Court Opinion

ID: 9865278
Source: CourtListenerOpinion
Date Created: 2023-09-25 16:30:03.092027+00
Date Added: 2024-06-11T12:38:16.843608
License: Public Domain

Mr. Justice Young
dissenting.
I am of the opinion that the judgment of the county-court assessing the tax should be reversed and the cause remanded with the directions hereafter indicated. For this reason I respectfully dissent from the opinion of the court.
As I view the matter we are confronted merely with the construction of a statute of our own state relating to inheritance and succession taxes as applied to the trust agreement set forth in the court’s opinion. The bases of the Colorado inheritance and successions tax and the federal estate tax are different. The incidence of the federal tax and the incidence of the state' tax are not, or at least may not be, upon the same property or property right. The former is an excise tax based on the exercise of the right or privilege of transferring one’s estate at death and its incidence is upon the entire estate of decedent; the latter is an excise tax based on the exercise of the right or privilege of receiving property or a beneficial interest therein from a person by reason of his death. The incidence of such a tax is solely upon the property or beneficial interest therein so acquired.
An examination of the trust agreement clearly demonstrates that the grantee immediately upon the execution of the trust, or at least upon the surrender of the right by grantor to revoke it, received an indefeasible right to the income from the corpus thereof in possession and enjoyment for the term of her life. The terms of the trust were explicit that the grantee should have *20the power to use the income therefrom for any purpose she desired without any restrictions whatsoever. The property transferred was subject to the payment of a debt of grantor in an amount of $175,000 which the trust indenture provided in effect should be a lien on the corpus of the trust. The grantee might pay the debt out of her own money if she so elected, or out of the income from the corpus, which she had a right to expend as she saw fit, but she was not obligated to pay it out of either her own money or the income from the trust. The only enforceable obligation against her, as trustee, was the reservation that the $175,000 be paid out of the corpus of the trust. By its terms the trust terminated upon the death of either grantor or grantee and all of the corpus, accretions, additions,if any, and income added thereto by grantee, if any, became the absolute property of the survivor. The grantor predeceased the grantee. The sole question for determination under this state of facts is, What, if anything, did the grantee inherit or to what property did she succeed upon the death of the grantor that is subject to be taxed under section 7, chapter 85, ’35 C. S. A.?
Section 3 of chapter 85, ’35 C.S.A., provides: “The word ‘transfer’ as used in this chapter shall be taken to include the passing of property or any interest therein or income therefrom, in possession or enjoyment, present or future * * * by inheritance, descent, devise, succession, bequest, grant, deed, bargain, sale, gift in the manner herein described.”
Section 6 of said chapter reads: “A tax is hereby imposed, under the conditions and subject to the exemptions and limitations hereinafter prescribed, upon transfers, in trust or otherwise, of the following property, or any interest therein or income therefrom.” Here follows an enumeration of different kinds of property which includes property of the character conveyed by the trust indenture involved in this case.
Section 7 provides: “The transfers enumerated in the *21preceding section shall be taxable if made: * * *
“(d) By gift or grant intended to take effect in possession or enjoyment at or after the death of the transferor. A transfer of property in respect of which or in consideration of which the transferor reserves to himself or purchases a life income or interest shall be deemed to have been intended to take effect in possession or enjoyment at death; provided, that if the transferor reserves to himself less than the entire income or interest, the transfer shall be deemed taxable hereunder only to the extent of a like proportion of the value of the property transferred.
“(f) If any transfer specified in paragraph (c), (d) and (e) of this section is made for a valuable consideration, so much thereof as is the equivalent in money value of the money value of the consideration received by the transferor shall not be taxable but the remaining portion shall be.”
It is clear under section (f) supra, read in connection with the trust indenture creating the lien on the property thereby conveyed to secure payment of grantor’s debt of $175,000 that, when the trust was accepted by the grantee and administered in accordance with its terms — as the testimony shows it was — there was, if not an express promise by the grantee, at least a legally enforceable implied promise by her to pay the $175,000 out of the corpus of the trust or otherwise. This promise was fulfilled when she paid $75,000 of the debt out of her own funds and the remaining $100,000 out of her own funds or out of the funds of the trust estate. If she paid the $100,000 out of income she paid it out of her own funds. If she paid it out of the corpus she was nonetheless keeping her promise. The promise by her to pay the $175,000 was a binding promise, was worth $175,000, and constituted a consideration which the grantor received for the conveyance. Paragraph (f) was enacted to cover such a situation. Construing and applying this paragraph its effect is: The transfer of the *22corpus of the trust under paragraph (d) to the extent of the consideration received therefor, to wit a binding promise to pay grantor’s debt of $175,000, of the value of $175,000 — for it was in fact paid and of that value— shall not be taxable, but the remaining portion, that is, the corpus of the trust, less the $175,000, shall be. In the light of paragraph (f) the $175,000, however paid, if not credited fully heretofore, should be credited to grantee as a reduction pro tanto of the corpus of the trust taxable at grantor’s death.
