Summary
In Tax Commission v. Paxson, supra, the court held that the succession to property was not exempt from inheritance tax where it represented a trust fund held by trustees and their successors for charitable purposes which clothed the trustees and their successors with the power to "be the sole judges as to the persons qualified and entitled to have the benefits of said fund, and the purposes for which said expenditures shall be made.
Summary of this case from In re Estate of LambertOpinion
No. 20356
Decided December 21, 1927.
Inheritance tax — Exemptions — Successions passing to public charity — Section 5334, General Code — Inapplicable where property used for profit and accumulation devoted to charity — Succession limited to Masons, their families and clergymen, not exempt.
1. The provision of Section 5334, General Code, "The succession to any property passing * * * to or for the use of an institution for purposes only of public charity * * * shall not be subject to the preceding sections of this subdivision," does not apply to the succession of property to be used for a period of not less than fifty nor more than sixty years exclusively for profit and the multiplication of profits, even though such property and its accumulation is thereafter to be dispensed as a public charity, the purpose of the testator being not alone to dispense a public charity but also to increase and augment the estate he has left.
2. The succession of property to a trustee to be used for the purpose of dispensing charity only to aged Master Masons, their wives, widows and dependent orphans, or superannuated clergymen, is not a succession of property "for purposes only of public charity." ( Morning Star Lodge v. Hayslip, 23 Ohio St. 144, approved and followed.)
ERROR to the Court of Appeals of Lucas county.
Otis Avery Browning died testate on July 28, 1923. His last will and testament was duly probated in the probate court of Lucas county, Ohio. In his last will and testament he provided (division No. 4):
"Section Eight. After my executors shall have paid from the personal property included in this division number four, all my lawful and just debts and obligations, and the expenses of my estate, including all state, national and other inheritance taxes and similar charges, and shall have paid in full each and all of the specific gifts and bequests as provided in my will in which a stated cash amount is named, and which shall not for any reason have lapsed, whatever then remains shall be the residue of division number four, as provided in this division of my will.
"Section Nine. This residue shall be divided by my executor into one hundred (100) equal parts or shares of equal worth and value, to be paid and distributed as hereinafter provided, and I hereby give and bequeath such residue as hereinafter in this division set forth, and the number of shares which I give to each beneficiary shall determine the amount each beneficiary named shall receive out of such residue, except as may be otherwise specified and provided."
Division No. 5:
"Section One. In this division number Five is set forth my wishes and desires and requirements respecting the Otis Avery Browning Masonic Memorial Fund and Home, * * *.
"I again call special attention to what I have termed the residue of division number four, which shall be divided into one hundred (100) shares or parts of equal worth and value. Forty-six (46) of these said shares I have bequeathed to the Security Savings Bank Trust Company, of Toledo, Ohio, in trust, for the foundation of the Otis Avery Browning Masonic Memorial Fund, but only on condition that the board of directors as hereinafter named, to accept the oversight and control of such fund, shall organize, qualify and accept the same, within four months after the date of qualification of my executors. * * *
"Section Five. The purpose of the memorial home shall be purely eleemosynary; it shall not be in any way sectarian in character; it shall be for aged master Masons, their wives, widows and dependent orphans, who desire the home comforts and the happiness of the Christian home, free of sectarian bias or influence. It shall never be used for any other purpose than as herein provided. * * *
"Section Six. The home shall be, in the first instance, for master Masons, their wives or widows. Such master Masons shall be at least sixty (60) years of age, either born or naturalized citizens of the United States of America, residents of the state of Ohio, of good, moral character, and shall have been members of some regular and legal Masonic lodge of the state of Ohio, for at least six (6) years immediately preceding his admission, or the death of such master Mason, in case of the admission of the widow or orphan of such master Mason. When the home is not fully taken up or occupied by such qualified master Masons, their wives or widows, then, at the discretion of the board of directors, any superannuated clergyman may be admitted, irrespective of denomination, who has been a citizen and resident of the state of Ohio for at least six (6) years immediately previous to his admission, and who comes well recommended, subject to the approval of the board of directors.
"Section Seven. Membership dues shall be charged and paid, thus removing from the minds of those in the home the idea that they are dependent subjects of charity. The rules of the home, regulation of and the amount of the dues I leave to the discretion of the board of directors. * * *
"Section Thirteen. All real estate, bonds, stock, money and other property received and held in trust by said trustee for the benefit of the memorial fund, shall be invested and reinvested, compounded and kept accumulative and at interest for a period of not less than fifty (50) years from and after the date of my decease. My sole purpose in delaying the building of said home for fifty years is to create an endowment sufficiently large not only to build the said home, but to maintain and care for it, and to make it self-sustaining. * * *
"Section Fifteen. Each and every active member of the board of directors shall be a master Mason in good and regular standing and a resident of the state of Ohio."
The executors of the will of Otis Avery Browning filed an application in the probate court of Lucas county for that court to determine the inheritance tax due upon the succession of the estate to the various legatees and devisees under the will, including the Security Savings Bank Trust Company of Toledo, Ohio. That court found the total actual net market value of the succession to the Security Savings Bank Trust Company of Toledo, Ohio, as trustee for the Otis Avery Browning Masonic Memorial Fund and Home, to be $600,180.75, and that the devise and bequest to said trustee "is a charitable devise and bequest to or for the use of an institution for purposes only of public charity carried on in whole or in substantial part in the state of Ohio; and, as such, is exempt from the payment of any succession or inheritance tax to the state of Ohio," to which finding the Tax Commission of the state of Ohio filed its exceptions, which were subsequently overruled, and an appeal prosecuted by the Tax Commission of Ohio to the common pleas court of Lucas county, Ohio, where, after hearing, the same order was entered by that court. Error was prosecuted to the Court of Appeals of Lucas county, and the judgment of the court of common pleas was affirmed. Error is prosecuted here.
