IN RE: the ESTATE of Stephen BIELEC, also known as Stephen J. Bielec, Deceased. Paul BIELEC, Individually and as Executor, Appellant, v. Houston I. FLOURNOY, State Controller, Respondent.
Paul Bielec, individually and as executor of the will of his deceased brother, Stephen Bielec, appeals from an order fixing the inheritance tax upon certain stock valued for inheritance taxation at $454,481. He contends that its value for this purpose was $100,000 which is the amount he paid Stephen's estate for it in 1966 pursuant to a court order and a written buy-sell agreement made between the brothers and their principal corporation on July 20, 1956. Stephen died on April 6, 1966.1
The fundamental question presented is whether for inheritance taxation this stock should have been valued at its 1956 contract price or at its market value at the time of Stephen's death in 1966. Stated otherwise, the question is whether this stock should have been valued for inheritance taxation on the basis of what the decedent's estate received for it from Paul, or what it was worth to Paul at the time of the decedent's death. In our view the answer to these questions turns on whether the requirement of adequate and full consideration for the inter vivos transfer, imposed by Revenue and Taxation Code, section 13641, applies at the time of the transfer or subsequently at the time when the transfer becomes effective in possession and enjoyment—that is, upon the death of the transferor. We hold that this requirement applies as of the date of the inter vivos transfer.
Preliminarily, Paul asserts that we are obligated to accept the value of the stock for inheritance taxation as $100,000 because of the conclusive effect of the 1966 order of the probate court, which has long been final, directing Paul as executor to sell the stock for this price as required by the 1956 buy-sell agreement. His authority for this position is Estate of Radovich, 48 Cal.2d 116, 308 P.2d 14 and Estate of Clarke, 66 Cal.2d 142, 56 Cal.Rptr. 897, 424 P.2d 337. In the former case an individual's status in equity as an adopted son of the decedent as determined by the probate court in an heirship proceeding was help to be binding upon the state for inheritance tax purposes, although the state could not have been a party to the proceeding. (Radovich, 48 Cal.2d pp. 122, 123, 308 P.2d 14.) In the latter case the reaffirmed rule of Radovich was declared to be ‘that ordinarily the taxing authorities will be precluded from relitigating matters established by decree in an in rem proceeding with regard to status of a person or property’, subject to an exception that is not applicable in this case. (Clarke, 66 Cal.2d pp. 145–147, 56 Cal.Rptr. p. 900, 424 P.2d p. 340.
The final order upon which Paul relies as preventing a valuation of the stock for inheritance taxation different from that specified in the order was not, however, an order ‘with regard to status of a person or property.’ It was simply an order decreeing specific performance of a contract that the decedent made during his lifetime to sell the stock for $100,000. (Cf. Estate of Morse, 9 Cal.App.3d 411, 414, 88 Cal.Rptr. 52, 54.) The order at most fixed the value of the stock to the estate; it did not do so as to Paul, the transferee.
The pertinent findings of fact of the trial court, as rephrased by us, are these. It found that the market value of the stock for inheritance taxation was the aforementioned $454,481. It also found that at the time of the execution of the 1956 buy-sell agreement there was adequate and full consideration for the sale of the stock since the stock was then worth $80,000 and the goodwill of the three business enterprises was valued at $20,000. It further found that the agreement provided for annual re-evaluation of the stock, but that if such re-evaluation were not made, the last valuation made, including that provided in the original agreement, would be the selling price of the stock under the agreement. In this connection it found that no re-evaluation pursuant to the agreement was in fact ever made. Finally it found that the two brothers, while alive, were free to sell their respective shares of stock.2
On the basis of the foregoing findings the trial court concluded that the value of the stock for inheritance taxation should have been fixed without regard to the $100,000 value specified in the agreement.
In so concluding the trial court committed reversible error. The inter vivos transfer of stock before us was testamentary in character in the sense that it took effect in possession and enjoyment upon the death of the first brother to die, Stephen. In order for the transfer to be taxed under the inheritance Tax Law, however, a basis for its taxation must be found in the Law.3 (See Estate of Potter, 188 Cal. 55, 64, 204 P. 826.) The Law does not tax all inter vivos transfers that are testamentary in character in the sense just indicated; it taxes only some of them. (See Kirkwood v. Bank of America, 43 Cal.2d 333, 339, 273 P.2d 532.)
