Estate of Helene J. Evans v. Dept. of Rev.

126 May 28, 2020 No. 8

IN THE OREGON TAX COURT

REGULAR DIVISION

ESTATE OF HELENE J. EVANS,

Plaintiff,

v.

DEPARTMENT OF REVENUE,

Defendant.

(TC 5335)

On cross-motions for summary judgment, Plaintiff argued that the United

States Constitution’s Due Process Clause prohibited Oregon from including trust

property in Plaintiff’s Oregon taxable estate. The trust at issue was a qualified

terminable interest property (QTIP) trust that allowed the property of Helene

Evans’s late husband to pass to her without federal estate taxation. The trust

gave Evans trust income for her life and, upon her death, distributed the prin-

cipal to predetermined beneficiaries. Minimum contacts and a rational relation

to values connected with the taxing state must exist for a state tax to abide by

the Due Process Clause. N. Carolina Dept. of Rev. v. The Kimberley Rice Kaestner

1992 Family Trust, ___ US ___, 139 S Ct 2213, 2219-20, 19 Cal Daily Op Serv

5832 (2019). The full trust value may be included in the estate of a trust bene-

ficiary, even one receiving only trust income and with limited power of appoint-

ment. Whitney v. State Tax Commission of New York, 309 US 530, 537-39, 60 S

Ct 635, 84 L Ed 909 (1940). The court concluded that the inclusion of the trust

property did not violate the federal Due Process Clause because Evans was an

Oregon domiciliary and had an exclusive lifetime interest in the trust property

at the time of her death.

Oral argument on cross-motions for summary judgment

was held March 26, 2019, in the courtroom of the Oregon

Tax Court, Salem.

Carol Vogt Lavine, Carol Vogt Lavine, LLC, Milwaukie,

filed the cross-motion and argued the cause for Plaintiff.

Nate Carter, Assistant Attorney General, Department of

Justice, Salem, and Daniel Paul, Senior Assistant Attorney

General, Department of Justice, Salem, filed the motion and

argued the cause for Defendant.

Decision for Defendant rendered May 28, 2020.

ROBERT T. MANICKE, Judge.

This appeal requires the court to decide whether

due process prevents Oregon from including in the measure

Cite as 24 OTR 126 (2020) 127

of its estate tax the value of trust property in which the

decedent held solely a lifetime interest in all of the income

and a limited interest to receive distributions of principal

during life. In this case, the trust in question is a “qualified

terminable interest property” trust, also known as a “QTIP”

trust.

I. FACTS

In 2006, Helene Evans (Helene), born in 1925, mar-

ried Donald Gillam (Donald), born in 1916. At the time, each

had adult children from a prior marriage. The couple resided

in California and Montana until December 27, 2011, when

Helene sold her home in California and became an Oregon

resident. Donald died shortly thereafter, on January 21,

2012. Donald was a Montana resident when he died, and

he had never resided in Oregon or owned tangible personal

property or real property in Oregon.

Donald’s will established a testamentary trust

and named his son Con Gillam as trustee. The trust prop-

erty consisted of intangible property, primarily stocks and

bonds, held in brokerage accounts maintained at Montana

branches of banks and investment firms. On April 2, 2013,

on the motion of Con Gillam as personal representative of

Donald’s estate, a Montana court modified the portion of

Donald’s will that created the trust. The court found that

Donald’s “intention was to transfer his estate free and clear

of federal estate taxes” by creating a trust eligible for the

“marital deduction pursuant to IRC § 2056(b)(7)(B),” but the

court found that the will as executed failed to create a trust

that so qualified because it allowed not only Helene, but

also Donald’s children and others, to receive distributions of

income from the trust. The court modified the will by requir-

ing the trustee to “pay all of the net income of this Trust”

to Helene, requiring the trustee to pay Helene such princi-

pal amounts “as the Trustee determines to be necessary” to

support her in her accustomed manner of living, and pro-

hibiting distributions of income or principal to anyone other

than Helene during her life. On April 18, 2013, Con Gillam,

as personal representative, caused Donald’s federal estate

tax return to be filed, on which the property in the trust was

128 Estate of Helene J. Evans v. Dept. of Rev.

deducted as “property passing to QTIP trust.” (Form 706,1

Schedule M); see IRC § 2056(b)(7) (2010).

Disputes arose between Donald’s trust and Helene

regarding the investment of assets in the trust, the alloca-

tion of expenses of the estate and the trust, and the amount

of income to which Helene was entitled. On September 18,

2014, the same Montana court approved a settlement agree-

ment modifying the terms of the trust as agreed by Helene,

Con Gillam and others. As part of the settlement agree-

ment, Helene acknowledged that she had received substan-

tial distributions from the estate and the trust, and the

agreement allowed her to retain those amounts. The mod-

ification ordered a one-time distribution to Helene of trust

principal and precluded further distributions of principal.

