IN RE: ESTATE of Edward SCHMALEN-BACH, Deceased. Margaret SCHMALENBACH, Objector and Respondent, v. Houston I. FLOURNOY, as State Controller, Petitioner and Appellant.
By this appeal the State Controller seeks to set aside an order which sustained objections to the report of the inheritance tax appraiser, and fixed the inheritance tax due by reason of the death of the above named decedent. The issue is whether state and federal gift taxes which had accrued and were payable at the time of the decedent's death by reason of an inter vivos transfer, and which were thereafter paid, are deductible from the appraised or market value of the transferred property in arriving at the clear market value upon which the California inheritance tax is to be computed. The Controller relies upon the case of Estate of Giolitti (1972) 26 Cal.App.3d 327, 103 Cal.Rptr. 38 [hrg. by S.Ct. den.] which, prior to a rehearing, was originally decided two days after the order which is the subject of this appeal. (See Cal.App., 101 Cal.Rptr. 652.)1 The objector seeks to sustain the decision and order of the trial court on several grounds. She contends that the controller's appeal is not timely; that the decision in Giolitti was predicated on different facts and therefore it should be distinguished and not be deemed controlling of the facts in this case; that the decision is unsound and contrary to law because it rests on three erroneous assumptions; that the state gift tax was a lien on the transferred property and deductible as such in computing the inheritance tax; and that the Controller was bound by his past regulations and administrative practice which allowed the deductions approved by the trial court.
An examination of these contentions in the light of the applicable statutes and the pertinent precedents reveals that the Controller's appeal was timely; that any references to past regulations and administrative practice or to revised practices, are not controlling, but resort must be had to the statutory provisions; that there is a distinction between the transfer which was the subject of the inheritance tax in Estate of Giolitti and that involved in this case; and that as applied to the joint tenancy property the subject of these proceedings the trial court properly allowed the deduction of state and federal gift taxes, which burdened the property the subject of the inheritance tax, as debts owing from the donor-decedent at the time of his death. The order fixing the inheritance tax must be affirmed.
In May and June 1969, Edward Schmalenbach transferred real estate, shares of stock, a bank account and an accounts and a note receivable, admittedly his separate property, to himself and to his wife, Margaret Schmalenbach as joint tenants. Thereafter on August 11, 1969, he died at the age of 84 years. On November 30, 1970, the wife, the objector in these proceedings, filed her petition to establish the fact of death and for determination of inheritance tax.
The report of the inheritance tax referee, filed June 20, 1971, found that the transferred assets, which allegedly, had a value in excess of $500,000 at the time of transfer, had a fair market value of $494,011.96 at the time of the transferor's death. Deductions of $5,357.27, including real estate taxes, which were a lien at death, attorney's fees, expenses of administration, and expenses of the decedent's last illness and funeral, reduced the clear market value to $488,654.69. On this sum, after allowance of marital and special exemptions, the referee computed an inheritance tax of $29,436.93. He allowed a credit for gift taxes in the sum of $18,237.74, which the objector allegedly paid the state on October 15, 1970, on account of the transfers made in May and June of 1969, leaving a net inheritance tax of $11,199.19.
The widow filed timely objections to the report in which she claimed that the referee erred in failing to allow the $18,237.74 paid to the state as aforesaid, and an additional $14,829.62 paid to the United States Internal Revenue Service on September 11, 1970, for gift taxes on the same transfer, as deductible debts of the decedent for the purpose of computing the inheritance tax.
On March 17, 1972, the court signed and filed its order, reviewed in part I below, that the report be amended to show the deduction of the foregoing sums in ascertaining the clear market value of the property subject to inheritance tax at the time of the decedent's death. On April 12, 1972, a written order entitled ‘Order Sustaining Objections To Report of Inheritance Tax Referee and Fixing Inheritance Tax’ was filed. On June 5 more than 60 days after the filing of the first order the Controller filed his notice of appeal.
There is no merit to the contention that the Controller's appeal was not timely. Section 904.1 of the Code of Civil Procedure provides in pertinent part, ‘An appeal may be taken from a superior court in the following cases: . . . (k) From an order or decree made appealable by the provisions of the Probate Code.’ Section 1240 of the Probate Code at all times material has provided and provides: ‘An appeal may be taken from an order . . . fixing an inheritance tax or determining that none is due; . . .’ Rule 2, California Rules of Court, provides in subdivision (a), ‘Except as otherwise specifically provided by law, notice of appeal shall be filed within 60 days after the date of mailing notice of entry of judgment by the clerk of the court pursuant to section 664.5 of the Code of Civil Procedure, or within 60 days after the date of service of written notice of entry of judgment by any party upon the party filing the notice of appeal, or within 180 days after the date of entry of the judgment, whichever is earliest, unless the time is extended as provided in rule 3.’ The 60-day period is applicable to an appeal under Probate Code section 1240. (See Prob.Code, § 1233.) This time limit is said to be jurisdictional, and failure to file within time deprives the appellate court of the jurisdiction to hear the appeal. (Estate of Hanley (1943) 23 Cal.2d 120, 122–123, 142 P.2d 423.)
