Nickel v. State ( 1919 )

By the Court,

Sanders, J.:

This was a statutory proceeding brought by Cole as Controller of the State of Nevada, against the appellants under our so-called inheritance-tax law (Stats. 1913, p. 411). The appeal is prosecuted to review an order and judgment assessing and adjudging a transfer tax against the property involved for the sum of $48,149.78, and from an order denying and overruling the appellants’ motion for a new trial.

The facts of the case are as follows: On March 26, 1913, the inheritance-tax law was approved, but by the terms of section 31 of the act it did not take effect until thirty days thereafter, or April 25, 1913 (Stats. 1913, pp. 411-422). Prior to April 17, 1913, Henry Miller, deceased, a resident of San Francisco, Cal., was the owner of 119,875.75 shares of stock in Miller & Lux, Incorporated, a Nevada corporation. This corporation owned all of the capital stock of the Pacific Live Stock Company, a California corporation. The latter corporation owned a large amount of real estate and personal property in Nevada, appraised at $1,431,326.86. To the extent that this stock represented the property situated in Nevada, it is taxable under section 1 of the act, which provides:

“For the purposes of this act, the ownership of shares-of stock in a corporation owning property in this state shall be considered as the ownership of such interest in the property so owned by such corporation, as the number of shares so owned shall bear to the entire issued and outstanding capital stock of such corporation.”

This proposition is not disputed by appellants if the property is otherwise subject to the act.

On April 17, 1913, after the enactment and adoption of the act in question, and eight days before it became effective, Henry Miller, having prior thereto made other wills, published and declared his last will and testament, nominating’therein Nellie Miller Nickel, J. Leroy Nickel, and F. B. Anderson as executors thereof without bonds. Immediately after the publication and declaration of his will, Henry Miller executed and delivered to Nellie Miller Nickel and J. Leroy Nickel a deed of trust, by which all of the said stock was transferred to said trustees upon certain trusts. On the same date the trustees accepted the trust in writing. On the same date the stock was transferred on the books of the corporation to the trustees. The deed of trust and stock were thereafter kept in the exclusive custody of the trustees. At the time of the execution of the will and deed, Henry Miller was 86 years of age, was an invalid under medical care and treatment, and afflicted with physical ailments from which he never recovered, and on October 14, 1916, he died. On June 4, 1913, Henry Miller published and declared a codicil to his last will and testament, whereby the said Anderson was relieved of his trust as executor; he having theretofore expressed his desire to decline the trust. The deed contains substantially the same trusts as the will, and directs the trustees to pay the beneficiaries the amounts therein specified, which are the same as named in the will, and on the same conditions and limitations. The stock was, by the deed of trust, transferred to the trustees:

“To have and to hold the same as such trustees upon the following uses and trusts and for the following uses and purposes, that is to say:

“I. During the lifetime of the said party of the first part the said trustees shall receive the rents, issues and profits of said property and pay the same to the party of the first part, during the term of his natural life.

“II. (1) Upon and after the death of the said party of the first part the said trustee's shall take and hold all of said property, and shall convert sufficient thereof into cash to pay the several amounts hereby directed to be paid, and shall collect the rents, issues and profits thereof, and therefrom shall be by them applied in the manner hereinafter set forth:

“(2) From the proceeds of the sale of said property said trustees shall pay the following sums: [Then follows list of persons and amounts to be paid to them. Some of these payments are to be made monthly and shall not extend beyond the lives of designated parties and ‘their children living at the time of the death of the party of the first part.’ It also provides that upon the death of certain of said parties before receiving said sums, the share of such deceased person shall go to others.]

“(o) They shall pay to the following-named employees of said party of the first part and Miller & Lux, Incorporated, the following sums as soon after the death of said party of the first part as possible: [Then follows list of such employees with the amounts to be paid to each.]