The modification also created a schedule that defined the

amounts of cash payments Helene could receive from the

trust for the rest of her life; however, the parties do not dis-

pute that Helene retained the right to all the income from

the trust during her life. The “residuary” beneficiaries of

the trust, eligible to receive distributions of trust property

upon Helene’s death, were Donald’s three children and one

granddaughter.

At no time did the trust allow Helene to appoint

persons as beneficiaries of the trust. Except for her right to

receive all the income from the trust during her life, as well

as limited principal amounts as discussed above, she had no

right to cause the trust to distribute trust property (princi-

pal or interest) to anyone.

Helene died on May 4, 2015, having remained an

Oregon resident. Her original Oregon estate tax return,

filed February 4, 2016, took a position essentially con-

sistent with the Department of Revenue’s position in this

case. The estate paid substantial tax to Oregon, and an

amended return filed May 2, 2016, requested a full refund,

based on Plaintiff’s constitutional position that any prop-

erty transferred from the trust at Helene’s death was not

subject to Oregon tax. Following an administrative confer-

ence, Defendant refunded a small portion of the amount

1

Unless otherwise indicated, references to forms are to the forms published

by the Internal Revenue Service (IRS).

Cite as 24 OTR 126 (2020) 129

requested and declined to refund the remainder, leading to

this appeal. The case is before the court on cross-motions for

summary judgment.

II. ISSUE

Does the Due Process Clause of the United States

Constitution prohibit Oregon from including in the measure

of its estate tax the value of the trust property remaining at

Helene’s death?

III. ANALYSIS

A. Statutory Background

Oregon imposes an estate tax on the transfer of

property of an Oregon-resident decedent.2 ORS 118.010

(2)(a).3 The decedent’s “Oregon taxable estate” is the dece-

dent’s taxable estate determined for purposes of the federal

estate tax, subject to Oregon “adjustments.” ORS 118.010(3);

IRC § 2001(a) (imposing federal estate tax). The federal tax-

able estate includes the value at the decedent’s death of all

property in which the decedent had an interest, less certain

deductions and tax credits allowed by the Code. See IRC

§ 2051 (defining federal taxable estate). One of these deduc-

tions, commonly referred to as the “marital deduction,” per-

mits the estate to deduct the value of certain property that

passes (or has passed during life) from the decedent to the

decedent’s surviving spouse. IRC §§ 2056(a), (b); Treas Reg

§ 20.2056(a)-1(a). The surviving spouse’s federal taxable

2

Oregon’s tax has undergone multiple amendments. Oregon previously

referred to its tax as an “inheritance tax”; however, in amendments generally

applicable for decedents dying on or after January 1, 2012, the 2011 legisla-

ture (among other things) relabeled the tax as an “estate tax” in the midst of

other changes. See Or Laws 2011, ch 526, § 30; see Exs B and E, HB 2541, House

Committee on Revenue, Feb 10, 2011 (Oregon Law Commission Inheritance Tax

Work Group Report memorandum accompanying statements of Lynne Shetterly

and Wendy Johnson; explaining that “[t]his bill changes the terminology through-

out ORS Chapter 118 and calls the tax what it is—an estate tax and NOT an

inheritance tax. The tax is correctly referred to as an estate tax because it is the

estate that is taxed, and not individual inheritance beneficiaries.” (Uppercase

in original.)). For an overview of inheritance and estate taxes, see Hellerstein &

Hellerstein, State Taxation ¶ 21.02 (3d ed 2020).

3

Unless otherwise noted, all references to the Oregon Revised Statutes

(ORS) are to the 2013 edition. Pursuant to ORS 118.007, all references to the

Internal Revenue Code (“IRC” or the “Code”) are to the Code as amended and in

effect on December 31, 2010.

130 Estate of Helene J. Evans v. Dept. of Rev.

estate then includes the value of that property, determined

as of the surviving spouse’s death. IRC § 2044(a).