The objector's reliance on the foregoing provision is misplaced. She contends that since the earlier order determined all issues it was only a ministerial matter to compute the tax, and therefore that order was an order fixing inheritance tax which became final 60 days after notice of its entry. In the first place it is questionable whether the proof of service by mail of the March 17, 1972 order was the notice of entry of judgment contemplated by subdivision (a) of Rule 2. If not, the order, if appealable, could be appealed from at any time within 180 days of its entry. Secondly, and of more weight, is the fact that the order expressly concluded: ‘Let the objector's attorney prepare an order consistent with the views expressed herein.’ Subdivision (b) of Rule 2 expressly provides: ‘For the purposes of this rule: . . . (2) The date of entry of an appealable order which is entered in the minutes shall be the date of its entry in the permanent minutes, unless such minute order as entered expressly directs that a written order be prepared, signed and filed, in which case the date of entry shall be the date of filing of the signed order. . . .’ ‘The language of this rule is clear and leaves no room for interpretation.’ (Herrscher v. Herrscher (1973) 41 Cal.2d 300, 304, 259 P.2d 901, 904. See also Essick v. City of Los Angeles (1950) 34 Cal.2d 614, 616, 213 P.2d 492; and Estate of Lair (1944) 65 Cal.App.2d 245, 248, 150 P.2d 560.)
Thirdly, the order of March 17 was in effect an interim order. It did not fix the tax, but directed the appraiser to revise his computations by allowing additional deductions. As such it was not a final order from which an appeal could be taken. (Estate of Rowell (1955) 132 Cal.App.2d 421, 423–424, 282 P.2d 163; and see Estate of Johnston (1970) 12 Cal.App.3d 855, 858, 91 Cal.Rptr. 116.) Finally, it should be noted that the policy of the law is to hear an appeal on its merits. (Haskins v. Crumley (1957) 152 Cal.App.2d 64, 66, 312 P.2d 276.)
The appeal was timely and objector's suggestion that it should be dismissed is rejected.
In Estate of Giolitti, the decedent had disposed of all of his property during his lifetime, principally by inter vivos transfers which were admittedly subject to both gift taxes and inheritance and estate taxes. State and federal gift taxes were returned and paid, and credit was given against the respective state inheritance tax and federal estate tax. In computing the clear market value of the transfers for purposes of fixing the inheritance tax the appraiser did not allow a deduction for the amount due for federal gift taxes at the time of death. The Controller suggests that the objecting transferees in Giolitti waived any claim that the amount of the state gift tax should be deducted,2 but did claim that the sum paid the federal government as a gift tax should have been deducted as a debt incurred by the decedent during his lifetime in determining the value of the property transferred for the purpose of the inheritance tax. (See 26 Cal.App.3d at pp. 339–341, Appendix A, 103 Cal.Rptr. 38.) As in this case the trial court overruled the inheritance tax appraiser and allowed the deduction. The Court of Appeal reversed.
The opinion states that the transfers involved were transfers in contemplation of death subject to taxation under the provisions of section 13642 of the Revenue and Taxation Code.3 This section is found in article 3, entitled ‘Inter Vivos Transfers', of chapter 4, ‘Transfers Subject to this Part,’ of the Inheritance Tax Law consisting of sections 13641 through 13648.4 (See also 18 Cal.Admin.Code, ch. 2.5, subch. 1, grp. 2, art. 3, §§ 13641–13648a–13648j.) On the other hand in this case the transfer is rendered subject to the inheritance tax under the provisions of section 136715 because it is held in joint tenancy. Section 13671 and sections 13671.5 and 13672 are found in article 4. (See also 18 Cal.Admin.Code, ch. 2.5, subch. 1, grp. 2, art. 4, §§ 13671a–13671.5.) ‘The creation of a joint tenancy is not a testamentary disposition. Of itself it raises no inference or presumption that it was done in contemplation of death.’ (Estate of Gurnsey (1918) 177 Cal. 211, 214, 170 P. 402, 403. See also Estate of McDonald (1968) 260 Cal.App.2d 407, 414–416, 67 Cal.Rptr. 227.) The significance of this distinction can only be evaluated in the light of the principles enunciated in Giolitti which are reviewed below.