From the manner of the fixation of the tax before us it is apparent that the Controller treated this transfer as a transfer coming under Revenue and Taxation Code, section 13643 and 13641. These sections have been a part of the Law since 1891. Revenue and Taxation Code, section 13643, since its codification in 1943, has read: ‘A transfer conforming to Section 13641 and made with the intention that it take effect in possession or enjoyment at or after the death of the transferor is a transfer subject to this part.’4 Therefore, for a transfer to be taxable under section 13643, it must also conform to section 13641.5
Revenue and Taxation Code, section 13641, at the time of the July, 1956 inter vivos transfer,6 read in relevant part as follows: ‘Any transfer specified in this article made during lifetime by a resident * * * by deed, grant, bargain, sale, assignment, or gift, without a valuable and adequate consideration is a transfer subject to this part.’
“Valuable and adequate consideration' is a consideration equal in money or in money's worth to the full value of the property transferred.' (Stats.1943, ch. 658, § 1, p. 2302.)
As the trial court found, the transfer before us was for a consideration, at the time of the execution of the buy-sell agreement in July, 1956, equal in money to the full value of the property transferred. Therefore this transfer did not conform to section 13641 and it may not be taxed under section 13643. (See McDougald v. Boyd, 172 Cal. 753, 756–757, 159 P. 168; Estate of Brix, 181 Cal. 667, 672, 186 P. 135; Estate of Craycroft, 191 Cal.App.2d 436, 445, 12 Cal.Rptr. 552.) An inter vivos transfer that is testamentary in character is taxable under the Inheritance Tax Law only to the extent that it was made without adequate and full consideration. (See Estate of Vai, 65 Cal.2d 144, 154, 52 Cal.Rptr. 705, 417 P.2d 161.)
This conclusion permits this taxpayer, the transferee, Paul, to escape inheritance taxation upon most of the market value at the date of the death of his deceased brother of the stock which he received from his brother by means of the inter vivos contract between them. Consequently it seems contrary to the purpose of the Inheritance Tax Law that may be implied from the following language in Revenue and Taxation Code, section 13648, ‘to tax every transfer [at its clear marker value as of the date of the decedent's death (see Rev. & Tax.Code, §§ 13311 and 13402)] made in lieu of or to avoid the passing of property by will or the laws of succession.’ The closing of this loophole in the Law is, however, the task of the legislature and not that of the judiciary.
The order is reversed with the direction that a redetermination be made of the inheritance tax liability of Paul Bielec in this case in accordance with the views expressed in this opinion.
1. The inheritance tax appraiser appraised the stock as of the date of Stephen's death as having a market value of $454,481. In his inventory and report he allocated $100,000 of this value to the agreement and the remainder to the transfer at issue.
2. This finding is attacked by Paul as unsupported by substantial evidence. We disagree. The 1956 agreement contained no provision restricting the lifetime sale of the stock and the trier of fact was privileged to disbelieve the testimony of Paul and of the Bielecs' attorney of an oral agreement between the brothers possibly imposing such a restriction.
3. Our Inheritance Tax Law taxes only transfers subject to it. (Rev. & Tax.Code, § 13401.) Revenue and Taxation Code, section 13304 defines ‘transfer’ as including among other things the passage of any interest in property in possession or enjoyment, present or future, in trust or otherwise. (Emphasis added.) The expectancies in the brothers, created by the 1956 agreement, were clearly interests in property.
4. This part is the ‘Inheritance Tax Law’. (Rev. & Tax.Code, § 13301.)
5. This requirement of conformance to section 13641 in order to render inter vivos transfers taxable under the Inheritance Tax Law runs throughout the entire article on inter vivos transfers. (See Rev. & Tax.Code, §§ 13642, 13644, 13645, 13646 and 13647.)
6. The law in force at the time of this transfer determines the taxability of the transfer. (See Nickel v. State, 179 Cal. 126, 128, 175 P. 641; Estate of Brix, 181 Cal. 667, 671–672, 186 P. 135; Estate of Miller, 184 Cal. 674, 684, 195 P. 413.)
COBEY, Associate Justice.
SCHWEITZER, Acting P. J., and ALLPORT, J., concur.