The marital deduction is subject to strict limita-

tions designed to ensure that “terminable interest” property

passing from a decedent does not escape taxation upon the

death of the surviving spouse. See IRC § 2056(b)(1) (termi-

nable interest property limitation); Estate of Letts v. Comm’r,

109 TC 290, 295 (US Tax Ct 1997), aff’d without pub op, 212

F 3d 600 (11th Cir 2000) (describing federal marital deduc-

tion).4 As noted, an exception in the Code allows the estate

to deduct the value of “qualified terminable interest proper-

ty.”5 IRC § 2056(b)(7). QTIP must pass from the decedent to

the surviving spouse; the surviving spouse must be entitled

to “all of the income from the property” for life; no person

4

As summarized in a leading treatise, the federal “terminable interest”

rules

“usually deny the marital deduction if (1) interests in the property pass from

the decedent to both the surviving spouse and another person, (2) the surviv-

ing spouse’s interest may terminate on the lapse of time, the occurrence of a

contingency, or the failure of an event to occur, and (3) the property may be

possessed or enjoyed by the other person on the termination of the spouse’s

interest. For example, if a decedent bequeaths Blackacre to her surviving

spouse for life, remainder to the couple’s children, the spouse’s life estate is

not deductible because it will terminate on the spouse’s death and the chil-

dren will then obtain possession and enjoyment of the property pursuant to

an interest (the remainder) that passed to them from the decedent. The result

would be the same if the decedent bequeathed property in trust, directing

that the income be distributed to her surviving spouse for life and that the

corpus be distributed to the children on the spouse’s death.

“Two important modifications of the terminable interest rule are found

in [IRC] §§ 2056(b)(5) and (7). The former allows the marital deduction for

property in which the surviving spouse has the right for life to all income and

a general power of appointment. Under the latter provision, property in which

the surviving spouse has a right to income for life qualifies for the deduction,

regardless who holds the remainder interest, if the decedent’s executor elects

to treat the property as qualified terminable interest property (QTIP). The

principal consequence of the QTIP election is that the property remaining at

the surviving spouse’s death must be included in the spouse’s gross estate.

Sections 2056(b)(5) and (7) essentially allow the marital deduction on the

condition that the property be subject to gift or estate tax when it passes from

the spouse to someone else.”

Boris Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts

¶ 129.3 (3d ed 2019) (footnotes omitted).

5

IRC section 2056(b)(5) provides an additional exception to the “terminable

interest” rule by allowing the marital deduction for property in which the surviv-

ing spouse has the right for life to all income and a general power of appointment.

That section is not at issue here.

Cite as 24 OTR 126 (2020) 131

may have a power, exercisable before the death of the sur-

viving spouse, to appoint any part of the property to any

person other than the surviving spouse; and the executor

of the decedent’s estate must make an election to designate

the terminable interest property as QTIP on the decedent’s

federal estate tax return on Form 706. IRC § 2056(b)(7)(B).

Once made, the QTIP election is irrevocable. IRC § 2044.6

In a requirement informally referred to as the quid pro

quo, the surviving spouse’s federal gross estate at death

then includes any of the QTIP that the surviving spouse

has not consumed; and federal gift tax applies if the surviv-

ing spouse makes gifts of the QTIP during his or her life.

See IRC §§ 2501(a), 2519. Because Oregon incorporates as

its starting point the “taxable estate” as defined for federal

estate tax purposes, when an estate elects to treat property

as QTIP for federal estate tax purposes, the election also

applies for purposes of Oregon’s tax, reducing the value of

property in the estate of the first spouse to die and requiring

the surviving spouse’s estate to include the value of remain-

ing trust property.7

B. Discussion

Plaintiff argues that the Due Process Clause of the

United States Constitution prohibits Oregon from including

6

As discussed in more detail below, the IRS has adopted guidance declaring

that it will “disregard the election and treat it as null and void” if it was “unnec-

essary” when made because no federal estate tax would have been imposed on

the estate of the first-to-die spouse even in the absence of the election. Rev Proc

2001-38, 20011 CB 1335.

7

As a permissible Oregon “adjustment,” ORS 118.010(8) and ORS 118.010

(3)(a)(B)(ii) allow separate Oregon elections for QTIP purposes, and an admin-

istrative rule allows an estate to elect to treat a smaller (or larger) portion of

trust property as QTIP for Oregon estate tax purposes than for federal estate

tax purposes. See OAR 150-118-0080; see generally Steven D. Nofziger, EGTRAA

and the Past, Present, and Future of Oregon’s Inheritance Tax System, 84 Or L

Rev 317, 344-46 (2005). The rule existed in 2012 as former OAR 150-118.010(7).