The successful objector also points out that in the Giolitti case there was no issue concerning the deductibility of the California gift tax which became due and payable from the transferor during his life at the time of transfer (see fn. 2 above). She claims that the amount of that tax is deductible as a lien under the provisions of section 13987.6 It is therefore likewise necessary to review this contention in the light of Giolitti.
Finally she asserts that this case is different than Giolitti because here the parties stipulated and the court found: ‘The Controller concedes that a gift tax owed by a donor and unpaid at date of death was, for many years, considered by the Controller to be a debt within the meaning of R & T Code § 13983 and the Controller's regulations (Cal.Admin.Code, Title 18, Section 13983(a) and that he has consistently allowed a gift tax paid after death as a deduction in computing the clear market value of property transferred by the decedent.’ Although there was no such stipulation in the earlier case, the matter was raised and disposed of on appeal (26 Cal.App.3d at pp. 334–336, 103 Cal.Rptr. 38.). The court pointed out that any administrative regulation or practice must conform to the statute. It concluded that the policy contained in the Controller's memorandum of December 18, 1970 (see fn. 9 below), under which the deduction for the federal gift tax paid after death was denied ‘is consistent with the statutory predicate and judicial construction and is therefore entitled to judicial sanction.’ (Id., at pp. 335–336, 103 Cal.Rptr. at p. 44.) It appears therefore that the weight of former administrative practice cannot be used to tip the scales unless the statutory provisions themselves permit and direct such a practice. The precedents upon which the objector relies7 can only furnish direction after the true construction of the statute is otherwise ascertained. (See part V below.)
The statutes and the applicable precedents may be reviewed with the foregoing considerations in mind.
The decision in Giolitti and the Controller's position in this case are predicated upon the proposition that a gift tax which is credited on a death tax constitutes in effect and substance a part payment of such tax, and since the death tax itself cannot be deducted, neither can the gift tax so credited. This concept stems from Estate of Kirshbaum (1968) 268 Cal.App.2d 155, 73 Cal.Rptr. 711, where the court rejected the Controller's contention that the gift tax law is no part of inheritance tax law, and stated: ‘. . . if the transfer originally subject to a gift tax is ultimately subject to an inheritance tax, the credit provision contained in the above statute makes the payment of such gift tax tantamount to a down payment on the inheritance tax. Federal courts have thus viewed a similar gift tax credit provided by section 2012, Internal Revenue Code; thus, in Ingalls v. C.I.R. (4th Cir. 1964) 336 F.2d 874, 876, the court stated that ‘Double taxation, if any, of the transfer is avoided by allowance of a credit for the earlier paid gift tax. The taxes are not always mutually exclusive. The gift tax amounts to a down payment on the estate tax.’ In so holding, the court took cognizance of the declaration in Smith v. Shaughnessy, 318 U.S. 176, 179, 63 S.Ct. 545, 547, 87 L.Ed. 690, that ‘the [federal] gift tax amounts in some instances to a security, a form of down-payment on the estate tax which secures the eventual payment of the latter. . . .’' (268 Cal.App.2d at p. 158, 73 Cal.Rptr. at p. 714.)8 On the basis of the foregoing statement the Controller, though the Chief Inheritance Tax Attorney issued a ruling on December 18, 1970, which was reflected in the original report of fixing the inheritance tax in this case.9
An examination of the applicable statutes indicates that the recognition of the fact that the gift tax credit (§§ 14051–14059) renders the payment of a gift tax ‘tantamount’ to a down payment or a security for the payment of subsequently levied death taxes, does not of itself create a fully integrated, as distinguished from a correlated, system for taxing all transfers of property without adequate consideration. The inheritance tax law is generally considered as a tax on the right to succeed to property. In Kirkwood v. Bank of America (1954) 43 Cal.2d 333, 273 P.2d 532, the court stated: ‘The California inheritance tax is not a property tax but is a succession tax, imposed by reason of the beneficial succession to property upon the death of another. 24 Cal.Jur. § 395, pp. 424–425; In re Estate of Rath, 10 Cal.2d 399, 405, 75 P.2d 509 . . . It applies to transfers by will or intestate succession and in order to prevent tax evasion, it also applies to certain inter vivos transfers which are testamentary in character. With regard to these latter transfers, the legislative purpose is expressly declared in section 13648 of the Revenue & Taxation Code to be ‘the intent . . . to tax every transfer made in lieu of or to avoid the passing of property by will or the laws of succession.’' (43 Cal.2d at pp. 338–339, 273 P.2d at p. 535. See in addition to case cited, Estate of Bielec (1972) 8 Cal.3d 213, 219, fn. 5, 104 Cal.Rptr. 516, 502 P.2d 12; Estate of Madison (1945) 26 Cal.2d 453, 463, 159 P.2d 630; Estate of Potter (1922) 188 Cal. 55, 59, 204 P. 826; Estate of Hite (1911) 159 Cal. 392, 395, 113 P. 1072; and see sections cited fns. 3 and 4, supra.) The purpose of the Gift Tax Act (§ 15101 et seq.) ‘. . . appears to be the same as that of the federal gift tax—to supplement the income and inheritance tax by reaching transactions which would otherwise escape taxation.’ (Douglas v. State of California (1942) 48 Cal.App.2d 835, 837–838, 120 P.2d 927, 929.)