I am of the opinion that the transfer effected by the trust indenture is, under section 7, supra, taxable as a gift or grant intended to take effect in possession or enjoyment at the death of the transferor, and the value of that to which the grantee succeeds is the value on which the tax is to be imposed.
I am in accord with the holding in the cases of Helvering v. Hallock, Nos. 110, 111, 112, 183, and 399, decided by the Supreme Court of the United States at the October Term, 1939, and the case of Klein v. United States, 283 U.S. 231, 51 Sup. Ct. 398, 75 L. Ed. 996, that the rule of construction to be applied to a revenue measure is not necessarily limited by the technical rules relating to conveyancing. The Klein case involved a deed executed by a husband to his wife. The husband predeceased his wife. The facts sufficiently appear from the following quotation from the opinion: “The two clauses of the deed are quite distinct — the first conveys a life estate; the second deals with the remainder. The life estate is granted with an express reservation of the fee, which is to ‘remain vested in said grantor’ in the event that the grantee ‘shall die prior to the decease of said grantor.’ By the second clause the grantee takes the fee in the event — ‘and in that case only’ — that she shall survive the grantor. It follows that only a life estate immediately was vested. The remainder was retained by the grantor; and whether that ever Would become vested in the grantee depended upon the con*23dition precedent that the death of the grantor happen before that of the grantee. The grant of the remainder, therefore, was contingent. See 2 Washburn, Real Prop. (4th Ed.) pp. 547, 548, 559, §1. The decisions of the Supreme Court of Illinois, the state where the deed was made and the property lies, support this conclusion. Haward v. Peavey, 128 Ill. 430, 439, 15 Am. St. Rep. 120, 21 N. E. 503; Baley v. Strahan, 314 Ill. 213, 217, 145 N. E. 359.”
With reference to the law, the court, speaking through Mr. Justice Sutherland, said: “Nothing is to be gained by multiplying words in respect of the various niceties of the art of conveyancing or the law of contingent and vested remainders. It is perfectly plain that the death of the grantor was the indispensable and intended event which brought the larger estate into being for the grantee and effected its transmission from the dead to the living, thus satisfying the terms of the taxing act and justifying the tax imposed.”
This construction is in harmony with the provisions of the Colorado act. Paragraph (c) of section 7 thereof contains the following statement: “It is hereby declared to be the intent and purpose of this chapter to tax any and all transfers which are made in lieu of or to avoid the passing of property transferred by testate or intestate laws.” Herein, I believe, lies the rule governing the construction we should place on the statute. Whatever beneficial interest grantee acquires, that she did not have before, by reason of the grantor’s death is taxable. If a beneficial interest, not given in contemplation of death — and it is agreed between the parties it was not in the instant case — was acquired by the grantee by the grantor’s death, the difference in value between what interest the grantee already had in the property in the grantor’s lifetime and that which she in fact owned and possessed at the time of grantor’s death is the measure of the taxable interest. The statute under consideration does not impose a tax on gifts as *24such. Gifts in contemplation of death and within two years of death, unless shown not in contemplation of death, are specifically made taxable transfers, and one who receives property under either condition owes a tax. In the instant case an income for life or a life estate for the life of the grantee vested in her immediately upon the execution of the trust indenture. The grantor reserved none of the income and no interest in the property other than the “limitation and reservation” respecting his $175,000 indebtedness; so the conveyance does not come under the first and specific exception in paragraph (d) of section 7, supra, which provides that a transfer with a reservation of the entire beneficial income is to be deemed to have been intended to take effect at death. This case is governed, as I view it, by the proviso that follows the foregoing exception. Grantor reserved less than the entire income or interest; he reserved what plaintiff in error says is a possibility of reverter, effective only if grantee predeceased him. As heretofore stated it is the effect of a fact situation that should determine taxability under a revenue measure rather than the means adopted to produce that effect. The effect of grantor’s death was to cause the grantee to succeed to the entire remaining interest in the property other than her life interest in the entire income. The proviso is specific that in such a case the transfer is taxable on the same proportion of the entire income as the valuation of the interest which grantee acquires at death bears to the valuation of the entire property at death.
In my opinion the judgment should be reversed and the cause remanded with instructions to the trial court to credit the full $175,000, or such part thereof as has not been heretofore credited, to reduce the value of the trust passing at death; and to ascertain the value of grantee’s life interest in the income of the trust, allow such value as a deduction from the value of the corpus, ánd assess the tax on the value of the remainder.