Opinion
No. 3732
Decided June 22, 1944.
Inheritance tax — Determination — Powers and duties of Probate Court — May set aside determination and redetermine on true appraisal — Gift in contemplation of death not presumed, when — Burden of proof — Gift not made in contemplation of death, when.
1. The Probate Court, in determining the amount of inheritance tax, acts in a judicial as well as an administrative capacity, has the same power in respect thereto that it has in respect to other matters rightfully lodged with it, and may, in accordance with such power, set aside its determination based upon a mistaken appraisal and make a second determination based upon the true appraisal.
2. There is no presumption that a gift of property made more than two years prior to the death of the donor, was made in contemplation of his death, within the purview of the inheritance tax act, and the burden is upon the taxing authorities to show the gift was so made.
3. Where, with the express statement that he intended to protect his estate, donor made such gift while he was in good health, with a prospect of many years of life, and while he was faced with the possibility of a judgment against him for a very large amount, and where, after such gift, he suffered for two years from a paralytic stroke, during which period he made no further gifts, such gift was not made in contemplation of death within the meaning of the inheritance tax act.
4. Where, to provide for the payment of taxes on real property in such gift, donor gave bonds to donee, the latter gift was not made in contemplation of death even though it was made within two years prior to donor's death.
APPEAL: Court of Appeals for Franklin county.
Mr. Thomas J. Herbert, attorney general, and Mr. Aubrey A. Wendt, for appellant.
Mr. Allen I. Pretzman, for appellees.
This matter is before this court on an appeal on questions of law from a judgment of the Probate Court of Franklin county, involving the question whether certain transfers of chattel property and real estate made by John W. Seidensticker were subject to inheritance tax.
The statutes applicable to the question are Section 5331 et seq., General Code.
Section 5331 is largely a definition statute. That section and certain paragraphs thereof will be hereinafter referred to.
Section 5332 provides that a tax is levied upon the succession to any property passing, in trust or otherwise, to or for the use of a person, etc., in certain cases therein enumerated.
The third paragraph of such section, relating to properties the succession to which is subject to inheritance tax, provides that such succession shall be subject to such tax "when the succession is to property * * * by deed, * * * gift, made without a valuable consideration substantially equivalent in money or money's worth to the full value of such property:
"(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."
Section 5332-2 provides that "any transfer * * * if shown to have been made without a valuable consideration substantially equivalent in money or money's worth to the full value of such property, if so made within two years prior to the death of the transferor, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title. * * *"
Paragraph 5 of Section 5331 provides:
"`Contemplation of death' means that expectation of death which actuates the mind of a person on the execution of his will."
The Probate Court of Franklin county in determining the inheritance tax, by entry of December 16, 1943, found that the gross value of the estate was $284,728.28. Due to the fact that there was a mistake in the estimated value of certain property the court, on December 28, 1943, made a second entry to the effect that the gross value of the estate was $279,728. Each of these orders provides for the amount of tax to be paid by the persons severally interested in such estate. In the entry of December 16, 1943, the total of such tax was found to be $1,255.04, and in the entry of December 28, 1943, the total was found to be $1,094.77, about $160 less than in the first entry.
In November 1943, an application and itemized statement of the assets and liabilities, necessary for the determination of the inheritance tax, were filed in the Probate Court of Franklin county in connection with the estate of the decedent.
On November 16, 1943, an order to appraise was issued to the auditor of Franklin county and on December 16, the appraisal was filed and an order was entered by the court determining the value of the property and the amount of taxes to which the several successions were liable as set out in the entry of December 16, 1943. On December 28, the court made an entry to the effect that the determination of December 16 be set aside and the court redetermine the value of the estate as provided for in Section 5345, General Code. As above stated, the second determination and entry were made to correct the error that was apparent in the first statement as to the appraised value of the property.
On January 4, 1944, exceptions to the determination of the tax as made on December 28 were filed by the executors. At the inception of this hearing objection was made by the Department of Taxation to the jurisdiction of the court, which objection was overruled and the exceptions were sustained on March 15, 1944. A motion for new trial was overruled, and appeal taken.
