Title: TERMINATION OF JOINT TENACY OF SINC

State: montana

Issuer: Montana Supreme Court

Document:

No. 81-174 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981 IN THE MATTER OF THE TERMINATION OF JOINT TENANCY OF RONALD MILLER SINCLAIR, Deceased. Appeal from: District Court of the Eighteenth Judicial District, In and for the County of Gallatin, Honorable Joseph B. Gary, Judge presiding. Counsel of Record: For Appellant: Bolinger & Higgins, Bozeman, Montana For Respondent : Mike Rieley, Dept. of Revenue, Helena, Montana Submitted on briefs: November 18, 1981 Decided: February 18, 1982 Filed: Mr. Justice Fred J. Weber delivered the Opinion of the Court . Mrs. Jane Sinclair, the widow of Ronald Sinclair, deceased, appealed to the District Court of the Eighteenth Judicial District from a determination by the Department of Revenue (Department) that inheritance tax was due as a result of transfers in contemplation of death. The District Court affirmed the Department's determination. We reverse the District Court. Mr. and Mrs. Sinclair, husband and wife, had a joint tenancy bank account for many years. Mr. Sinclair became ill. Mrs. Sinclair withdrew $55,000 from the account, and obtained one $5,000 joint tenancy Federal Credit Bond with one sister and a $25,000 joint tenancy Treasury Note with each of two other sisters. Mrs. Sinclair was named as a joint tenant on each instrument with one of her sisters. The District Court found that the money was to be used by the sisters-in-law to pay for the expenses of Mr. Sinclair in the event that Mrs. Sinclair became incapacitated. Mr. Sinclair died within three years of the transfer. The bond and notes had not been cashed at his death. Mrs. Sinclair has since cashed the $5,000 bond for herself and has always had possession of the two notes. Mr. Sinclair had no part in transferring the funds. The Department contends that as a result of transfers in contemplation of death to the sisters of Mrs. Sinclair, an inheritance tax is due in the total amount of $2,182.25. The Department bases its contention on section 72-16- 301, MCA, which provides in part: "A tax shall be and is hereby imposed upon any transfer of property, real, personal, or mixed or any interest therein or income therefrom i n t r u s t o r otherwise t o any person, a s s o c i a t i o n , o r corporation i n t h e following cases, except a s h e r e i n a f t e r provided: " ( 3 ) when t h e t r a n s f e r i s of property made -- -- by a r e s i d e n t o r by a nonresident when such - - nonresident's property i s within t h e s t a t e o r within i t s j u r i s d i c t i o n by deed, g r a n t , bargain, s a l e , o r g i f t made i n contemplation of t h e death of t h e g r a n t o r , vendor, o r don- o r o r intended t o take e f f e c t i n o r enjoyment a t o r a f t e r such death. Every t r a n s f e r by deed, g r a n t , bargain, s a l e , o r g i f t made within 3 years p r i o r t o t h e death of t h e g r a n t o r , vendor, o r donor of a mate- r i a l p a r t of h i s e s t a t e o r i n t h e nature of a f i n a l d i s p o s i t i o n o r d i s t r i b u t i o n thereof and without a f a i r consideration i n money o r money's worth s h a l l , unless shown t o t h e contrary, be deemed t o have been made i n contemplation of death within t h e meaning of t h i s s e c t i o n , b u t no such t r a n s f e r by deed, g r a n t , bargain, s a l e , o r g i f t made be- f o r e such 3 year period s h a l l be t r e a t e d a s having been made i n contemplation of death." (Underscoring added.) The funds were n o t t r a n s f e r r e d t o t h e new j o i n t tenancy bond o r notes by M r . S i n c l a i r b u t r a t h e r by M r s . S i n c l a i r . The Department contends t h a t M r s . S i n c l a i r was a c t i n g f o r her husband and it was a s i f he t r a n s f e r r e d t h e funds. The Department and t h e D i s t r i c t Court r e l i e d upon Haneke v. United S t a t e s ( 4 t h C i r . 