“If any of the above-named persons be not employed by said party of the first part or Miller & Lux, Incorporated, at the time of the death of said party of the first part, the provisions by this subdivision made for him shall lapse. [Then follows list of other beneficiaries, with the amounts to be paid to each, followed by the provisions that all of the income from the said property, except the income from certain specified bequests, ‘from the time of the death of said party of the first part shall be paid to the daughter of said party of the first part, etc.’]

“III. Nothing herein shall be construed to restrain the free alienation of any of said property and said trustees may sell any of said property at public or private sale, with or without notice, and on such terms as they may see fit. Whenever said trustees are authorized to invest any of said property, they shall invest the same only in real estate, mortgages on real estate, bonds of the United States, or of some county or municipal corporation within the United States, or stock or bonds of the corporations Miller & Lux, Incorporated, Pacific Live Stock Company, or the San Joaquin & Kings River Canal & Irrigation Company, Incorporated. All of the sums directed to be paid by the second (II) paragraph of this deed shall be paid as soon as sufficient money may be realized from the sale of the said property without injury thereto, and the same shall be paid as soon as in the judgment of said trustees it can be dope without loss, but not later than ten (10) years after the death of said party of the first part and during the lives of the descendants of said party of the first part living at the time of his death, and said trustees may pay the same in such amounts and at such times as may be most beneficial, and none of said amounts shall bear interest; provided, that at least one hundred and fifty ($150) dollars a month shall be paid on account of the provision for the daughter-in-lav? of said party of the first part, Sarah E. Miller, from the time of the death of said party of the first part. Nothing herein shall be construed to required or permit the accumulation of the income of said property, but the entire income of said property shall at all times be applied to the purposes herein set forth. If any person to whom any sum of money is directed to be paid dies before the death of said party of the first part, such provision shall lapse except as otherwise provided herein. If any of the sums directed by this deed to be paid to or set aside for the benefit of the persons named herein shall be paid or set aside in whole or in part by any trustees named in the last will and testament of said party of the first part from any estate coming into their possession under said will, such payment shall be deemed to be in satisfaction of the provision herein made for such party, and also in satisfaction of the provision in such will made for such party, in whole or in part, as the case may be, and the parties of the second part shall hold and dispose of the property conveyed hereby upon the remaining trusts designated herein.”

It appears that Henry Miller once expressed a desire to change one of the legacies specified in the trust deed, but he was advised by his counsel that it was not possible for him to do so “as no power of revocation had been reserved in the deed.”

It is the contention of the State of Nevada that the deed of trust was either made in contemplation of death, or was intended to take effect in possession or enjoyment at or after death within the meaning of the term “contemplation of death” as used in the act, which is defined by the act as follows:

“The words ‘contemplation of death’ as used in this act shall be taken to include that expectancy of death which actuates the mind of a person on the execution of his will, and in no wise shall said words be limited and restricted to that expectancy of death which actuates the mind of a person in making a gift causa mortis. * * *” Section 30.

Counsel for appellants in reply to this position state in their brief:

“It is not necessary for us to discuss these questions, because for the purpose of this appeal onfy we are willing to concede that, if this act had been in force at the time of this transfer, the same might be held to be made in contemplation of death, or not intended to take effect in possession or enjoyment at or after death within the meaning of the statute. Section 1. We do this because we have entire confidence in the position which we take in the case, viz, that whether in fact made in contemplation of death, or in law or in fact intended to take effect in possession or enjoyment after death so far as the beneficiaries other than Henry Miller are concerned, the transfer at its date created vested interests to which the act was not intended to apply, and to which it could not constitutionally apply.”

If we clearly interpret counsel’s admission, the questions to be determined are narrowed down to three propositions: Did the deed of trust create a vested estate? Does the act apply to transfers made before it became effective ? Can the act constitutionally be made to apply to such a transfer ? Reading the opinion of the trial court in connection with its findings and conclusions, we take it that the last question is eliminated from the case; The district court in its opinion states: of the execution and delivery of the deed and independently of the death of Henry Miller, no fax may lawfully be imposed thereon.”

