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District Court of Appeal, Fourth District, California.


Civ. 3653.

Decided: July 18, 1947

James W. Hickey, of Sacramento, and Donald R. Peck and Morton L. Barker, both of Los Angeles, for appellant. Herney & Herney and Monroe & McInnis, all of San Diego, for respondent.

This is an appeal from a judgment declaring that no inheritance tax was payable in connection with a trust fund established by the will of the deceased.

The facts are not disputed. By his will the decedent left the residue of his estate in trust to the respondent bank, the income therefrom to be used for the purpose of aiding in the education of boys and girls of good character who are citizens of the United States. It was provided that as many awards for this purpose should be made each year as the income from the trust estate would permit; that each award should be for a sum not exceeding $200; that such awards should be used only for the purpose of paying all or a part of the tuition or other charges incurred by the recipient at any school, college or university approved by the trustee; and that payment of the certificates of award should be made by the trustee directly to the school, college or university attended or to be attended by the award holder, upon satisfactory proof that the money was to be used for that purpose. It was further provided that, for the purpose of selecting the young people to whom such awards were to be made, the trustee should hold a golf tournament each year on golf courses situated in San Diego County to be selected by the trustee; that applicants must make written application for permission to enter such competition and be approved by the trustee; that awards to the number made possible by the available income each year should be made to those making the lowest scores in this tournament; and that any player making a score in excess of a certain maximum should be ineligible for such an award.

During the probate proceedings an inheritance tax appraiser filed a report fixing the inheritance tax in connection with this trust at $5531.29. Objections to this report were filed by the respondent on the ground that this transfer is exempt under section 13842 of the Revenue and Taxation Code, as being one exclusively devoted to charitable and educational purposes and limited for use within this state. After a hearing the court found, among other things, that this trust was created for the purpose of awarding scholarships to young men and women found by the trustee to be of good moral character and to be citizens of the United States; that competition therefor was open to all such persons; that the awards may be used in any school or university approved by the trustee; that the trustee is a local banking institution operating for profit and located in the city of San Diego; that under the terms of the will the trust thus created is to be administered in this state and persons to whom such an award is made must personally compete in a tournament to be conducted in the county of San Diego; go and that the property thus transferred to this trust is to be used exclusively for tharitable and educational work and is limited for use within this state, as that term is used in section 13842 of the Revenue and Taxation Code. As a conclusion of law, it was found that the property so transferred in trust was exempt from the inheritance tax. A judgment was entered sustaining the objections to the report of the inheritance tax appraiser, and adjudging that no inheritance tax is due. This appeal followed.

It is first contended that the bequest establishing this trust is not charitable in character because it is limited, by the provision requiring the beneficiaries to shoot a fair game of golf, to a class which is not a sufficiently large proportion of the population. Reliance is placed on In re Estate of Henderson, 17 Cal.2d 853, 112 P.2d 605, holding that the class to which a charity is restricted must be large enough to make the enforcement of the gift beneficial to the community, and In re Estate of Huebner, 127 Cal.App. 244, 15 P.2d 758, where it was held that the trust there in question was not for the benefit of an indefinite number of persons but was intended for the benefit of some one person.

Gifts for charitable purposes are highly favored in this state. In re Estate of Yule, 57 Cal.App.2d 652, 135 P.2d 386. The trust in question was designed to provide scholarships for some nine young people each year, which would presumably go on for many years. It was for the benefit of an indefinite class for educational purposes, and it cannot be said that the number in this class is not sufficiently large to make the enforcement of the gift beneficial to the community. We cannot agree that the number of young people who can play the kind of golf which is here required is so limited as to affect the charitable nature of this trust. Moreover, the golf requirement, while unusual, merely relates to the method of selection from among a large class of young people who desire assistance in continuing their education. It must be held that the bequest in question is charitable or educational in nature, within the meaning of section 13842. In re Estate of Purington, 199 Cal. 661, 250 P. 657; In re Estate of Bartlett, 122 Cal.App. 375, 10 P.2d 126; In re Estate of Bailey, 19 Cal.App.2d 135, 65 P.2d 102.

Appellant's main contention is that this bequest is not exempt from this tax because section 13842 provides that in order to exempt a transfer of property in trust to a corporation, for charitable or educational purposes, one of two conditions must be present: Either the corporation, to which the property is transferred in trust, must be one organized solely for charitable, educational, public or other like work under the laws of this state or of the United States, or the property transferred must be ‘limited for use within this State.’ It is conceded that the first of these conditions was not here present since the respondent is a banking corporation. In support of its contention that the second of these conditions is not here present the appellant argues that the reason for giving an exemption in such cases is, as stated in People v. O'Donnell, 327 Ill. 474, 158 N.E. 727, that the benefits bestowed will relieve the state of burdens which it otherwise would be obliged to carry; and that it has usually been held in other states that a bequest to a foreign corporation would not be exempt from such a tax, citing In re Thomas' Estate, 185 Wash. 113, 53 P.2d 305, 307, and similar cases from other states.