The record shows, and the same is not disputed, that the decedent made certain gifts to his wife, Elizabeth, on the following dates and of the following values as ascertained by appraisal:
December 14, 1931, 100 shares Market Exchange Bank Co. stock ............... $ 1,500 May 6, 1932, residence at 201 S. Dawson Ave., Bexley ................... 13,560 Feb. 4, 1933, 108 shs. Lamb Glass Co .............................. 51,840 June 30, 1936, 90 shs. Banner Die, Tool Stamping Co. ................... 25,200 Feb. 1942, five U.S. treasury notes in amount of $500 each ................ 2,500 ------- $ 94,600
The Probate Court held in the last entry that none of the above enumerated property was subject to inheritance tax, and that ruling of the court is the basis for the appeal.
After the making of the gifts above enumerated, the decedent left, at the time of his death, a net estate amounting to $144,390.45 which was subject to inheritance tax.
At the outset we are met with objections to the jurisdiction of the court to make the final order, which may be understood by a consideration of the assignment of errors filed by the appellant, the Department of Taxation. Those errors assigned relating to the jurisdiction are first enumerated:
(1) The Probate Court erred in holding that it had power on motion, to set aside its order and determination of inheritance taxes, of December 16, 1943, and redetermine the tax as shown by the entry of December 28, 1943.
(2) The Probate Court erred in considering exceptions filed to its erroneous entry of December 28, 1943.
The other errors assigned refer to the finding of the court to the effect that the property was not subject to inheritance tax. They are as follows:
(3) The Probate Court erred in holding that the gifts and each of the gifts made by the decedent to his wife on December 14, 1931, May 6, 1932, February 4, 1933, June 30, 1936, and February 1942, were not made in contemplation of death within the meaning of Section 5331 et seq., General Code.
(4) The court erred in holding that the gift of the homestead made by the decedent to his wife on May 6, 1932, was not a gift made in contemplation of death or that it was not a gift intended to take effect in possession or enjoyment at or after death, or both, within the meaning of Paragraph 3 of Section 5332, General Code.
(5), (6) and (7) The decision of the court was contrary to law and against the evidence and contrary to the same.
It appears from the evidence and stipulations that the decedent died on July 29, 1943, leaving a large estate. The Probate Court in determining the inheritance tax, included by the entry of December 16, 1943, the gifts of $94,600 in addition to the net estate of $144,390.45. The conveyances enumerated made during the lifetime of the decedent were included on the ground that they were made in contemplation of death. The executors filed exceptions at the hearing of which the evidence on behalf of the department and of the executors was heard and considered by the court. Thereupon the court handed down its last decision finding that none of the transfers during the lifetime of the decedent was made in contemplation of death or was designed to take effect at or after the death of the decedent.
All of the transfers, with the exception of the last one made in February 1942, were accomplished many years prior to the decedent's death.
At the time of the decedent's death he was sixty-three years of age. The first of the gifts enumerated in the assignment of errors was made twelve years prior to his death; the second, eleven years; the third, ten years; the fourth, seven years; and the last, as above stated, a year and a half.
The facts disclosed by the evidence in this case were that the decedent had long been engaged in the banking business in the city of Columbus and had amassed a considerable estate. He was engaged in a number of transactions not directly connected with the banking business. His health was vigorous, he being devoted to athletic sports, but as he grew older, he confined his exercise to horseback riding and boating. Five or six years prior to his death he purchased a farm and made extensive improvements thereon. Two years prior to his death he suffered a paralytic stroke from which he made a gradual recovery and resumed his work at the bank. For several years prior to his death he was interested in remodeling the banking room, and in the advancement of the salaries of the employees. His son being a contractor, he constantly importuned him to supply material for additions to his farm, constantly showing a deep interest in the conduct not only of his banking business, but in those incidental matters to which he had given some of his time.