In 2013 Defendant modified that rule to apply only to estates of decedents dying

before January 1, 2012, and added former OAR 150-118.010(8) to apply to estates

of decedents dying on or after January 1, 2012. Former OAR 150-118.010(8)

later was recodified as OAR 150-118-0080 without substantive change. Donald’s

estate apparently made no such “Oregon-only” election. Neither party has fully

addressed whether Donald’s estate could have elected a zero or de minimis

Oregon QTIP amount solely for Oregon purposes and in spite of the federal QTIP

election. The court raised this question at oral argument; the parties stated that

they did not consider the Oregon-only election provisions applicable to the facts

in the present case. The court expresses no view on the subject.

132 Estate of Helene J. Evans v. Dept. of Rev.

in Helene’s Oregon taxable estate the property in Donald’s

trust merely because Helene, an Oregon resident, enjoyed

the right to all the income from the property during her

life, along with limited rights to receive distributions of

trust principal. Among other arguments, Plaintiff asserts

that allowing the tax would be unfair because Helene had

only limited rights to enjoy the trust property during her

life and lacked any power to appoint the trust property to

another person, and because neither Donald, the residuary

beneficiaries, the trustee, nor any of the trust property, had

any connection to Oregon. Both parties refer to this court’s

opinions in Prestidge v. Dept. of Rev., 21 OTR 386 (2014), and

Arnold v. Dept. of Rev., 7 OTR 485 (1978). However, the court

begins by reviewing the United States Supreme Court opin-

ions on the application of the Due Process Clause to state

tax cases, and specifically to estate tax cases.8 The court

then will consider the parties’ arguments.

As the Court recently summarized:

“The Due Process Clause provides that ‘[n]o State shall

* * * deprive any person of life, liberty, or property, with-

out due process of law.’ [US Const, Amend XIV], § 1. The

Clause ‘centrally concerns the fundamental fairness of gov-

ernmental activity.’

“In the context of state taxation, the Due Process Clause

limits States to imposing only taxes that ‘bea[r] fiscal rela-

tion to protection, opportunities and benefits given by the

state.’ The power to tax is, of course, ‘essential to the very

existence of government,’ but the legitimacy of that power

requires drawing a line between taxation and mere unjus-

tified ‘confiscation.’ That boundary turns on ‘[t]he simple

but controlling question * * * whether the state has given

anything for which it can ask return.’ ”

N. Carolina Dept. of Rev. v. The Kimberley Rice Kaestner

1992 Family Trust, ___ US ___, 139 S Ct 2213, 2219-2220, 19

Cal Daily Op Serv 5832 (2019) (case citations omitted). The

Court restated a longstanding two-step analysis to decide

whether a state tax abides by the Due Process Clause, which

this court now applies.

8

As will be seen, the court’s discussion of Supreme Court cases makes it

unnecessary to discuss Prestidge or Arnold in depth; however, those opinions

remain good law.

Cite as 24 OTR 126 (2020) 133

The court must first test for “minimum contacts,”

i.e., “some definite link, some minimum connection, between

a state and the person, property or transaction it seeks to tax

* * * such that the tax does not offend traditional notions of

fair play and substantial justice.” Id. at 2220 (quoting Quill

Corp. v. North Dakota, 504 US 298, 306, 112 S Ct 1904, 119

L Ed 2d 91 (1992), overruled on other grounds, South Dakota

v. Wayfair, Inc., ___ US ___, 138 S Ct 2080, 2092-93, 201

L Ed 2d 403 (2018)). If those minimum contacts are pres-

ent, the court must then determine whether “the income [or

other taxable item] attributed to the State for tax purposes

[is] rationally related to ‘values connected with the taxing

State.’ ” Kaestner, ___ US at ___, 139 S Ct at 2220 (citation

omitted) (“[u]ltimately, only those who derive ‘benefits and

protection’ from associating with a State should have obli-

gations to the State in question”).

1. Minimum connection

The court starts by examining how the United

States Supreme Court has applied the “minimum connec-

tion” requirement in the context of state estate or similar

taxes on the transfer of intangible property. The Court has

long recognized that the domicile of a person whose death

brings about a transfer affords an adequate constitutional

basis for the state to impose the tax. In Curry v. McCanless,

307 US 357, 59 S Ct 900, 83 L Ed 1339 (1939), the Court

broke from its own recent cases that had sought to identify

a single “situs,” and thus a single taxing state, for intangible

property.9 In Curry, Grace Scales, domiciled in Tennessee,

received outright ownership of bonds and shares of stock in

various Alabama corporations after the death of her brother,

an Alabama resident. 307 US at 376 (facts recited in dissent-

ing opinion). Scales immediately transferred the property in

trust to the same corporate trust company in Alabama that

previously had held the property in trust for her brother and

his widow. The portion of the property at issue in the case

was a set of shares and bonds over which Scales retained

9

See generally Hellerstein, State Taxation at ¶ 21.14[1] (recounting Court’s

early position that Due Process Clause does not prevent taxation of intangibles

by more than one state; Court’s adoption of a “situs” rule in 1930s; and Court’s

reversion to original position starting in 1939).