In the Thomas case just cited, where the bequest was not given in trust but given absolutely to a foreign corporation, the exemption was denied solely because ‘the exemption provisions * * * of the statute do not exempt bequests to charitable institutions or religious organizations located outside this state from an inheritance tax.’ That and similar cases from other states are not very helpful on the question as to the meaning of the clause of our statute which is here involved. Nor do we think that the reason thus given for this exemption, that the benefits bestowed must relieve the state of burdens which it otherwise would be obliged to carry, may be accepted as entirely controlling in this state. While that may be one of the reasons it does not disclose the sole purpose for the exemption provided by our statute. A somewhat broader definition of charity is applied in this state. Scripps, etc., Hospital v. California Emp. Comm., 24 Cal.2d 669, 151 P.2d 109, 155 A.L.R. 360. This is especially true in the fields of religion and education where the general beneficial effect on society is a main consideration, and where the matter of saving expense to the state is not the controlling element.

The issue here is as to the meaning and intent of subd. (b) of section 13842, which provides that in order for the exemption to apply in such a case as this it must appear that ‘the property transferred is limited for use within this State.’ It is conceded that the young people who may receive the scholorships contemplated by this bequest are not limited to residents of this state, and that the recipients of these awards may attend school outside of this state, if those schools are approved by the trustee. The appellant contends that the words ‘for use within this State,’ as applied in this case, mean that the persons receiving these awards or scholarships must be residents of this state. It was conceded at the oral argument that the exemption would still apply if a recipient of an award, who who was a resident of this state, were permitted to attend a college outside of the state. The respondent contends that section 13842 contains no indication that the legislature intended to limit the recipients of such a charity to residents of this state. It is contended that the words ‘limited for use within this State’ apply to the administration of the trust, the selection of the beneficiaries, and the distribution of the benefits to them; that in this case all of these things are confined to and must occur within this state; and that it was not intended by the statute to provide that the ultimate use by the beneficiary of the benefits, after he receives them, must be made in this state. As the respondent aptly points out, under a contrary interpretation of the statute few charities would come within the exemption, other than soup kitchens, as otherwise the recipient might wear the clothes given to him, or use a part of the benefits conferred on him, on the other side of the state line.

Not only does the statute fail to expressly provide that the exemption shall not apply unless the beneficiary is a resident of this state, or that the ultimate use of the benefit conferred must be made in this state, but the history of this exemption in this state indicates a somewhat broader intention. Formerly, our statute was so worded that it did not have the effect of limiting such a bequest to a domestic corporation, as was done in some states. In re Estate of Fiske, 178 Cal. 116, 172 P. 390. In 1921 the statute was amended (Stats. 1921, Ch. 821, p. 1506) so as to provide that the exemption applied only if such a corporation was organized under the laws of this state or if the property transferred was limited for use within this state. In thus changing the law either one, but not both, of these conditions was required to create the exemption. In 1929, it was again amended (Stats. 1929, Ch. 844, p. 1840) to add a reciprocal clause permitting such exemptions in this state where similar treatment was accorded us by the laws of other states. In 1939, the statute was amended (Stats. 1939, Ch. 694, p. 2210) to extend the exemption to cases where the corporation in question was organized solely for charitable, educational and like purposes under the laws of the United States.

These changes are hardly consistent with an intention to strictly confine the beneficiaries of such a trust to residents of this state, or to follow and control the ultimate use of the benefits after they have reached the hands of the beneficiaries. In seeking to discover the general intention, the statute as a whole should be considered and not merely one clause thereof. Since 1921, where property is transferred to a corporation in trust for charitable, educational and like work, the exemption has applied where either (a) the corporation is organized in this state for charitable, educational or like purposes, or (b) where the property transferred is limited for use within this state. Where the first of these conditions exists no limit, as to residence or otherwise, is placed on those who may be the beneficiaries of the trust. If, in the present case, the trustee had been a charitable corporation organized under the laws of this state, the scholarships provided for could have been awarded to persons regardless of their place of residence, or regardless of the place where the benefits were ultimately used. Where such an intention so clearly appears, with respect to the first condition provided, it seems unreasonable to believe that an entirely different and contrary intention should be presumed in connection with the second condition named, in the absence of any definite expression of such contrary intention.

While the second condition, ‘for use within this State,’ means something, it does not necessarily follow that it was intended to mean that the beneficiaries of the trust must be residents of this state, or that they must spend the money received within this state. By the language used it would seem that the condition was directed more to the use of the property transferred than to the ultimate use of the income therefrom, after that income is disposed of and distributed to individuals in accordance with the terms of the trust. It would seem that where the property is transferred in trust to a local corporation doing business in this state, where the property is retained and invested here by the trustee, where the property is distributed to the beneficiaries in this state, where the beneficiaries must be personally present in this state and by their efforts, performed in this state, prove their eligibility to share in the benefits of the trust, and where these results are provided for in the terms of the bequest, it may reasonably be said that the transfer of the property was limited for use within this state, within the meaning of this statute. This was the interpretation placed upon it by the trial court and, being a reasonable one, it may not be disturbed on appeal. A contrary holding would involve reading into this statute something which the legislature could easily have, but has not, included therein.

Incidentally, any nonresident who desired to become a beneficiary under this trust would have to come here to achieve that purpose. There is authority, more or less respectable, for the assumption, based somewhat on experience, that having ‘come and seen’ he would elect to remain and become a resident of this state.

The judgment is affirmed.

BARNARD, Presiding Justice.

MARKS, J., concurs.

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