An analysis of the inter vivos transfers, which are rendered taxable under the provisions of article 3 (§§ 13641–13648, see fns. 3 and 4 above) of the Inheritance Tax Law, reveals that they fall into two categories: first, an absolute transfer in contemplation of death (§ 13642) or an advancement (§ 13647) whereby the transferor has presumably divested himself of all interest in the property but is taxed because of the relationship of the time of the transfer to the date of death and because of the motivation for the transfer (see Chambers v. Lamb (1921) 186 Cal. 261, 264, 199 P. 33; and cf. Estate of Thurston (1950) 36 Cal.2d 207, 211 and 215, 223 P.2d 12; and Estate of Gill (1971) 19 Cal.App.3d 496, 502, 96 Cal.Rptr. 786), and transfers under which the transferor retains some of the incidents of possession or employment of the property during his life (§§ 13643, 13644 and 13646), or receives back a promise for support (§ 13645). Not all of such transfers are subject to a gift tax. Section 15105 of the Gift Tax Law expressly provides in part: “Transfer' or ‘gift’ does not include any transfer of property in trust where the power to revest in the donor title to the property is vested in the donor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the property . . ..' (See Stewart v. State of California (1970) 8 Cal.App.3d 449, 452, 87 Cal.Rptr. 672.)
When a gift is made in contemplation of death there is but one transfer of possession or enjoyment. In other forms of inter vivos transfers where the transferor reserves rights there is not only a transfer creating rights in the transferee which may be vested or contingent, but a second transfer or shifting of the incidents of ownership at the transferor's death. The latter applies to a joint tenancy. In creating the joint tenancy the transferor vests the transferee with a right in the property as a joint tenant which may result in a sole half interest if the joint tenancy is severed or converted into a tenancy in common during the joint lives of the joint tenants, in a sole interest in the entire property in the event of the death of the transferor during the continuance of the joint tenancy, or in the revesting of the property in the transferor as his sole property in the event the transferee dies during the continuance of the joint tenancy. (See Estate of McDonald (1968) 260 Cal.App.2d 407, 414–416, 67 Cal.Rptr. 227.)
In Estate of Giolitti, the court was concerned with a transfer in contemplation of death. There could only be one transfer or shifting of beneficial interest. It thereby may have been proper to treat the taxable incident as a unit and thereby consider the combined gift and death taxes as a death tax and not deductible in whole or in part. (Cal.Admin.Code, tit. 18, § 13987(b).) On the other hand in the case of a joint tenancy (without attempting to analyze the myriad other possibilities of inter vivos transfers) the inheritance tax may only become due on the contingency that the transferee survives. If the transferor has paid a gift tax it may only be considered a part payment on the inheritance tax in that event. Its character should be fixed at the time it is paid. There is nothing in either the Gift Tax Act or the Inheritance Tax Act to make it an asset as a contingent part payment or a credit as suggested in the Controller's ruling (see fn. 9 above). Moreover the property which is the subject of the joint tenancy may be consumed and depleted by expenditures made by either or both of the joint tenants during their joint lives. The inheritance tax and the gift tax credit will therefore be reduced proportionately. (See §§ 13311, 13402 and 13951; and §§ 14051–14059.)10 What has been expended, whether for personal wants or for gift tax on the creation of the joint tenancy, is simply not in existence for purposes of the inheritance tax. To say that the amount of the tax paid is an asset is a fiction. This is demonstrated by the fact that it evaporates if the joint tenancy is severed, or if the transferor survives the transferee. Moreover, it in no way enhances the value of the property devolving upon the transferee at the time of the transferor's death.