“It will be noted that the statute went into effect April 25, 1913, and is not by its express terms made retroactive. Hence it must be construed as having only a prospective operation, as no intent to make the same operate retrospectively may be inferred from the words therein employed; therefore, if the interests in the property mentioned in the deed passed to and vested absolutely in the beneficiaries therein named upon the date

1-7. In this situation the vital point raised is: Did the deed of trust as of its date create a vested estate so as to exempt the transfer from the operation of the statute? The execution of the will, the deed, and the transfer of the stock was one transaction. To determine whether the indenture mediately vested the legal title to the stock so as to exempt the transfer from a transfer tax under the statute, the instruments must be construed together as a single instrument. In Re Brandreth,.58 App. Div. 575, 69 N. Y. Supp. 142; State v. Pabst, 139 Wis. 561, 121 N. W. 360. While it is true that the nominal sum of $10 is named as the consideration of the deed, we do not apprehend that it would be contended that the deed was intended to be anything more than a voluntary deed of gift to those whom the deceased regarded as the natural and worthy objects of his bounty. Considering the deed and will simultaneously executed, the physical condition of the deceased at the time, and the facts and circumstances attending and leading up to the execution of the indenture and transfer of the stock, as well as the language employed in the deed, construed in connection with that employed in the will, indicates that deceased disposed of his property to take effect in possession or enjoyment at or after his death. From the evidence, the impression is irresistible that the deed of trust was an.afterthought to avoid, if possible, an expected increase in the inheritance-tax rate in California, and a probable inheritance tax of the federal government. Clearly thé deceased was advised of these possibilities prior to the execution of the deed. This materially affects the weight of the deed as evidence in a case seeking to impose upon the transfer a transfer tax in this or any other court. The deceased, after the execution of the instruments and delivery of the deed, was advised that however much he desired to change any legacy provided for therein he could not do so, because no power of revocation had been reserved in the deed. This tends to indicate that the deceased in the first instance did not regard the indenture as irrevocable. We do not doubt the sincerity of the advice, but we are unable to perceive why the principle of law involved should be arbitrarily applied to the facts of this case, particularly in view of the expressed limitation in the deed that, upon and after the death of the grantor, the trustees shall take and hold all of said property. The paper clearly contemplates posthumous operation. It is only in cases where other parties besides the person creating the trust have an interest therein that the trust becomes irrevocable.

We see nothing in the deed that could have prevented the deceased from revoking the trust had he desired so to do. No beneficiaries or third party, as far as the record shows, had any present interest in the property to prevent the deceased, if necessary to do so, from invoking a court of equity to revoke the trust. The appellants and other appointees under the will had no such interest, because the deceased could have revoked his will and made another in favor of other parties. His beneficiaries in the indenture had no such interest, because the deceased had power by will to secure the property to others, and entirely exclude them from all interest therein. In Re Ogsbury’s Estate, 7 App. Div. 71, 39 N. Y. Supp. 981. It is clear from both instruments that the trustees were not empowered to transfer any interest or pay any legacy created by either instrument until the death of the grantor. The property was to all intents and purposes that of Henry Miller, subject to the disposition made of it by his will published and declared simultaneously with the deed. No reason is suggested why Miller should conclude himself from the right of disposing of his property by will, or that the deed should be construed as nullifying his will. We do not say that it is necessary to the validity of a deed that it should convey an estate in immediate possession, but it is necessary that it should take effect in interest upon its execution, though the right of possession or enjoymént may not take place until the happening of a certain event. Wall v. Wall, 30 Miss. 91, 64 Am. Dec. 152. If, however, the interests created do not arise until the death of the donor, or some other future time, the instrument cannot be a deed, although it may be so denominated by the maker, may have express words of immediate grant, may have sufficient consideration to support a grant, and may be formally delivered. Babb v. Harrison, 9 Rich. Eq. (S. C.) 111, 70 Am. Dec. 204. We do not deny that the donor may convey an interest, reserving a lifetime estate to himself; but a deed, if made with a view of the disposition of a man’s estate after his death, inures in law as a devise or will. Wellborn v. Weaver, 17 Ga. 267, 63 Am. Dec. 242.

