Opinion
No. 30482
Decided March 6, 1946.
Taxation — Intangible personal property — Net income from trust estate income yield from investment and not an annuity — Specified sum or entire net income payable annually — Beneficiary takes equitable interest in trust estate, when.
1. Where a testator devised and bequeathed property in trust and provided that the named trustee shall distribute and pay to testator's widow a specified sum annually out of the net income or out of the income and principal or out of the principal alone of the trust estate and further provided that if such trust estate produces a net income in any year in excess of such specified sum, then and in that event, upon the written request of the widow, the entire net income for that year shall be distributed and paid to her, such widow takes an equitable interest in the trust estate.
2. Where, in a given year, the net income from such a trust estate (as above outlined) is in excess of the sum specified to be paid annually to the testator's widow, all of which is distributed and paid to her upon her written request, the entire amount so paid is income yield from an investment and not an annuity, and her equitable interest from which such income is derived is taxable as an investment.
APPEAL from the Board of Tax Appeals.
Katharine G. Fuller (appellant) at the times in question was the widow of Rathbun Fuller who died leaving a last will and testament, item nine of which, insofar as pertinent here, reads as follows:
"Item nine. I give, devise and bequeath to my executors hereinafter named as trustees, all of my remaining property of every variety and description, wherever the same may be situate, in trust for the following uses and purposes, to wit:
"(a) From the trust property my said executors and/or trustees shall distribute and pay to my beloved wife, Katharine G. Fuller, an annuity of twenty-four thousand ($24,000) dollars per annum, in monthly or quarterly installments as she may wish, so long as she lives, said annuity to be paid out of the net income and/or principal of the trust property, — this annuity to accrue from the date of my death and the first payments hereunder to be paid one month after my death and monthly thereafter unless my said wife directs the same paid quarterly. This annuity shall be paid to my said wife in addition to all other payments to her under this will. If in any year the net income from this trust estate exceeds the annuity sum of twenty-four thousand ($24,000) dollars, then my said executors and/or trustees shall, at her request in writing, pay to my said wife such additional net income."
In the year 1939, the income from the trust estate thereby created was $60,580.57, and in 1940, $57,700.72, all of which income in those years was paid to appellant upon her written request and for which she made returns in the years 1940 and 1941 respectively.
In each of those returns she listed the sum of $24,000 for taxation as an annuity as defined in Section 5323, General Code, and the balance as income derived from a trust. The Tax Commissioner for each year issued a correction sheet listing the entire amount received, less expenses and income from non-taxable sources, as income derived from a trust taxable according to the provisions of Section 5638-1, General Code.
The Board of Tax Appeals affirmed the action of the Tax Commissioner, and from that decision of affirmance an appeal was perfected to this court.
Messrs. Marshall, Melhorn, Wall Bloch and Mr. Thomas F. Butler, Jr., for appellant.
Mr. Hugh S. Jenkins, attorney general, and Mr. Daronne R. Tate, for appellee.
The question for determination here is whether the sum of $24,000 listed in each return is taxable as an annuity as claimed by appellant, or whether it is income yield from a trust as decided by the Board of Tax Appeals.
There can be little dispute upon the proposition that the testator intended by item nine of his will that the appellant should receive the entire net income from the trust estate each year if she so desired. The sum of $24,000 per annum was to be paid to appellant irrespective of whether the net income from the trust equalled that amount.
It should be made perfectly clear that in the instant case we are not called upon to decide the question as to the method of taxation or whether the specified sum would be taxable in the event that the $24,000 paid to appellant in any year was paid in whole or in part from the corpus of the trust estate. The trust produced a net income greatly in excess of $24,000 in each of the years here in question.
Appellant concedes that the amount received by her over and above the $24,000 minimum is income from a trust and taxable as such, but insists that the aggregate amount received in the respective years should be taxed under two different methods. First, to the extent of $24,000 it should be taxed as an annuity; and, second, over that amount it should be taxed upon the basis of income yield from an investment.
An annuity is defined in Ballentine's Law Dictionary as follows:
"A yearly payment of a certain sum of money granted to another in fee for life or for years, and charging the person of the grantor only."
In Oxford English Dictionary it is defined as follows:
"2. Law. The grant of an annual sum of money, for a term of years, for life, or in perpetuity; which differs from a rent charge in being primarily chargeable upon the grantor's person, and his heirs if named, not upon specific land. * * *
"3. An investment of money, whereby the investor becomes entitled to receive a series of equal annual payments, which, except in the case of perpetual annuities, includes the ultimate return of both principal and interest; also, the annual (or, for convenience, quarterly) payment thus made." (Emphasis added.)
At common law the word was defined as "the payment of a specified sum of money at stated times, granted to another and charging the person of the grantor only."
In the case of Chisholm v. Shields, Treas., 67 Ohio St. 374, 66 N.E. 93, at pages 378 and 379, an annuity was defined as follows:
"An annuity, as understood in common parlance, is an obligation by a person or company to pay to the annuitant a certain sum of money at stated times during life or a specified number of years, in consideration of a gross sum paid for such obligation, and this in substance is the kind of annuity covered by said sections of the statute." (Emphasis added.)
That case was decided before the present intangible personal property tax law was enacted. However, that decision fixed the legal definition of the word "annuity" under the then existing tax statutes.
The General Assembly is presumed to have been familiar with the established legal definition of the word "annuity," when it enacted the present intangible personal property tax statutes, and it would seem reasonable to suppose that had it intended to broaden that definition it would have brought about that result by appropriate language.
True the meaning of the word has been broadened in common parlance to include grants, gifts and bequests not contemplated within the common-law definition, yet in the light of the manner in which the word "annuity" is used in the intangible personal property tax statutes we must conclude that the General Assembly used the word in its restricted sense.
Entertaining the view that it was the testator's intention to have his widow (appellant), upon her request, receive the entire net income produced by the trust estate each year, or, in the event the net income in any year did not equal the sum of $24,000, she was to receive that amount payable out of income and principal or out of principal alone, we conclude that she became the owner of an equitable interest in the trust estate. So long as she receives $24,000 or more annually paid entirely from net income, the sum so received is income yield from a taxable investment.
Therefore the decision of the Board of Tax Appeals was neither unreasonable nor unlawful and should be and hereby is affirmed.
Decision affirmed.
WEYGANDT, C.J., ZIMMERMAN, WILLIAMS, TURNER and MATTHIAS, JJ., concur.
HART, J., dissents.