Court Opinion

ID: 3839893
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:08:57.563639+00
Date Added: 2024-06-11T07:40:29.904853
License: Public Domain

In my opinion, Donald Hayes McGraw, the legally adopted son of Ruth Hayes McGraw, daughter of Dr. Hayes, was not the lineal descendant of Dr. Hayes within the meaning of § 10-603, Oregon Code 1930. Therefore, I concur in that part of the opinion of the majority of the court that so holds.
It is impossible, however, for me to concur in the view expressed by the majority of the court that so much of the estate of Dr. Hayes as went to make up the $450,000 constituting the Edward Stephen Hayes trust No. 1 is not subject to the inheritance tax law of the state of Oregon. In this connection it must be borne in mind that the stipulation is to the effect that this trust was created by Dr. Hayes in contemplation of death.
The trust instrument is dated August 15, 1935. On August 8 of that year Dr. Hayes had with the Harris Bank of Chicago, Illinois, bonds of the par value of $691,000, which bonds had a market value of not less than $625,000. On or about that date Dr. Hayes instructed the Harris bank to sell and liquidate sufficient of the said bonds owned by him and held by the bank as his agent to make up a sum which together with cash balances in his account with the Harris bank would equal $450,000. At that time Dr. Hayes had a balance in excess of $90,000 in his checking account with the Harris bank.
On August 12, 1935, the Harris bank sold in the open market bonds belonging to Dr. Hayes, realizing therefrom *Page 34 
$176,062.01, and on the same day Dr. Hayes borrowed from that bank on a demand promissory note the sum of $183,937.99, which amount added to the sum realized from the sale of bonds on that date totaled $360,000. This, together with the $90,000 in his checking account, made up $450,000. The amount which Dr. Hayes borrowed from the bank was all repaid on or before August 29, 1935.
My view of the matter is that this method adopted by Dr. Hayes was a mere subterfuge to escape payment to the state of Oregon of inheritance tax on a large part of his estate. The transfer of that $450,000 by Dr. Hayes could have been made much more simple and direct by giving the bank a check on his checking account and having the money loaned to him turned over to the trustee, rather than purchasing federal reserve notes, placing them in a safety deposit box rented by him for a few days and then transferring them to the trustee to make up the amount of the trust fund.
The majority opinion quotes from Cooley on Taxation, 4th Ed., § 548. The latter part of the excerpt reads thus: "On the other hand, taxation can not be avoided (1) by a plan in itself unlawful or (2) by a plan lawful in itself, not actually carried out, which is a mere subterfuge to escape taxation. If the transaction is merely a temporary change of property from nonexempt to exempt property, made shortly before the assessment, with the intent of restoring the property to its original form after the assessment, there is such fraud as warrants taxation of the property". Although the purchase of the said federal reserve notes by the Harris bank at the instance of Dr. Hayes was in itself lawful, the method adopted in creating this trust fund was, in the language of the text-writer, merely a temporary *Page 35 
change of intangible property to tangible property, without any intent to have it retain the latter form, and was merely a subterfuge to avoid payment of inheritance taxes to the state of Oregon on the property involved.
The effect of the majority opinion is to render it extremely simple for a resident of Oregon having a large estate to avoid the payment of inheritance taxes to the state. All that is necessary to defeat the Oregon inheritance tax law is to buy federal reserve notes, rent a safety deposit box in Washington, Idaho, California, or any number of states, place the notes in such box or boxes, and then turn the said notes over to a trustee or trustees for reinvestment in intangibles.
By adopting the method of avoiding the Oregon inheritance tax resorted to in the case at bar, it may be possible for an estate to escape payment of inheritance taxes in any state, for the reason that the states wherein trusts are created may not be advised that they are established in contemplation of death. But even if taxes are paid in such states, the aggregate amount of taxes will be much less than if payable wholly in one state, inasmuch as the higher rate of taxation on the greater part of the estate will be avoided.
For the reasons herein stated, I dissent from the opinion of the majority of the court.
                        ON PETITION FOR REHEARING                              (87 P.2d 766)