134 Estate of Helene J. Evans v. Dept. of Rev.

a lifetime interest in the income and a “general power of

appointment” (in that case, the right to direct the sale of

trust property and the right to dispose of the corpus by

her will). See id. at 360, 376. When Scales died, her estate

appointed an executor for Tennessee and a separate exec-

utor for Alabama, and those executors sued in Tennessee

for a declaratory judgment to determine which portions of

the estate each state could tax. Each state’s taxing author-

ity defended the suit, each claiming the right to tax the

full value of the trust property. Id. at 379. The Tennessee

Supreme Court held that only Tennessee could tax the prop-

erty, on the grounds that the property had never acquired a

“situs” in Alabama. Id. at 378.

The United States Supreme Court devoted much of

its opinion to rejecting the situs rule as a mere rule of con-

venience whose artificiality becomes apparent when applied

to intangible property. The Court explained that a state’s

authority to tax the rights that a person holds in property

depends ultimately on whether the state as sovereign has

the theoretical and practical power to determine and pro-

tect those rights. In the case of tangible property, the Court

found that the state where the property is physically located

has a clear practical ability to define and protect rights,

even to the exclusion of other states, giving rise to the short-

hand construct that only the state of the property’s “situs”

may impose its tax. Id. at 364-65. Because Curry involved

intangible property, however, the Court returned to the fun-

damental principles underlying a state’s authority to tax,

rather than straining to apply the shorthand “situs” rule.

The Court stated that a state’s “control over the person” of

a domiciliary is an adequate constitutional basis to require

the domiciliary to pay a tax “on the use and enjoyment of

rights in intangibles measured by their value.” Id. at 366.

The Court then found that Tennessee, as Scales’s state of

domicile, controlled her and protected her “power to dispose

of the intangibles” as a potential source of wealth to her; as

a citizen of Tennessee she had the “highest obligation” to

contribute to the support of its government from that source

of wealth. Id. at 370-71. On the other hand, Alabama, as

the state where the trustee had its corporate domicile and

exercised its rights as legal owner of the property, also had

Cite as 24 OTR 126 (2020) 135

the power to tax the trust property “or the transfer of it or

an interest in” the trust property, even though the trans-

fer “was effected by decedent’s testamentary act in another

state.” Id. at 370. The Court thus allowed Tennessee to tax

the value of the trust property and reversed the Tennessee

Supreme Court’s holding to the extent it “denies the power

of Alabama to tax * * *.” Id. at 374. By declining to apply

a situs rule, Curry and later cases expressly upheld what

sometimes is referred to as “double taxation,” the authority

under the Due Process Clause of more than one state having

a sufficient connection with intangible property to tax its

transfer.10

Although Curry predates the United States

Supreme Court’s two-step formulation of the due process

analysis, this court reads Curry as establishing that the

requisite minimum connection to impose an estate or inher-

itance tax always exists between the state of a person’s

domicile and rights that the person holds in intangible prop-

erty. This reading is consistent with Kaestner, which dealt

exclusively with the “minimum contacts” test.11 In Kaestner,

the Court rejected North Carolina’s claim to tax the income

of a trust based solely on the fact that a beneficiary was

domiciled there who had no present right in property held

in trust because her ability to enjoy either income or corpus

of the trust was at the complete discretion of a trustee who

had never distributed to her any amounts from the trust.

___ US at ___, 139 S Ct at 2221. Helene, like the decedent

in Curry and in contrast to the beneficiary in Kaestner, had

an exclusive lifetime interest in the trust created pursuant

to Donald’s will and received substantial payments from the

trust. The court tentatively concludes that the connection

10

As a leading state taxation commentator has observed, states generally

have refrained from exercising the constitutional power of double taxation: “[T]he

states recognize that only the state of the decedent’s domicile may impose a tax

on the decedent’s intangibles that have not acquired a business situs elsewhere

* * *.” Hellerstein, State Taxation at ¶ 21.09; see also Kathleen Leslie Roin, Due

Process Limits on State Estate Taxation: an Analogy to the State Corporate Income

Tax, 94 Yale L J 1229, 1233-37 (1985) (arguing that Curry and other state estate

tax cases focusing on domicile incorrectly allow multiple taxation; urging courts

to borrow tools from income tax cases such as apportionment among states con-

nected to the property).