1977), 548 F.2d 1138. The f a c t u a l s i t u a t i o n i n Haneke was s i m i l a r t o t h e p r e s e n t s i t u a t i o n . The husband e s t a b l i s h e d f i v e savings accounts i n j o i n t tenancy with h i s wife. The husband became ill, and t h e wife, i n order t o take c a r e of him i f anything should happen t o h e r , t r a n s f e r r e d funds from t h e j o i n t tenancy accounts with her husband t o j o i n t tenancy accounts with her sister- in-law. This was without t h e husband's consent o r knowledge. He died within t h r e e years of t h e t r a n s f e r . The c o u r t i n Haneke held t h a t t h e t r a n s f e r s were made i n contemplation of death and were includable i n t h e decedent's gross e s t a t e f o r Federal E s t a t e Tax purposes under Section 2035 of t h e I n t e r n a l Revenue Code. The court rejected the argument that the funds could not be included in the husband's estate because the wife, not her husband, had made the transfers. The court stated that "Mrs. Haneke was acting as her husband's alter ego, and consequently, her intention should be imputed to him." Haneke, 548 F.2d at 1140. In support of its holding the 4th Circuit Court cited City Bank Farmers Trust Co. v. McGowan (1945), 323 U.S. 594, 65 S.Ct. 496, 89 L.Ed. 483. In that case a woman had been adjudicated an incompetent by the New York Supreme Court, and a committee was appointed to care for her property. The court directed the committee to pay large yearly allowances to certain relatives. These transfers were found to be made in contemplation of death even though the decedent did not make the transfers. The court held "that where, as in New York, the court is to substitute itself as nearly as may be for the incompetent, and to act upon the same motives and considerations as would have moved her, the transfer is, in legal effect, her act and the motive is hers." -- City Bank Farmers Trust Co., - 323 U.S. at 599, 65 S.Ct. at 498, 89 L.Ed. at 489. As the decision is by the Fourth Federal Circuit, Haneke is not binding upon this Court, except to the degree that the reasoning of the decision appears compelling. We disagree with the basic determination in Haneke and do not find that City Bank Farmers Trust - Co. is authority for its conclusion. City Bank Farmers Trust Co. - held that the actions of a court-appointed committee acting in the capacity of conservator and guardian of the assets of an incompetent are the equivalent of actions by the incompetent himself, so that transfers made by the committee were considered to be in contemplation of death in the same manner as though the incompetent himself had made the transfers. That analysis i s a p p r o p r i a t e . However, Haneke extended t h i s theory t o t r a n s f e r s by a j o i n t t e n a n t from a bank account w i t h one j o i n t t e n a n t a c t i n g a s t h e a l t e r ego of t h e o t h e r j o i n t t e n a n t . ~ e g a r d l e s s of t h e i n t e n t i o n on t h e p a r t of M r s . S i n c l a i r a t t h e t i m e she withdrew t h e $55,000, M r s . S i n c l a i r thereby d i d n o t become an a l t e r ego o r a g e n t of h e r husband. A s a j o i n t t e n a n t , M r s . S i n c l a i r had t h e r i g h t t o withdraw funds from t h e account a t any t i m e , and under t h e Montana I n h e r i t a n c e Tax Law, t h e i n t e n t i o n o r purpose a t t h e t i m e of withdrawal i s n o t c o n t r o l l i n g f o r t h e determination of i n h e r i t a n c e t a x . Because t h e r a t i o n a l e of Haneke is n o t a p p r o p r i a t e i n Montana, w e do n o t adopt it a s a u t h o r i t y . The f a c t s h e r e show t h a t t h e c r i t i c a l s t e p f o r i n h e r i - t a n c e t a x purposes was t h e withdrawal by M r s . S i n c l a i r of t h e $55,000. That is t h e t a x a b l e e v e n t , i f any. By t h e withdrawal of t h e $55,000, M r s . S i n c l a i r acquired f u l l dominion over t h e money and terminated any j o i n t tenancy i n t e r e s t on t h e p a r t of h e r husband. Casagranda v. Donahue (1978), 178 Mont. 479, 483, 585 P.2d 1286, 1288. Our key q u e s t i o n t h e r e f o r e becomes whether t h e withdrawal of t h e $55,000 i s t a x a b l e under Montana i n h e r i t a n c e t a x law. Under s e c t i o n 72-16-313 (1) , MCA, a t r a n s f e r t o a spouse i s n o t t a x a b l e . A s a r e s u l t , t h e withdrawal of funds by M r s . S i n c l a i r , although made w i t h i n t h r e e y e a r s of d e a t h , i s n o t a t a x a b l e t r a n s f e r . A f t e r withdrawal, M r s . S i n c l a i r used t h e $55,000 f o r t h e a c q u i s i t i o n of t h e bond and n o t e s which she placed i n j o i n t tenancies i n h e r name and t h a t of h e r t h r e e sisters. The s t e p s taken i n t h e a c q u i s i t i o n of t h e bond and n o t e s do n o t c o n s t i t u t e t r a n s f e r s from t h e deceased t o anyone, and t h e r e f o r e a r e n o t t r a n s f e r s s u b j e c t t o Montana i n h e r i t a n c e t a x . W e r e v e r s e t h e D i s t r i c t Court, and remand w i t h i n s t r u c - t i o n s t o e n t e r a n a p p r o p r i a t e o r d e r showing no i n h e r i t a n c e t a x due. W e Concur: 3 4 w 4 . J ~&a.A?Q Chief . J u s t i c e f l ' r o y % g, hjLdj, J u s jrc s