A very important incident occurred about twelve years prior to death which must be considered in relation to determining whether his gifts to his wife were in contemplation of death or for other purposes.
He was an individual trustee of the Knights of Columbus Home Association to which The Penn Mutual Life Insurance Company loaned $300,000 on its building. The note and mortgage had been in default and, according to the testimony of a cotrustee, the Penn Mutual as far back as 1931, or at least more than a year prior to the commencement of the suit, had been threatening a suit on the note against not only the Knights of Columbus Association, but all the individual trustees of whom the decedent was one. This threat of a suit or the suit itself continued from 1931 until 1939. A judgment was asked by Penn Mutual for $294,000 with interest at 8 per cent. Only four of the trustees were responsible financially, among them the decedent. The decedent was much worried over the possibility of a deficiency judgment against him and discussed the situation with intimate friends, his lawyers and his cotrustees.
In 1936, he executed a will which was later probated and by the general provisions of which his entire estate was given to his two sons in trust with unrestricted authority to invest and pay a certain amount to his wife out of the income and, if necessary, to increase the payment to $3,000 per year during her lifetime. The trust made provisions for his children. This is sufficient to present the question of whether the gift to his wife was in contemplation of death, and we will comment on it further.
It is necessary for us at the threshold to consider errors assigned, Nos. 1 and 2. The appellant claims in its brief that the Probate Court had no power to vacate its determination of the inheritance tax of December 16, 1943, and enter a subsequent determination on December 28, 1943. Appellees assert that the appellant not having raised in that court the question of the jurisdiction of the Probate Court to modify its former order of December 16, which held that the property was subject to taxation, cannot now present this matter before this court as a prejudicial error. We prefer not to pass upon this question at present.
The Probate Court is given statutory power to determine inheritance taxes. The claim is made by the appellant that such power in that court is merely administrative and that when the court has determined the amount of the taxes, it has exhausted its power and has no power to reconsider its finding upon exceptions of those interested in the estate. The claim is to the effect that under Section 5339, General Code, certain powers are given to the Probate Court to reconsider its finding to cover matters not theretofore considered by the court, and that the question which the Probate Court determined upon the exceptions was not such as were enumerated in Section 5339, and that, therefore, the court overstepped its power in modifying its judgment of December 16, or in assuming further jurisdiction.
The appellant asserts that under the provisions of Section 5345-4, General Code, the court has a right to determine the inheritance tax and has jurisdiction in certain administrative procedure, but that under Section 5345, General Code, the court is required to forthwith find the market value of the estate, the amount of taxes, and the fiduciaries liable therefor. It is asserted that prior to the filing of exceptions, the acts of the county auditor and the Probate Court are distinctively administrative and the auditor and court, having performed such acts, have exhausted their power unless provisions may be found for the modification or correction other than by exception.
It is asserted that, the Probate Court having certain express powers, it must be assumed that such court in its administrative capacity has such powers only and such incidental powers as are necessary to permit it to carry out its express powers; that the entry of December 16, 1943, could be corrected only under express statutory authority which is claimed to be lacking; that, therefore, the entry of December 28, 1943, and the exceptions thereto, must be regarded as surplusage and unauthorized; and that the entry of December 16, which holds that the gifts are subject to taxation, is still in force.
The appellees assert that under Section 10501-17, General Code, the Probate Court has the same power as the Common Pleas Court, to vacate or modify its orders or judgments and for that purpose three terms of the Probate Court of four months each are provided. It is asserted by appellees that according to the plain provisions of the above statute the order of the Probate Court, vacating the order of December 16, being within the September term, brings the case squarely within the rule that a court has entire control over its own orders during term.
As we look at it, the determination of inheritance tax is initially confided in the Probate Court and any procedure taken before that court affecting such tax, calls not alone for administrative action of the court, but judicial action as well. The court has the same power in reference to the orders made in connection with inheritance tax that it has in reference to any other matter rightfully lodged in that court. It seems to us that it would be unjust to say that the Probate Court, in pursuance of administrative authority, could determine a tax, often of great burden upon a decedent's estate, and that such determination could not be reviewed in the ordinary course so as to permit the executors and legatees to show that the court erred in imposing upon them burdensome taxes. We are unable to follow the argument of counsel for appellant on this matter, and overrule assigned errors Nos. 1 and 2.