11

The Court expressly noted that it did not reach the “rational relation” test.

Kaestner, ___ US at ___ n 5, 139 S Ct at 2220 n 5.

136 Estate of Helene J. Evans v. Dept. of Rev.

between Oregon as Helene’s state of domicile and the prop-

erty held in the trust created by Donald’s will satisfied the

minimum required to allow Oregon to impose a transfer tax

of some measure at Helene’s death.

2. Rational relationship between the tax base and bene-

fits the state provides

The court now turns to the second due process

requirement, that of a rational relationship between the

tax base and the values and benefits that the taxing state

provides. Here, too, the court starts with Curry, which

firmly established that a domiciliary’s interest in intangi-

ble property need not rise to the level of outright ownership

to support a tax on the value of the entire property. The

Tennessee domiciliary Scales held a lifetime interest in the

income from the trust property, as well as a general power of

appointment that the Court declared an interest “equivalent

to ownership.” Curry, 307 US at 371-72. The trustee, with its

“place of * * * domicile” in Alabama, was a corporation that

held legal title to the trust property. Id. at 372. The Court

held that each state could, without offending due process,

impose a tax measured by the full value of the aggregate of

all interests in the property, even though each state’s con-

nection to the property was limited to fewer than all the

“sticks” in the “bundle” of interests in the property.

In later cases, the Court similarly approved imposi-

tion of an estate tax measured by the value of the entire “bun-

dle,” even though occasioned by the exercise or extinguish-

ment of rights that fell short of “ownership” or its equivalent.

One year after Curry, the Court reached the same result

where the domiciliary decedent’s interests in a trust consisted

of a “special” or “limited” power of appointment along with a

life interest in the trust income, both interests having been

created by the will of the decedent’s late husband, Cornelius

Vanderbilt. Whitney v. State Tax Commission of New York,

309 US 530, 60 S Ct 635, 84 L Ed 909 (1940). Decedent Alice

Vanderbilt’s power of appointment was limited to determin-

ing, by her will, how the trust corpus should be disposed of

among four named children. Whitney, 309 US at 534-35. In

contrast to the facts in Curry, the decedent could not invade

the corpus during her life or name her own estate or anyone

Cite as 24 OTR 126 (2020) 137

other than the four children to receive any portion of it upon

her death. The taxing authority of her state of domicile, New

York, determined that the entire value of the corpus was

included in the measure of the estate tax. Alice Vanderbilt’s

estate also included additional property with a value nearly

equal to that of the trust corpus, and beneficiaries whom her

will had designated to receive that additional property sued

because inclusion of the trust corpus so enlarged the estate

that a higher graduated rate of tax applied, diminishing the

amount that they received.

The Court acknowledged that the limitations on

the decedent’s interest in the trust property meant that she

had no “beneficial interest” in the property and was not its

“beneficial owner.” Whitney, 309 US at 537-38. But the Court

upheld tax on the full value of the trust property, stating

that the occasion for the tax was neither the transfer “of”

a beneficial interest held by a decedent, nor the acquisition

“of” such a beneficial interest by new individuals; rather, the

tax was imposed when one person

“acquires economic interests in property through the death

of another person, even though such acquisition is in part

the automatic consequence of death or related to the dece-

dent merely because of his power to designate to whom and

in what proportions among a restricted class the benefits

shall fall. * * * A person may by his death bring into being

greater interests in property than he himself has ever

enjoyed, and the state may turn advantages thus realized

into a source of revenue * * *.”

Id. at 538-39 (emphases added). The Court distinguished the

New York estate tax at issue from a “legacy tax,”12 which is

measured by the specific interests which the beneficiaries of

the power received, stating that “if death may be made the

occasion for taxing property in which the decedent had no

‘beneficial interest,’ then the measurement of that tax by the

decedent’s total wealth-disposing power is merely an exercise

of legislative discretion in determining what the state shall

take in return for allowing the transfer.” Id. at 540 (empha-

sis added). The Court thus emphasized a state’s discretion to

determine the measure of the tax.

12

The tax at issue, like the present-day federal and Oregon taxes, “measured

the levy by the size of the total estate.” Whitney, 309 US at 536.

138 Estate of Helene J. Evans v. Dept. of Rev.

Similarly, six years after Curry, the Court deter-

mined that due process does not prevent the federal govern-

ment from using the sum of both community property inter-

ests in marital property as the measure of the gross estate of

the first spouse to die. Fernandez v. Wiener, 326 US 340, 66

S Ct 178, 90 L Ed 116 (1945). The Court rejected the surviv-

ing spouse’s argument that the federal estate tax improperly

taxed her on the value of an interest that she already held, and

that the measure of the tax should be limited to the value of

the decedent husband’s community interest, which was trans-

ferred to her by operation of law. The Court relied on earlier

decisions involving federal, as well as state, estate taxes that

made clear that the Due Process Clause affords government

wide latitude to define the measure of a transfer tax beyond

the value of any specific interest passing from the decedent.

