Estate of Ludington v. Ludington

MR. JUSTICE ANGSTMAN:

This is an appeal by the State Board of Equalization and the State of Montana from an order determining inheritance tax.

Sometime prior to May 3, 1949, the deceased made a gift of $10,000 to his daughter, Lois E. Houchen. On April 14, 1951, the decedent executed a satisfaction of mortgage and delivered it to his son, Merrill E. Ludington, which satisfaction was recorded on April 16, 1951, and which mortgage was dated July 9, 1945, and represented an indebtedness due from M. E. Ludington to his father, E. J. Ludington, in the sum of $6,800. On May 4, 1954, E. J. Ludington died, then of the age of 72 years. He left on estate of approximately $77,000. The controversy here is whether the $10,000 item and the $6,800 item should be included in his estate for the purpose of inheritance taxes. The court ruled that they should not be included and held that they were not made in contemplation of death. In the will of the decedent it is provided:

“My son, M. E. Ludington of Billings, Montana, now owes me various sums of money. I direct that all debts due me or my estate from said son shall be cancelled and that said M. E. Ludington shall take nothing from my estate other than the cancellation of said debts.”

With reference to the $10,000 item the will provided:

“I have paid to my daughter, Lois Esther Houchen of Fair-view, Montana, the sum of Ten Thousand Dollars, in full settlement of her rights as an heir to share in my estate, whatever the same might have been or might be at the time of my death, and I direct that said Lois Esther Houchen shall take nothing whatsoever from my said estate.”

The State of Montana and the State Board of Equalization contend that the transfers in question here were made in contemplation of death and hence were taxable under sections 91-4401 and 91-4402, R.C.M. 1947. It is to be noted that under section 91-4402 every transfer made within three years prior to the death of the grantor of a material part of his estate and without a fair consideration in money or money’s worth shall, unless shown to the contrary, be deemed to have been made in contemplation of death. The effect of that statute is to place the burden of proof upon the transferee to overcome the presumption that the gift was made in contemplation of death if the transfer was made within three years prior to the death of the donor. Under the statute, if a gift were made more than three years prior to the death of the grantor, the burden of proof is upon the State or the State Board, of Equalization to show that in fact the gift was made in contemplation of death. It should be noted that while the will refers to these gifts they were completed and the property actually transferred more than three years before the death of the testator, and the gifts were completed before the will was made and the transfers did not depend at all upon the will. The record discloses that at the time these transfers were made the donor was in good health. When the daughter received the gift of $10,000, she was seeking a loan rather than a gift but was informed by her father that he was through making loans to the family and preferred to make an outright gift. It seems that the gratification of the desire on the part of the donor to make his children more competent financially was the impelling motive of the transfers rather than any thought of death and came within the rules announced in United States v. Wells, 283 U.S. 102, 51 S. Ct. 446, 75 L. Ed. 867, and which we followed in In re Warren’s Estate, 128 Mont. 395, 275 Pac. (2d) 843, and in the recent case of Estate of Keating, 134 Mont. 372, 332 Pac. (2d) 96.

Appellants contend that the donees did not testify that the gifts were not made in contemplation of death. However that would have been a mere conclusion of law. They did testify to the facts concerning the making of the gifts and we hold that the court did not err in finding that the gifts were not made in contemplation of death within the meaning of section 91-4402. As above noted the burden of proof rested upon appellants to show that the gifts were in fact made in contemplation of death and this burden was not sustained by them. The only effect of the mention of these gifts in the will was to explain why the decedent did not give more to his son and daughter and to sIioav that they were not overlooked. The transferees took nothing by virtue of the Avills; the gifts had been made before the will was made and had been completed and the transfers vested title to the property in the donees without reference to the will.

We find nothing in the ease of In re Wadsworth’s Estate, 92 Mont. 135, 11 Pac. (2d) 788, so strongly relied on by appellants, which militates against the trial court’s holding here. Counsel for the State rely also upon 61 C.J., section 2456, page 1653, where it is said: “Where decedent is the creditor, the remission or forgiveness of the debt by will is usually regarded as a legacy or bequest and taxable as such. ’ ’ See also 85 C. J.S. Taxation, section 1144.

That principle of law has no application here. Here the forgiveness of the debt was not made by will but was made by a duly executed and recorded satisfaction of the mortgage made and recorded more than three years prior to the death of the decedent. It follows that the order appealed from must be and is affirmed.

MR. CHIEF JUSTICE HARRISON, and MR. JUSTICE CASTLES, concur.