While we have examined many cases, we find the most controlling in the case at bar is Tax Commission v. Parker, 117 Ohio St. 215, 158 N.E. 89. It is there held that the provision of Section 5332-2, General Code, that transfers made within two years prior to the death of the testator shall be determined to have been made in contemplation of death, casts upon the transferee the burden of showing that a transfer of property made within two years of the death of the transferor, was not made in contemplation of death; and that "the controlling fact in determining whether a transferor made the transfer of property in contemplation of death is whether the purpose of the transferor was to distribute or partially distribute his estate, or was simply to do an act of generosity or kindness."
Judge Barnes of this court in In re Estate of Brenholts, 66 Ohio App. 539, 35 N.E.2d 766, rendered an opinion touching a trust fund created five years before the settlor's death and not in contemplation of death, and held that it was not a part of his estate for the purpose of succession taxes; that there was no presumption that the trust was made in contemplation of death when more than two years had elapsed between its creation and the settlor's death; and that in such case the burden was upon the taxing authorities to establish by a preponderance of the evidence that the transfer of property was made in contemplation of death.
Judge Barnes said, in substance, on page 543 of the opinion in that case, that the property transferred was a gift; that the evidence supported the conclusion that the donor so considered it; and that, had the donor died within two years following the execution of the trust instruments, a presumption would have arisen that such gift was made in contemplation of death, and the burden would have rested upon the donees to establish by a preponderance of the evidence that the gift was not so made, citing Tax Commission v. Parker, supra.
Judge Barnes then stated:
"It is inferable from the language of the syllabus and opinion in the above-cited case that where two years or more have elapsed the burden is then upon the taxing authorities to establish by a preponderance of the evidence that the transfer of property was made in contemplation of death.
"This court directly so held in the case of In re Frantz, 62 Ohio App. 271, 23 N.E.2d 849."
The judge on the same proposition referred to In re Estate of Bender, 60 Ohio App. 107, 19 N.E.2d 781.
We adhere to our former position and now hold that as to all transactions taking place more than two years prior to the death of the decedent the burden is upon the taxing authorities to show that the same were made in contemplation of death, and that there is no presumption that places such transfer within the inhibited provisions of the statute. The General Assembly of Ohio, in the final paragraph of Section 5331, General Code, declared: "`Contemplation of death' means that expectation of death which actuates the mind of a person on the execution of his will." We are not of the opinion that this legislative declaration affords any great help to those who must determine whether a gift was made in contemplation of death. This matter is discussed somewhat at length in Tax Commission v. Parker, supra, where the court concluded as above quoted.
One who has had experience in the trial of will cases, as well as in determining whether an act was done in contemplation of death, can see no guiding light in the legislative definition of "contemplation of death." We might illustrate briefly what difficulty such a provision might lead to. Let us assume that two young persons were recently married and that the man desires to protect his wife and makes a will in her favor and that at a later date he transfers property to her as a gift pure and simple. What actuated his mind upon the execution of his will has no remote connection with what may have actuated his mind when he made a transfer of property to his wife. It is frequently difficult to ascertain what the intent of a testator was in making a certain provision of a will, and the Legislature apparently has required simply that those difficulties incident to a will shall not be transferred into an inheritance tax case where there is no possible connection between the two except a legislative notion that it would make the action of the donor more understandable where it is considered what that same donor did or might have done in making a will. Instead of giving any illumination to the question the provision is simply one adding additional difficulties. This, we think, is recognized by Judge Barnes in the case hereinbefore cited.