Quoting from Whitney, the Court described its case law as

emphasizing “ ‘the practical effect of death in bringing about

a shift in economic interest, and the power of the legislature

to fasten on that shift as the occasion for a tax.’ ” Fernandez,

326 US at 354 (quoting Whitney, 309 US at 539). Likewise, in

an earlier community property case involving California’s tax,

the Court considered “ ‘whether the surviving wife’s share of

the community property is subject to this inheritance tax.’ ”

Moffitt v. Kelly, 218 US 400, 401, 31 S Ct 79, 54 L Ed 1086

(1910) (quoting Estate of Moffitt, 153 Cal 359, 360, 95 P 653

(1908)). The Court found no constitutional bar, stating:

“[T]he Constitution of the United States does not, gener-

ally speaking, control the power of the states to select and

classify subjects of taxation, and hence, even although

the wife’s right in the community property was a vested

right * * * it was nevertheless within the power of the state,

without violating the Constitution of the United States, in

selecting objects of taxation, to select the vesting in com-

plete possession and enjoyment by wives of their shares in

community property, consequent upon the death of their

husbands, and the resulting cessation of their power to con-

trol the same and enjoy the fruits thereof.”

Moffitt, 218 US at 403-04. Similarly, in another case involv-

ing the federal estate tax, the Court upheld measuring the

gross estate of a first-to-die spouse by the entire value of

property owned by the couple as tenants by the entireties:

Cite as 24 OTR 126 (2020) 139

“The question here, then, is, not whether there has been,

in the strict sense of that word, a ‘transfer’ of the property

by the death of the decedent, or a receipt of it by right of

succession, but whether the death has brought into being or

ripened for the survivor, property rights of such character

as to make appropriate the imposition of a tax upon that

result (which Congress may call a transfer tax, a death

duty or anything else it sees fit), to be measured, in whole

or in part, by the value of such rights.”

Tyler v. United States, 281 US 497, 503, 50 S Ct 356, 74 L Ed

991 (1930) (emphasis added).

All of these decisions confirm that an estate or other

transfer tax need not be measured by the value of prop-

erty transferred “from” the decedent “to” the beneficiaries.

The court finds Whitney squarely on point, as the power of

appointment that the decedent held in that case was so lim-

ited as to preclude her from any personal interest in the

trust corpus beyond her lifetime interest in the trust income.

As the New York Court of Appeals bluntly summarized:

“The property which was included in Mrs. Vanderbilt’s

estate did not at any time belong to her. It did not at her

death pass from her to those whom she appointed to take.

Her power of appointment was not general. By its exercise

she could obtain no benefit for herself, her creditors or her

estate. * * * Mrs. Vanderbilt might, by exercise of her power

of appointment, determine the shares which members of a

limited group defined by the will of Cornelius Vanderbilt

should receive out of property in the estate of Cornelius

Vanderbilt and held by trustees under his will. When she

exercised that power she gave her appointees nothing

which belonged to her and she relinquished no rights which

she might have asserted for herself.”

Estate of Vanderbilt, 281 NY 297, 303-04, 22 NE2d 379

(1939), judgment aff’d sub nom Whitney v. State Tax Comm’n,

309 US at 542.

The only arguably relevant factual difference is that

Helene lacked even the limited power of appointment over

the trust property that Alice Vanderbilt possessed. Having

found no controlling cases with facts precisely analogous to

those in Helene’s case, the court applies the general prin-

ciples stated above to determine whether this difference

140 Estate of Helene J. Evans v. Dept. of Rev.

requires a different result. In both cases, until the death

of the widow, the children whom the husband had decided

were next in line as beneficiaries had no present right to

enjoy any portion of the trust property. But at the widow’s

death, the value of all rights in the entire property became

available for distribution. The court concludes that Helene’s

death, like the death of Alice Vanderbilt, “occasioned,” “rip-

ened,” or “brought into being,” for those children, a complete

set of rights in the entire trust property worth much more

in the aggregate than the rights she enjoyed during her

life.

The fact that Alice Vanderbilt enjoyed the addi-

tional right to determine the relative extent of those rights

as among the four children is not relevant to whether the

amount of tax is rationally related to values connected with

her state of domicile. The value added to Alice Vanderbilt’s

estate upon the termination of her lifetime income inter-

est was the total value of the trust property, which her late

husband already had determined would pass to the chil-

dren, regardless of how she chose to split it among them.