In this case, however, the property transferred was not reduced by the payment of the amount of the gift tax prior to the time of the transferor's death. Nevertheless at that time the donor had the right to elect to treat the transfers from himself to himself and his wife in joint tenancy as a transfer by gift for the purposes of the federal and state gift taxes (26 U.S.C.A. § 2515(c) and (d); and Rev. & Tax.Code, § 15104.5). It has apparently been conceded by the state and federal authorities that the transferee could make this election because returns were received and the taxes reflected on those returns were apparently credited against the respective inheritance and estate taxes payable by reason of the donor's death. The federal and state gift taxes are expressly made a liability of the donor (26 U.S.C.A. §§ 2502(d), 6019 and 6151; Rev. & Tax.Code, §§ 15651, 15653, 15901 and see Cal.Admin.Code, tit. 18, §§ 15653(a), 15671, 15901(a), and 15901(b).) If there is adequate estate the liability for payment of any gift taxes would be a liability of the estate. (See Estate of Cummings (1965) 236 Cal.App. 2d 659, 661 and 666, 46 Cal.Rptr. 491; Cal.Admin.Code, tit. 18, § 15901(d); and note Rev. & Tax.Code. §§ 15571–15577.)
In Estate of Giolitti, supra, the court, in finding that the gift tax on a transfer which was subsequently rendered subject to an estate tax was not a gift tax, concluded: ‘To the extent the gift tax paid is in reality a federal estate tax payment it cannot be converted into a deductible debt of the decedent by the mere mechanics of filing a gift tax return.’ (26 Cal.App.3d at p. 332, 103 Cal.Rptr. at p. 42.) This begs the question. As was pointed out above, although the taxes are correlated, by the use of credits, under both the state and federal systems, the taxes are not integrated to the extent that an obligation to the state or United States for a gift tax (in a transfer other than an absolute transfer in contemplation of death) can be denied a deduction allowable in the case of debts and taxes due from the decedent simply by denominating it an ‘inheritance tax’ or an ‘estate tax.’
The question of deductibility is properly analyzed in Estate of Giolitti as follows: ‘Under the statutory scheme enacted by the Legislature, the inheritance tax is imposed upon the ‘clear market value’ of the property transferred whether or not the transfer was made during the lifetime of the transferor (§ 13402). Market value is determined as of the date of the transferor's death whether or not the transfer was made during his life (§§ 13311, 13951). The ‘clear market value’ means the market value of any property included in any transfer less any deductions allowable by law (§ 13312). The deductions specified in sections 13981 through 13991 ‘and no others' are allowed by the statute against the market value and nothing is allowed as a deduction ‘that does not actually reduce the amount of an inheritance or transfer’ (§ 13981). The deductions must be ‘obligations of the decedent or his estate’ (§ 13982, subd.(a)) and be paid ‘by the estate or the transferee’ (§ 13982, subd.(b)). There is no specific provision authorizing the deduction of a federal gift tax.' (26 Cal.App.3d at pp. 330–331, 103 Cal.Rptr. at p. 41. See also Estate of Desmond (1973) 34 Cal.App.3d 139, 144, 109 Cal.Rptr. 50; Estate of Webb (1966) 241 Cal.App.2d 85, 88 and 92–93, 50 Cal.Rptr. 397.)
Section 13983 provides: ‘Debts of a decedent owed by him at the date of his death are deductible from the appraised value of property included in any transfer subject to this part made by the decedent.’ Here the property subjected to inheritance tax in the inheritance tax appraiser's report is that transferred into joint tenancy during the decedent's life. At the time of the donor's death it was subject to the donor's obligation to pay the gift taxes on the transfer if it were treated as a gift. if the taxes had been paid, the property on hand at the time of the death would have been reduced accordingly. Since the taxes were not paid and were owing, they obviously were a debt of the decedent and reduced the value of the transfer passing to the surviving donee accordingly, thereby complying with the provisions of section 13981.
The Controller in reliance on Estate of Giolitti (see 26 Cal.App.3d at p. 333, 103 Cal.Rptr. at p. 42), claims that to allow the deduction of the gift taxes will violate the provisions of section 13648 which recite, ‘It is hereby declared to be the intent and purpose of this part to tax every transfer made in lieu of or to avoid the passing of property by will or the laws of succession.’ It may be noted that this section is found at the end of article 3 which covers inter vivos transfers, and precedes article 4 which deals with the joint tenancy which is the subject of this proceeding. In any event no one is urging that the property transferred is not subject to an inheritance tax on the clear market value of that property as it existed at the date of the death of the donor. It is only the computation of that value which is disputed.
