What she wanted done, * * * was done.'
It appears that Mrs. Adams always took a great interest in her grandsons as they were growing up and, when they entered college, she began discussing with her son her desire to vest in them adequate and substantial means to aid them in initially launching their proposed business careers. In these discussions she stated it was her desire to create a trust estate with her son as trustee, but that notwithstanding she wished the grandsons to receive the corpus as soon as they were able properly to manage the same. The son expressed to her his approval. She also discussed with her [236 P.2d 421] grandsons, during their college years, what she proposed to do.
In 1935, while her grandsons were still in college Mrs. Adams on her own initiative went to the office of her personal attorney and told him her exact desires. At that very time--1935--she was aware of the law then in existence that imposed on stockholders of corporations--such as that headed by her son--a double stock liability. The time--of which we take judicial notice--was a troublesome one for mortgage corporations. She knew not only that her son owned a great deal of stock in his corporation but she told her attorney that she thought there might be a possibility owing to existing conditions that he would need financial assistance; that his sons--her grandsons--were still in college supported by their father, and in the vernacular, might be subjected to 'designing women.' Hence, she had concluded that her son should have the first call on her assets and that barring any such necessity on his part that her grandsons should be launched in business with adequate means as soon as they were able to properly manage the gift she proposed to make. She realized, as the record shows, that the father of the boys rather than she as their grandmother, was in closer touch with them and so could exercise the better judgment. Accordingly, she concluded that her son should be safeguarded by having the income of the assets she wished to convey to her grandsons so long as he felt he needed it but that thereafter he should be enabled to vest the assets in his boys as soon as he felt there was not any danger that they would squander them. To that end she created the trust.
When her attorney told her the proposed trust would involve the payment of a gift tax to the federal government, she, nevertheless, directed that the trust should be accomplished and the tax paid. There was no discussion between her and her attorney as to inheritance taxes or any suggestion by either that such taxes were or might be involved. The trial court itself refused to find that she created the trust with the thought of minimizing taxes, state or federal. At the time the trust was created she was just short of 80 years of age and thereafter lived until she was 90. Until a few months before her death--10 years after she created the trust--she was physically and mentally completely alert. Until that time she had never been under the necessity of medical care, except to have herself checked periodically. She died from no malady, without pain and simply of old age. When she created the trust her fortune exceeded $400,000. Before that date and within a few months thereof she had traveled extensively to various parts of the world without the slightest assistance or attention from anyone. At the time she created the trust which left, after its creation, in her own hands and possession a fortune in excess of $100,000 she continued making gifts to various organizations and took an active part in them until a few months before her death ten years later. She had a zest for life and was continually 'on the go.' There is not a scintilla of evidence to indicate that at the time she created the trust she did so in contemplation of death and we find in the record no evidence upon which such an inference may properly be drawn. The evidence on the subject in favor of the objector came before the trial court almost exclusively from persons of high repute, by way of letters or affidavits, which were received in evidence by way of stipulation in lieu of calling them to the stand. Hence, the rule that the credibility of witnesses is for the trial court does not come into play in this case with respect to the affidavits or letters, as the trial court did not see or hear the witnesses. We have read and re-read the entire record and find it so overwhelmingly in the favor of the objector that we see no need of further detailing it. Of the three witnesses who testified from the stand there is not one iota of fact in their testimony or any possible proper inferences therefrom which lends any support for the contention of the controller. The very reverse is true. The one lone exception to this statement, upon which the controller so heavily relies and which evidently was accepted as a controlling fact by the trial court--though wholly inadmissible--should here be stated.
[236 P.2d 422] At the hearing before the inheritance tax appraiser the trustee testified in response to a question as to what his mother's motives were in creating the trust as follows: 'Well, even at that time she was well along; she was in good health, but I had taken care of her affairs pretty much ever since my father's death and she thought it was a good scheme to make a bequest. I guess that is what it was, at that time on the basis that I would continue to look out for that amount of money, which, of course, I did.' (Italics supplied.) Not only was this statement as italicized vulnerable to the hearsay rule with respect to the grandsons as beneficiaries of the donor's gift, but it was, moreover, a mere conclusion by the trustee of the motive of the donor not based on any fact statement made by the donor to him, but of a fact he thought perhaps rested in the donor's mind. The statement was wholly inadmissible, Estate of Boole, 98 Cal.App. 714, 277 P. 759, and should not have been considered by the trial court. That it was so considered we must assume as the controller rests his case, largely, if not wholly, on the fact and justifies the trial court's decision on the theory it was based upon it in large part.
The trial court in its memorandum ruling stated he was 'impelled to the conclusion that one of the operative and actuating purposes which caused the decedent to make the transfer in question was to distribute the greater part of her property to the natural objects of her bounty by an inter vivos gift in lieu of transmitting it to them by will. The extent of the property transferred in relation to the entire estate of the donor, the circumstances of the donees and their relationships to the donor, the terms of the trust instrument and the age and circumstances of the donor, point to and support the conclusion we have reached. Estate of Newman, 52 Cal.App.2d 126, 125 P.2d 908.'
