Court Opinion

ID: 9456084
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:41:36.233685+00
Date Added: 2024-06-11T17:34:50.604880
License: Public Domain

HUFSTEDLER, Circuit Judge
(separately concurring):
I agree with the ultimate result reached in the majority opinion, but because I am unable to concur fully in the rationale of the majority, I set forth my views separately.
Section 2036(a) of 26 U.S.C. states two elements to be used in determining the extent to which Fannie’s estate shall be subject to tax: (1) that the decedent shall have made a transfer of an interest in the property, and (2) that, by trust or otherwise, the decedent shall have retained a life interest, including a right to income, from the property transferred. Both requisites have been met in Fannie’s case. The difficulty in applying section 2036(a) to Fannie’s estate lies in the proper characterization of the interests she respectively transferred and retained. That difficulty stems from the fact that those interests were undivided interests in community property.
Before Louis died, Fannie and Louis each owned “present, existing and equal interests” in their community property. (Cal.Civ.Code § 161a.) Neither spouse was irrevocably committed to the testamentary plan encompassed by Louis’ will and by Fannie’s waiver, because there was nothing in those documents from which a binding bilateral contract could be extracted. On Louis’ death, however, Fannie’s waiver became irrevocable on either one or both of two theories: First, Fannie’s waiver constituted an offer for a unilateral contract. When Louis did not change his will before he died, he is deemed to have accepted her offer by performance, and she is bound by the will for which she bargained. (Security-First National Bank of Los Angeles v. Stack (1939) 32 Cal.App.2d 586, 90 P.2d 337; O’Neil v. Ross (1929) 98 Cal.App. 306, 277 P. 123; see Wells Fargo Bank & Union Trust Co. v. United States (9th Cir. 1957) 245 F.2d 524, 528-531.) Second, Fannie was estopped from denying the validity of her waiver when, in reliance upon her waiver, Louis did not change his will before his death. (Estate of Wyss (1931) 112 Cal.App. 487, 297 P. 100.) On either theory, Fannie made a transfer within the meaning of section 2036 (a) at the date of Louis’ death.
What did she transfer and what did she retain? She transferred all of her interest in the community property to the trust and retained 50 percent of the income from the trust corpus for her lifetime. According to the Tax Court, her half of the income from the corpus was attributable half to the community she had contributed and half to the community Louis had contributed; therefore, her estate is taxable only to the extent of half of her half. According to the majority opinion, the income she retained was derived solely from the half she contributed and no part of the community Louis transferred should be taken into account as the source of her income. Both the opinions of the Tax Court and of the majority of this Court rely on legal fictions. The Tax Court’s fiction is that the Bomashes divided their undivided community property horizontally: that Fannie conveyed one half of her half to that portion of the corpus from which the children derived income and that she conveyed the remaining half to the trust from which she retained one quarter of the total income and that Louis made transfers to the trust that mirrored Fannie’s. The majority opinion’s fiction is that the Bomashes divided the community vertically and that all of the income Fannie received was attributable solely to the half she contributed. The majority opinion does not explain why, with equal logic, a third fiction is not applicable: The testamentary plan did divide the community vertically, but all of the income that Fannie derived from the property came from the half that Louis contributed.
*314I think that the three fictions should be discarded. None of them supports any intent expressed or necessarily implied in the will and the waiver. One is no more abstractly logical than the other two. All three ignore the reality that all of the income was derived from undivided community.
I would take the direct route, following the economic reality rationale. I would hold that a transfer in trust of Fannie’s undivided one half interest in the community, together with her retention of the income from one half of the undivided community corpus results in the inclusion of 50 percent of the trust corpus in her estate. Her economic position is in no respect different from what it would have been had she made an inter vivos transfer of her undivided half of her community to her children, retaining a life estate in the income from that property. The results for tax purposes should be the same.
The apparent harshness of the result flows not from the application of section 2086(a), but rather from the harshness of the tax laws as they stood in 1942, whereby the entire community was taxed in Louis’ estate. I agree with the majority that the Estate’s effort to attack the result on constitutional grounds is frivolous.