Having cleared away the preliminary matters, we consider the transfer of this property by the decedent to his wife some ten or twelve years before his death while he was in good health and enjoying the prospect of a number of years of happy and prosperous living. At that time he was confronted with the possibility of being held on a default judgment for a very large amount by virtue of a large loan made by Penn Mutual to the Knights of Columbus, of which organization he was a trustee. As he expressed it to his friends, he did not propose that Penn Mutual should destroy his savings and he, thereupon, at various times, gave certain liquid assets to his wife, as gifts, with no reservations that they were in contemplation of death or were to be held by her for his own benefit during his lifetime.
A convincing circumstance in reference to his transactions was that while in good health, ten or twelve years before he died, he made these transfers to his wife with the express statement to his friends that he intended to protect his estate. Eight or ten years later he had a paralytic stroke and could then contemplate a possible near approach of death. For two years he was in this condition, but recovered slightly before he finally died. During this period with death approaching, he made no further transfers to his wife, but retained his propery in his own name knowing that if he died possessed of the same his wife would be compelled to pay the inheritance tax. If there was any time when he might have transferred property in contemplation of death, it certainly was after he had had a stroke two years before his death. No person can justly take the position that when the husband was confronted with the deficiency judgment while in robust health, he transferred his property to his wife in contemplation of death for the purpose of avoiding an inheritance tax, and did nothing after he was really within the shadow of death to accomplish this purpose. It may be that the testator was not justified in endeavoring to cover up his property by transfer of the same to his wife. However he was not doing it in contemplation of death, but in contemplation of continued life to be enjoyed by himself and his wife.
One of the properties conveyed to the wife was a very desirable homestead. The wife took the title to it and he proceeded to live with her in the house without paying her anything more than the ordinary contributions for household expenses. The argument is advanced that as to this real estate the husband was providing for his own welfare during his lifetime and that the wife took the property as a trustee for the husband. There is nothing to sustain any such argument. The wife took the property because the husband wanted her to take it, and they then lived there with their children, as a family. He never requested that she re-transfer it to him or do anything to secure to him any income from that property during his lifetime. It is quite apparent that the husband and wife lived in harmony and that the husband was devoted to his wife and he had a perfect right to rely on her not turning him out of a residential property which he generously gave to her to protect herself and family against the deficiency judgment which he feared.
There was one transfer to the wife made within the two-year period prior to his death and such transfer clearly comes within the provision of Section 5332-2, General Code, which provides that such transfer shall be considered as being in contemplation of death, "unless shown to the contrary." What were the facts in relation to this transfer of $2,500 of government bonds? Like a good citizen the husband had responded to the call of his government to buy government bonds, and like a wise man he used the investment in government bonds to protect himself against inevitable taxes. In other words, he invested required tax money in an income-producing asset which not only protected him, but gave to his government the money it was asking for. Having invested $5,000 he gave half of it to his wife to be held for the same purpose for which he was holding his half, to wit, to take care of the expense of taxes on the real estate and other property which he had given to her. In these days a gift might turn out to be a burden rather than a favor if the taxes on the property of such gift mount to a point where the donee would be better off without the property than with it. Like a kind husband, well disposed to his wife, he said to her, "You will have to pay some taxes and we will share this $5,000 equally as our contribution to the government expenses and in mutual protection for ourselves, our property and our children."
In addition to the cases already cited, we have studied the following:
Sherman v. Tax Commission, 125 Ohio St. 367, 181 N.E. 539; In re Estate of Donnell, 28 N.P. (N.S.), 211; In re Estate of Hamilton, 34 Ohio Law Abs., 187, 5 Ohio Supp., 289; Tax Commission v. Estate of Seltzer, 41 Ohio App. 250, 180 N.E. 65; In re Estate of Perkins, 27 Ohio Law Abs., 525, 2 Ohio Supp., 33; In re Estate of Frantz, 62 Ohio App. 271, 23 N.E.2d 849.
The court below rendered a very logical opinion, with which we are in entire harmony.
The judgment of the court below is affirmed. All errors assigned are overruled.
Judgment affirmed.
BARNES, P.J., and HORNBECK, J., concur.