In Giolitti the court further noted that to permit the deduction of the federal gift tax, unpaid and owing at the time of the donor's death ‘would cause the burden of the inheritance tax to fall other than uniformly upon those who are required to bear that burden and who stand in the same degree with relation to the tax. It would operate inequitably with respect to those who choose to transfer their property by will or by the laws of intestacy rather than by a transfer in contemplation of death. It would also violate the principle that the amount of the tax should be proportionate to the benefit received (Estate of Rath (1937) 10 Cal.2d 399, 405, 75 P.2d 509, . . .)’ (Id. See also Estate of Steehler (1925) 195 Cal. 386, 402, 233 P. 972 [remittitur corrected 197 Cal. 67, 239 P. 718].) It may be necessary to apply this principle in the case of an absolute transfer found subject to death duties because it was made in contemplation of death. Nevertheless it does not apply to a transfer in joint tenancy which expresses a desire to transfer property with incidents reserved which are not reserved in the case of a transfer by will or by the laws of intestacy, or by an absolute transfer in contemplation of death. The fact that the donor has reserved a half interest in the fruits of the property, has the right to recapture one-half as his sole property by severing the joint tenancy, and has a contingent right to recover all of the property if the donee predeceased him during the existence of the joint tenancy all demonstrate that uniform treatment is not mandatory or even reasonable.
Finally insofar as the state tax is concerned section 16061 provides, ‘In the case of a gift of personal property, the tax imposed by this part is a lien upon the property from the time the gift is made and until the expiration of 10 years from and after the time the tax becomes delinquent or until the tax is paid, whichever is earlier.’ To the extent a lien was created by the election to treat the transfer as gifts, the state gift tax would be deductible under the provision of section 13987 which provides: ‘All State, county, and municipal taxes and assessments which are a lien at the date of a decedent's death against the property included in any transfer subject to this part made by the decedent are deductible from the appraised value of the property.’ (See also 18 Cal.Admin.Code, Reg. § 13987(a).)
There is other authority cited in, and sustaining the conclusions in Estate of Giolitti. Each of these precedents involves a situation where there was an absolute transfer in contemplation of death. In re Estate of Shivers (1969) 105 N.J.Super. 242, 251 A.2d 771 and McGill v. Oklahoma Tax Commission (Okl.1953) 258 P.2d 1180, each rest on the hypothesis that when there is a gift in contemplation of death, and the gift tax is unpaid at the time of death ‘[t]here is no obligation to pay the gift tax as a separate liability, in the case of gifts made in contemplation of death, when the same items are included in the federal estate tax return’ (251 A.2d at p. 775), or, as otherwise expressed, ‘the . . . gift tax liability . . . was a contingent liability that disappeared upon death . . . if it can be said to have reappeared, it did so as an estate tax and such a debt is not deductible.’ (258 P.2d at p. 1183.) In the New Jersey case a vigorous dissent points out the fallacy of applying the ‘down payment’ fiction where it results in inequity between transfers which have been reduced by gift taxes paid before death, and transfers where the tax is owing, but not allowed as a deduction (251 A.2d at pp. 775–777). A federal estate tax ruling with respect to the nondeductibility of unpaid state gift taxes which are credited to the state inheritance tax is also related solely to gifts in contemplation of death. (See Internal Rev.Bull.1971–31, Rev.Rulings 71–355.)
On the other hand the federal regulations provide both a credit and a deduction for federal gift taxes which are unpaid at death. (See I.R.S.Reg., §§ 20.2012–1(a), and 20.2053–6(d).) The California Legislature has expressly recognized that gift taxes may be separately due and owing at the time of death by providing for separate valuation of the transfers in connection with the inheritance tax proceedings. (§§ 15571–15577. See also Cal.Admin.Code, tit. 18 § 15653(a).) In contrast to Estate of Giolitti, it appears that the tax on the transfer in this case was a separate tax. The property which is the subject of the tax imposed on the transferee at death by reason of the death of the other joint tenant, was burdened with the donor's debt for the gift tax, and the lower court properly allowed the deduction in computing the inheritance tax. (See Estate of Williams (1931) 23 Cal.App. 285, 289, 137 P. 1067.)
The principles enunicated in Estate of Giolitti are rejected insofar as the Controller would apply them to the transfer involved in this case. It should be stressed that here the inheritance tax report and the tax involved were predicated upon the status of the property as joint tenancy property to which the survivor had made no contribution (§ 13671). Since it has not been contended that the transfer, regardless of its form, was one which is taxable because it was made solely in contemplation of death (§ 13642), the precedents upon which the Controller relies are not binding. (See Estate of Howe (1973) 31 Cal.App.3d 949, 952, 107 Cal.Rptr. 766; and Estate of McDonald, supra, 260 Cal.App.2d 407, 415–416, 67 Cal.Rptr. 227.) The logic of the trial court's view—‘it does not seem fair or logical . . . that the reduction of the amount of the inheritance should depend fortuitously on the payment of the gift tax before or after the death of the donor’—is accepted.