Mr. Edward C. Turner, attorney general, and Mr. V.H. Gibbs, for plaintiff in error.
Mr. Earle L. Peters and Mr. James W. Harbaugh, for defendants in error.
The question here presented involves the interpretation of the exception provided in Section 5334, General Code, to the application of the succession tax provided in Section 5332, General Code. The portions of those sections applicable here are:
"Section 5332. A tax is hereby levied upon the succession to any property passing, in trust or otherwise, to or for the use of a person, institution or corporation, in the following cases:
"1. When the succession is by will * * * from a person who was a resident of this state at the time of his death."
"Section 5334. The succession to any property passing * * * to or for the use of an institution for purposes only of public charity, * * * shall not be subject to the provisions of the preceding sections of this subdivision."
The first question which presents itself is whether the bequest is "for purposes only of public charity."
That it was the purpose of the testator that that portion of his estate here under consideration should ultimately be distributed as a charity, or at least substantially as a charity, cannot be controverted. Neither can it be controverted that it was the purpose of the testator that such portion of his estate was to be used for the period of not less than 50, nor more than 60, years exclusively in a commercial way and for profit. He expressly charged the trustee with the duty to invest, reinvest, compound, and accumulate at interest, for a period of not less than 50 years, the whole of the estate devised and bequeathed to such trustee. The duty of the trustee during such period, instead of being a duty to dispense a charity, is a duty to take the estate as a nucleus, and, through the channels of commerce, to earn and accumulate, by such employment of the estate, an estate many times the value of the estate devised, it being estimated that the estate of approximately $600,000 will in that period earn and so multiply itself that at the expiration thereof it will amount to many millions of dollars. Does such exclusive employment of an estate for so long a period constitute a use of such estate "for purposes only of public charity?" Was it not as much the purpose of the testator to charge the trustee with the duty of investing, reinvesting, compounding, and accumulating at interest the estate, so that it might multiply itself from a comparatively small estate into a comparatively large estate, as it was the purpose to charge the trustee with the duty ultimately to dispense such estate, as so multiplied, as a charity?
Did the Legislature, when it exempted estates "to or for the use of an institution for purposes only of public charity" from liability to the succession tax, intend to include in such exemption estates that are to be employed for so long a period in the ordinary channels of commerce for profit in earning and accumulating a great fund simply because such fund is ultimately, in some distant generation, to be dispensed as a charity? It would seem that, by the use of the word "only," the Legislature had in mind the exclusion from the exception of just such estates as this; that it did not purpose to exempt from the succession tax estates that were to be employed partially for charity and partially for purposes other than charity.
We therefore hold that the bequest of an estate to a trustee, to be employed exclusively by such trustee for a period of from 50 to 60 years, for profit, and for the multiplication of the estate, is not a bequest for purposes only of public charity.
There is another reason why in our opinion this bequest does not come within the exemption of Section 5334, General Code, from the payment of the succession tax imposed by Section 5332, General Code. Long prior to the enactment of the statute here under consideration, in the case of Morning Star Lodge, No. 26, I. O. O. F. v. Hayslip, Treas., 23 Ohio St. 144, this court declared:
"A charitable or benevolent association which extends relief only to its own sick and needy members, and to the widows and orphans of its deceased members, is not 'an institution of purely public charity;' and its moneys held and invested for the aforesaid purposes are not exempt from taxation."
We are unable to draw a distinction between the phrase of Section 5334, General Code, "an institution for purposes only of public charity," and the phrase of Section 2, Article XII, of the Ohio Constitution of 1851, "institutions of purely public charity."
The Legislature is presumed to know the decisions of this court, and, where it uses words or phrases that have been defined or construed by this court, it is presumed to have used them in the sense that they have been so defined or construed; and in the use of the phrase "institution for purposes only of public charity," found in Section 5334, General Code, the Legislature is presumed to have used it in the sense that this court had theretofore construed a phrase substantially the same.
In view, therefore, of the fact that, before the Legislature used the phrase "an institution for purposes only of public charity," in Section 5334, General Code, this court had held that charities dispensed by a fraternal lodge only to its members did not constitute it "an institution of purely public charity," this court could not now give to substantially the same phrase a different construction without itself invading the field of legislation.
The fact that this charity is, under certain contingencies, available to a second class, to wit, superannuated ministers, does not differentiate it from charities available only to a single class, since it excludes all of the public that does not fall within either of the two classes.
While it is true that master Masons, their wives, widows, and dependent orphans, and superannuated clergymen, are all members of the public, it is equally true that the public are not all members of such classes.
The judgment of the Court of Appeals and the judgment of the court of common pleas are reversed, and this cause will be remanded to the court of common pleas for further proceedings in accordance herewith.
Judgment reversed.
ALLEN, JONES and MATTHIAS, JJ., concur.
MARSHALL, C.J., and DAY, J., dissent.
KINKADE, J., not participating.