We are clearly of the opinion, construing the instruments together and in connection with other evidence, that the district court correctly found that Henry Miller did not divest himself of, or relinquish control over, the interests of the beneficiaries named in the instruments, and it was not until the death of Miller that the transfer in any respect became absolute and that the beneficiaries became irrevocably entitled to the various sums mentioned in the deed after the death of Miller.

8. There is no natural right to create artificial and technical estates with limitations over, nor has the remainderman any more right to succeed to the possession of property under such deeds than legatees or devisees under a will. The privilege of acquiring property by such an instrument is as much dependent upon the law as that of acquiring property by inheritance. Keeney v. N. Y., 221 U. S. 534, 32 Sup. Ct. 105, 56 L. Ed. 304, 38 L. R. A. (N.S.) 1139.

9-11. The statute in question taxes the passing of property, or any interest therein, in the possession, enjoyment, present or future, by inheritance, descent, devise, succession, bequest, grant, deed, bargain, sale, gift, or appointment. Stats. 1913, sec. 31, p. 422. This statute, taken as a whole, goes further than that of New York, and the fine distinctions made in the briefs of cases in that and other jurisdictions tend rather to confuse than aid the court in construing a local statute. The statute in terms taxes gratuitous acquisitions of property under trust conveyances intended to take effect in possession or enjoyment at or after death. But however broad and comprehensive its terms, the statute was not intended to restrain persons in their right to transfer property in all legitimate ways. It is the policy of the law to encourage making conveyances in fee, and it is as lawful to create an estate for life with remainder after death of the grantor as it is to convey in fee; but there is a marked difference in “taxing a right and taxing a privilege.” By the statute the favorite transfer in fee is not taxed with the privilege. The tax is not a property tax, but is in the nature of an excise tax, to wit, cn the transfer of property. In Re Williams, 40 Nev. 241, 161 Pac. 741, L. R. A. 1917c, 602. The language of the statute manifests its purpose to tax all transfers which are accomplished by will, the intestate laws, and those made prior to death which can be classed as similar in nature and effect, because they accomplish a transfer of property under circumstances which impress on it the characteristics of a devolution made at the time of the donor’s death. State v. Pabst, supra.

But it is earnestly insisted that, as the transfer of the property was made before the act became effective, no tax accrued. This leads to the discussion of the question: When does a transfer tax as imposed by the statute accrue? To this there can be but one answer— at the death.

Says Chief Justice White, in Knowlton v. Moore, 178 U. S. 56, 20 Sup. Ct. 753, 44 L. Ed. 976:

“* * * Tax laws of this nature in alP countries rest in their essence upon the principle that death is the generating source from which the particular taxing power takes its being, and that it is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.”

12,13. From this we conclude that the statute taxes,not the interest to which some person succeeds on a death, but the interest which ceased by reason of the death. Knowlton v. Moore, supra; Hansen’s Death Duties, p. 63. Had Henry Miller died testate or intestate between the enactment and taking effect of the act, no tax would accrue; but the weakness of the appellants’ position in this connection is that the property did not vest until after the statute became effective. The actual possession or enjoyment by those entitled to Miller’s bounty under the will and deed was postponed to take effect at or after his death. Conceding 'that the law did not become effective until thirty days after its enactment, we are of the opinion that in this, as in other cases, the legislature deemed it best to give notice to the public of its provisions for this period of time before it became effective, and the interval of time was not intended to afford ingenious minds an opportunity to devise schemes to defeat the purpose of the act. The rights and obligations of all parties in regard to the payment of an inheritance tax are determinable as of the time of the death of the decedent (English v. Crenshaw, 120 Tenn. 531, 110 S. W. 210, 17 L. R. A (N.S.) 753, 127 Am. St. Rep. 1053) ; and, as we conclude that the property in question did not vest at the date of the transfer, it follows that the transfer is subject to the tax under the statute in question.

The j udgment is affirmed.