The order is affirmed.
1. Although the Controller seeks to make some capital out of the fact that the attorneys for the objector appeared as amici curiae in the Giolitti case, their client is not affected by any principle of res judicata or estoppel by judgment. Moreover this court is free to independently examine an issue unresolved by the state Supreme Court despite the decision in another district (see 6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 667, p. 4580), and despite the fact that a hearing was denied by the Supreme Court (see Witkin, op. cit., § 670, pp. 4583–4584; cf. § 669, pp. 4581–4583; and note People v. Triggs (1973) 8 Cal.3d 884, 890–891, 106 Cal.Rptr. 408, 506 P.2d 232).
2. The parties stipulated that $23,668.50 was allowable for deductions in determining the clear market value of the transfers which were subject to inheritance tax. The nature of those deductions is not disclosed, so it does not appear of record whither or not $14,924.71 paid in state gift taxes after the decedent's death was allowed as a deduction for inheritance tax purposes. The parties further stipulated, ‘That except for their objection that the aforesaid federal gift tax in the sum of $82,603.93 should likewise be allowable and allowed as a deduction, said petitioners and their attorney expressly waive all objections to said report, waive all claims to further deductions (whether or not set forth in any petition(s) or objection(s) or report(s) herein filed), and agree that no other deductions of any kind whatever now are or hereafter may be allowable or allowed in determining the clear market value of any property or interest therein passing from said decedent subject to inheritance tax.’ (26 Cal.App.3d at pp. 339–340, 103 Cal.Rptr. at pp. 47–48.
3. Section 13642 provides: ‘A transfer conforming to Section 13641 and made in contemplation of the death of the transferor is a transfer subject to this part, but no such transfer shall be deemed or held to have been made in contemplation of death if made more than three years prior to the death of the transferor. [¶] ‘Contemplation of death’ includes that expectancy of death which actuates the mind of a person on the execution of his will. The term is not restricted to that expectancy of death which actuates the mind of a person making a gift causa mortis.'
4. Section 13641 reads: ‘If a transfer specified in this article was made during lifetime by a decedent, for a consideration in money or money's worth, but the transfer was not a bona fide sale for an adequate and full consideration in money, or money's worth, the amount of the transfer subject to this part shall be the excess of [¶] (a) The value, at the date of the transferor's death, of the property transferred, over [¶] (b) An amount equal to the same proportion of the value, at the time of the transferor's death, of the property transferred which the consideration received in money or money's worth for the property transferred bears to the value, at the date of transfer, of the property transferred.’Article 3 renders the following transfers, in addition to one in contemplation of death (§ 13642, fn. 3 above), subject to inheritance taxation; a transfer made with the intention that it take effect in possession or enjoyment at or after the death of the transferor (§ 13643); a transfer under which the transferor reserves for his life an income or interest in the property transferred (§ 13644); a transfer under which the transferee promises to make payments to or care for the transferor (§ 13645); a revocable trust (§ 13646); and an advancement (§ 13647).
5. Section 13671 provides, in part, and at the time of the death of the decedent provided, ‘Where two or more persons hold property in joint tenancy, or deposit property in a bank or similar depositary in their joint names subject to payment to either or the survivor, upon the death of one the right of each survivor to the immediate ownership or possession and enjoyment of the property is a transfer subject to this part to the same extent as though the property had belonged absolutely to the decedent and been devised or bequeathed by him to the survivor, except such patr thereof as may be proved by the survivor to have originally to him and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth. Where such property or any part thereof, or part of the consideration with which such property was acquired is shown to have been at any time acquired by the survivor from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excluded only such part of the value of such property as is proportionate to the consideration furnished by such survivor.’Section 13671.5 deals with a joint tenancy created from community property, and section 13672 refers to a joint tenancy created out of quasi-community property.
6. Section 13987 provides: ‘All State, county, and municipal taxes and assessments which are a lien at the date of a decedent's death against the property included in any transfer subject to this part made by the decedent are deductible from the appraised value of the property.’
