Case Title: First National Bank of Denver v. People

Citation: 405 P.2d 730

Docket Number: 

State: colorado

Court: Colorado Supreme Court

Date: 1965-09-13T00:00:00Z

Document:
405 P.2d 730 (1965) The FIRST NATIONAL BANK OF DENVER, George Weisbart and Irvin Weisbart, Co-Executors of the Estate of Harry Weisbart, Deceased, Plaintiffs in Error, v. The PEOPLE of the State of Colorado and Neil Tasher, Inheritance Tax Commissioner of the State of Colorado, Defendants in Error. No. 20753. Supreme Court of Colorado, En Banc. September 13, 1965. Rehearing Denied October 4, 1965. Donaldson, Hoffman & Goldstein, Alan A. Armour, Denver, for plaintiffs in error. Duke W. Dunbar, Atty. Gen., R. Robert Irwin, Jr., Asst. Atty. Gen., Denver, for defendants in error. MOORE, Justice. We will refer to the plaintiffs in error as the executors or trustees, to defendants in error as the commissioner, and to the late Harry Weisbart as the testator or by name. The executors are here by writ of error seeking reversal of that portion of a judgment of the trial court upholding the assessment of an inheritance tax on certain benefits received by the wife of the testator under the terms of his will. The assessment was made on the basis that the testator, in creating a trust for the benefit of his wife, gave her unlimited power to invade the corpus thereof and thereby subjected *731 the entire trust estate to taxation in all respects as though she had received absolute title to the property. By cross assignment of error the commissioner seeks reversal of that portion of the judgment of the trial court by which a deduction from taxable assets, as an expense of administration, in the amount of $25,000.00 for fees to a certified public accountant was approved. The ruling of the trial court to which the executors object was as follows: The will executed by the testator divided his estate into two parts denominated "Share A" and "Share B." We are concerned in this action with the provisions of the will with relation to "Share A." The major portion of decedent's property consisted of varying interests in several companies engaged in the feeding and grazing of cattle and other related enterprises. These various interests were held jointly and equally with decedent's brothers, George Weisbart and Irvin Weisbart. Decedent's gross estate exceeded the sum of $2,000,000.00 and was and is of a highly complex and detailed nature. The will was executed August 12, 1958. A codicil thereto was dated December 29, 1958. Pertinent provisions of the will are as follows: The codicil to the will made a specific bequest of personal property to the wife, a number of bequests to relatives, and a gift to charity. It also revoked Paragraph Fourth of the will and appointed George Weisbart, Irvin Weisbart and The First National Bank of Denver as joint executors *732 and trustees. It also contained the following pertinent language: In the trial court the executors contended, as they do here, that under the above-quoted provisions of the will and codicil the widow's interest should be taxed only to the extent of the value of her life estate, and that the remainder interest should be taxed only upon exercise of the power of appointment or upon failure to exercise that power. They direct attention to C.R.S. '53, 138-4-12 which reads as follows: They assert that this statute "fits this case specifically and exactly." They argue that: "Decedent obviously intended that his widow should have an income for life with a power of invasion limited by the practical nature of the assets. A reading of the will and codicil thereto and a consideration of the actual estate assets shows beyond question it was never intended that the widow consume the entire estate nor could she do so even if such was her desire." The commissioner on the other hand argues that since under the declaration of trust the widow was given a life estate coupled with a power of appointment by will, and the "unlimited" power to invade the corpus during her lifetime, she had such dominion over the property as to be the fee owner and should pay tax on the whole just as though she had acquired the fee title to the property by direct bequest or devise. The commissioner relies upon three decisions of this court, namely, McLaughlin *733 et al. v. Collins, Executor, et al., 109 Colo. 377, 125 P.2d 633; Davey v. Weber, 133 Colo. 365, 295 P.2d 688; and Estate of Zell v. Zell, 142 Colo. 343, 351 P.2d 272. The rule announced in these cases may be stated as follows: This rule was first adopted in McLaughlin v. Collins, supra. With reference to the so-called "McLaughlin rule" the attorney general admits that, "There is no question that this rule is the minority rule, but nevertheless, it is the Colorado rule." Professor Lewis Simes in 50 Harvard Law Review, in an article beginning on page 749, at page 774, makes the following statement: Thus Colorado would seem to stand alone in following the "McLaughlin rule." The three Colorado cases supporting it have a number of similiar factual backgrounds, viz.: (1) They all involved a direct devise of real property. (2) They all involved disputes between a widow and contingent remaindermen. (3) They all resulted in giving full effect to the intent of the testator as gathered from the will as a whole. (4) They all involved a legal life estate created by express language of the will. (5) None of them involved assets specifically made the corpus of trust. (6) None of them involved any question arising under the statute authorizing collection of inheritance and successor taxes. Under the factual situation disclosed by the record in the instant case, we hold that the trial court erred in applying the "McLaughlin rule." It should not be extended to include trust assets of the kind involved in this case. In King on "Future Interests in Colorado" at page 78, we find the following pertinent language: In Scott on Trusts (2d) ed. at Section 128.7, we find: The language of the codicil indicates that the testator realized the nature of his assets and knew that it would be absolutely essential to continue the business. The testator recognized the obvious fact that his brothers had intimate knowledge of the business to the exclusion of the corporate executor and specifically willed that any and all business decisions be made *734 by them. The assets of the estate were not in a liquid state. The widow obviously could not notify the Co-executors that she desired to invade the trust corpus in its entirety even if this was her desire. Therefore, in fact, she had no unbridled power to invade corpus as paragraph 5 of the will might appear to give when read out of context with the other numerous paragraphs of the will and codicil. Due to the complex nature of decedent's interests and the expert knowledge of his brothers, it appears quite clearly that testator intended that his wife have a life income with a power to invade limited by the true nature of his assets. The decedent also quite clearly assumed and intended that a substantial bulk of his estate would remain intact upon his wife's death. The testator vested his widow with a detailed power of appointment by will in order to effectuate this intent. Counsel for the executors are correct in their assertion that C.R.S. `53, 138-4-12 is applicable and controls the tax liability in the factual situations involved in this case. The trial court erred in holding to the contrary. We now consider the cross error assigned by the attorney general to that portion of the trial court's judgment by which the accountant's fee of $25,000.00 was approved as an expense of administration. The Inheritance Tax Deductions statute (C.R.S. `53, 138-4-16) provides in pertinent part that: According to the report of the commissioner the gross value of the estate was $2,107,413.85. As already pointed out the estate assets were interwoven with the interests of others and the business activities of the testator were complex and upon his death necessarily required expert handling in the accounting field. We hold that the $25,000.00 fee the accountant asked was a proper item for inclusion as an expense of administration. As to this item the judgment is affirmed. The judgment is reversed with reference to that portion of the judgment by which the trial court upheld the assessment questioned by the executors. McWILLIAMS, J., dissents. McWILLIAMS, Justice (dissenting). I dissent from that portion of the majority opinion which holds that the widow's interest should be taxed only to the extent of the value of her life estate, because in my view the codicil neither directly nor by necessary implication negates what is to me a singularly clear proviso in the testator's will that "in addition to the payment of income from this share A, my Trustees shall pay to my wife such sums from principal as she may from time to time request in writing [and] it is my intention that no limitation be placed on my wife as to either the amount of or reasons for such invasion of the principal." And, as the majority opinion states, in Colorado the "unqualified power given a life tenant to dispose of property devised by will enlarges the life estate to a fee simple title." See, for example, McLaughlin v. Collins, 109 Colo. 377, 125 P.2d 633.