Not only was there in another part of the ruling an express approval of the report of the inheritance tax appraiser which stated that the trust constituted 'a transfer made in contemplation of death, with life estate retained and as an advancement,' but contrariwise the findings as submitted by the controller and signed by the court expressly stated that the transfer was not an 'advancement' and that no 'life estate' or 'any other type of interest' was retained by her at the time of her death. Accordingly, the findings in these aspects are directly contradictory. We pass the contradictions, as does the controller, by stating that the only finding upon which the inheritance tax appraiser was actually sustained was his finding that the transfer in trust was made in contemplation of death. However, we should here note that the trial court did strike out a finding proposed by the controller reading as follows: '(3) To minimize the impact of the higher rates of taxation under the federal estate tax law and the California inheritance tax law which would have been applicable if her assets had all been distributed as a part of her probate estate.'
When one executes a will he necessarily does so in contemplation of his ultimate death, and with no other motive than to create a testamentary future gift of his estate in accord with his desires at the moment. On the other hand when one makes an irrevocable gift inter vivos his motive is not to make a future but a present gift to accord with his desires at the moment. In either case he is fully cognizant of the fact that ultimately he must die, but in the one case the contemplation of death is the paramount motive which induces him to act, and in the other it may be, but is not necessarily the paramount or sole motive. The State may levy an inheritance tax on a transfer of property that results from a future gift contained in a testamentary disposition, but it may not constitutionally impose such a tax upon a present irrevocable gift inter vivos, unless the gift may be classed as testamentary in character or intended as a substitute for a testamentary disposition. It is one thing to levy a tax on a present irrevocable inter vivos gift and quite another to levy one on a future gift made by the way of a testamentary disposition. But in neither case may the tax be imposed under the guise that the gift is testamentary when it is not, or that it is a present inter vivos gift when it [236 P.2d 423] is not, without running afoul of the provisions of the federal constitution. Cf. Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184. While no all embracing test has been laid down, and seemingly none can be stated, which will determine on which side of the line each individual case falls, yet motive of the donor is the primary test. And as to that, the best evidence of the state of mind of the donor at the time a gift is made 'and the reasons actuating him in making the transfers are the statements and expressions of the decedent himself * * *' when not contradicted by the surrounding circumstances. U. S. v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867. If his motive was not impelled by fear of impending death or by a mere desire to substitute a present gift for a testamentary gift, but to fulfill a desire during his lifetime to provide others with immediate income the cases generally hold the gift may not be regarded as made in contemplation of death or as testamentary in character. In the case before us the desire was to supply the trustor's son with an immediate income, as long as he needed it, and thereafter to the grandsons.
If the present State Gift Tax Act, enacted in 1939, had been in effect in 1935 when the trust was created, unquestionably the donor would have made a gift tax return to the State as she did to the federal government and paid such a tax. Under such circumstances we anticipate that the controller would gladly have accepted the tax and would not have rejected it on the theory that the gift was made in contemplation of death and hence that he desired to await her death so that a larger tax could be collected by him in behalf of the state. If the donor anticipated that the state would shortly pass a Gift Tax Act and hence for that reason alone concluded to anticipate its incidence upon her gift the controller may not complain, as the federal constitution bars any such complaint. Moreover, he may not stretch his complaint by invoking the inheritance tax act to reach a situation taxable only by a proper Gift Tax Act.
In the case before us the trial court found that (1) the entire right, title, interest and possession of the transferor to the property transferred to the trustee vested in the trustee in behalf of the beneficiaries instantly upon the transfer; (2) that the transferor retained no rights thereto of any kind or character; (3) that the transfer was not restricted to take effect upon or after the death of the transferor. In view of the conclusion we have arrived at as to the disposition that must be made of the case it is unnecessary for us to determine whether an inter vivos trust, as here, which had fully terminated prior to transferor's death is assessable as of such date or some other date. Cf. Estate of Madison, 26 Cal.2d 453, 159 P.2d 630. We pass then to the crux of the case.
It is evident from what we have so far said that the operative fact in determining whether the transfer was made in contemplation of death is the motive or the state of mind of the transferor at the time of the transfer.
The motive of the transferor, as she herself stated it, as testified to by the witnesses, stands uncontradicted. She wished, as she stated it, to supply her grandsons with ample funds as soon as they began their business careers, or as soon as their father felt they were capable of properly handling and safeguarding the funds and subject only to the need the father might have to retain the income from the funds for his own use. She plainly desired to make her grandsons independent out of her own funds, without regard to any funds the father might provide in the future.
Moreover, it must not be overlooked that the transferor at the time of the transfer had in her possession a will she had executed in 1922. In that will, except for a cash bequest of $5,000 to her attorney, she left her entire estate to her son Morgan even though her husband was then living. She named her husband as executor of the will, but made no reference to or provisions for her grandsons. By her transfer in trust in 1935 she carved out of her estate which her son Morgan would have taken under the will the sum of some [236 P.2d 424] $300,000. She left the will intact as a testamentary disposition to operate on the estate she retained. Accordingly, we do not here have in any sense the factual situation that existed in the case in Estate of Newman, 52 Cal.App.2d 126, 125 P.2d 908, upon which the controller relies so heavily. In the Newman case the decedent had made a will leaving all his property, except for some minor bequests to his wife. Thereafter he made three transfers to her between July, 1934, and May, 1936, the total of which disposed of 73% of his entire estate. In June, 1936, he made a will eliminating the minor bequests in his first will and named his wife as the sole beneficiary. The facts just related are at such variance with the facts of the instant case as to make it self-evident that the decision is not controlling.
As none of the indicia usually associated with a transfer in contemplation of death are in this case shown by the evidence, the order is reversed.
WHITE, P. J., and DRAPEAU, J., concur.