7. ‘Although not necessarily controlling, as where made without the authority of or repugnant to the provisions of a statute, the contemporaneous administrative construction of the enactment by those charged with its enforcement and interpretation is entitled to great weight, and courts generally will not depart from such construction unless it is clearly erroneous or unauthorized. [Citations.]’ (Coca-Cola Co. v. State Bd. of Equalization (1945) 25 Cal.2d 918, 921, 156 P.2d 1, 2–3. See also Kerr's Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319, 329–330, 19 Cal.Rptr. 492, 369 P.2d 20 [cert. den. 371 U.S. 818, 83 S.Ct. 31, 9 L.Ed.2d 58]; Holloway v. Purcell (1950) 35 Cal.2d 220 226–227, 217 P.2d 665 [cert. den. 340 U.S. 883, 71 S.Ct. 196, 95 L.Ed. 641]; and Los Angeles City School Dist. v. Simpson (1952) 112 Cal.App.2d 70, 75, 245 P.2d 629.)It has been recognized that the overall taxes on transfers subject to both gift and death taxes may be less than the tax on the transfer of the same property solely at death, when a gift is made because the remaining property is either depleted by the amount of the gift tax, or because, where it is so permitted the unpaid gift tax is deductible in computing the taxable value of the property subject to the death tax. (See 4 Rabkin & Johnson, Federal Income, Gift and Estate Taxation (1972) § 53.03(8); 2 C.C.H. Federal Estate and Gift Tax Reporter (1972) ¶1105.07 and ¶7203; and 2 Marshall, State & Local Taxation, Cal.Practice (1969) § 483B(3), p. 468. Cf. Marshall, Cal.Probate Procedure (3d ed. 1973) Taxation, § 2009, ¶ s(11)(d) & (g), recognizing that Giolitti indicates that neither federal estate nor gift taxes are deductible as debts (§ 13983), or taxes (§ 13988 [sic 13987]; and C.E.B., California Inheritance Tax Practice (1973) § 8.11, pp. 167–168; and cf. former § 13989 repealed 1959.)
8. In Kirshbaum the court held, ‘. . . the additional [‘pick-up’] tax imposed by section 13441 is the difference between the federal credit and the inheritance tax payable without any reduction for the state gift gift tax credit under section 14059. We reach the above conclusion in view of the established rule of construction that when a word or phrase has been given a particular meaning in one part or portion of the law, it shall be given the same meaning in other parts or portions of the law. [Citation.]' (268 Cal.App.2d at p. 159, 73 Cal.Rptr. at p. 714.) As a further ground for decision the court pointed out that in the case of a discount for prompt payment (§ 14161), or a credit for previously taxed property (§ 14071), the Legislature had expressly provided that neither would be granted when a ‘pick-up’ tax was due under section 13441.
9. This ruling reads in part: ‘The Court of Appeals decision in the Estate of Kirshbaum, 268 C.A.2d 155 [73 Cal.Rptr. 711], has held that the gift tax credit allowed pursuant to Revenue and Taxation Code Section 14059 constitutes a prepayment of inheritance tax.‘Since a prepaid liability is an asset, the gift tax credit, in all cases where the gift tax has been paid prior to the death, should be treated as an uninventoried asset on the inheritance tax report and taxed to the beneficiary or beneficiaries receiving the credit. The asset should be identified on the report as ‘prepaid inheritance tax.’‘If the gift tax is not paid until after the donor's death, there will be no uninventoried asset shown on the inheritance tax report and no deduction will be allowed for the tax. However, a deduction will be allowed for any penalty and interest paid after death which was accrued at the date of death.‘The federal courts in several decisions (Ingalls v. Comm. [4 Cir.] 336 F.2d 874, 876; Smith v. Shaughnessy, 318 U.S. 176, 179 [63 S.Ct. 545, 87 L.Ed. 690]) have held that the federal gift tax credit constitutes a prepayment of the federal estate tax. Therefore, if a federal gift tax credit is allowed for a tax paid prior to death, it should be treated as an uninventoried asset on the inheritance tax report and identified as ‘prepaid federal estate tax.’ If the tax is not paid until after the donor's death, there will be no uninventoried asset shown on the report and no deduction will be allowed for the tax. However, a deduction will be allowed for any penalty and interest paid after death which was accrued at the date of death.'
10. Under the provisions last cited the gift tax credit should be adjusted for the property existing at the time the donor joint tenant's interest terminates by reason of death. The survivor is not entitled to the proportion of the amount of the gift tax as a credit which represents property not included within the clear market value at the time of death, i. e., that which was consumed during the joint lives; that which was paid out for gift taxes; or that which was due and owing for unpaid gift taxes. Whether such an adjustment was made in this case does not appear from the order, and no attack has been made on it on that ground.
SIMS, Associate Justice.
MOLINARI, P. J., and ELKINGTON, J., concur.