Accordingly, the court finds Whitney on all fours with this

case even though Helene lacked any power of appointment

over the trust corpus. By the logic of Whitney, the court ten-

tatively concludes that Oregon as Helene’s state of domicile

could rationally measure its tax by the value of the entire

property in Donald’s trust.

C. Parties’ Arguments

To test the court’s tentative conclusions, the court

now turns to the parties’ arguments. The court understands

Plaintiff to object primarily under the Supreme Court’s “min-

imum connection” test. However, to give Plaintiff’s argu-

ments full consideration, the court also considers Plaintiff’s

objections within the context of the “rational relation” part

of the analysis where appropriate. Defendant argues that

the reasoning of Curry, Whitney, Fernandez, and later cases

allows Oregon to impose its tax upon Helene’s death and to

include the entire trust property in Helene’s estate.

Plaintiff primarily seeks to distinguish Curry and

other cases on the grounds that the decedents there held

Cite as 24 OTR 126 (2020) 141

substantial rights in the trust assets in addition to their

lifetime interest in the trust income. The court agrees that

Helene clearly lacked those rights or other rights equiva-

lent to ownership. Plaintiff does not, however, adequately

explain why this difference would prevent Oregon from hav-

ing the minimum connection to impose its transfer tax upon

the extinguishment of Helene’s lifetime exclusive interests

and the acquisition of new, greater rights by the contingent

beneficiaries. Plaintiff points out that beneficiaries in other

states bear the burden of any tax that Oregon is permit-

ted to impose. (“It is neither ‘fair’ nor ‘reasonable’ for the

residuary beneficiaries in this case to bear the burden of

the Oregon Estate Transfer Tax on the intangibles held in

Donald’s trust at the date of Helene’s death, especially since

there was no actual transfer of assets into Helene’s Estate.”)

However, Curry and later cases leave them little constitu-

tional basis to complain, given Oregon’s “control over the

person” of Helene as a domiciliary and her “use and enjoy-

ment of rights in intangibles.”

Plaintiff also contends that Oregon’s imposition of

a tax is contrary to Donald’s wish to minimize estate taxes,

and contrary to his expectations at his death. The parties

agree that Donald died a Montana resident with no con-

nection to Oregon other than a spouse who had just moved

there, and it is unquestioned that none of his property would

have been taxed in Oregon if his original will had not been

modified and a QTIP election had not been made. But by

making the federal QTIP election, the personal representa-

tive of Donald’s estate made the choice to exclude the trust

property from Donald’s estate in order to minimize federal

tax, knowing that Helene was alive and was then domiciled

in a state that incorporates the QTIP trust rules.13 To the

extent that Donald’s wishes or expectations are relevant,

the court assumes that the personal representative acted

in accordance with them. Neither party asserts otherwise.

Finally, Plaintiff notes that Oregon lacked any connection to

13

As noted above, the parties have not discussed whether Donald’s estate

also could have made an Oregon-only election to reduce the amount of trust prop-

erty that would have been included in Helene’s Oregon estate. See OAR 150-118-

0080. The court expresses no view as to whether such an election would have

been permissible.

142 Estate of Helene J. Evans v. Dept. of Rev.

the trustee or to the location of companies involved with the

holding or management of the intangible property. Again,

Curry answers the argument by expressly allowing the state

of a domiciliary trust beneficiary to impose a transfer tax

measured by the value of intangible property even if legal

ownership and management of the property are in another

state.

Plaintiff offers a “floodgates” argument:

“The defendant argues the cessation of a decedent’s benefi-

ciary interest alone is a sufficient ‘transfer’ to warrant tax-

ation by the beneficiary’s domiciliary state, but that opens

the door to subjecting all trust corpuses to taxability in the

estate of a deceased life estate beneficiary or the estate of a

deceased remainder beneficiary even if those beneficiaries,

as here, have no power or control over the trust assets.”

Plaintiff’s argument implies that a holding by this court in

favor of Defendant would make new law. However, the sce-

nario Plaintiff warns of appears to have been one of the sub-

jects of Binney v. Long, 299 US 280, 286-88, 57 S Ct 206, 81

L Ed 239 (1936). There, the Court decided that due process

did not bar Massachusetts from including in a domiciliary’s

estate the value of trust property in which the domicili-

ary “reserve[ed] a life estate in the income but no power to

revoke, alter or amend.” Id. at 282;14 see also Guaranty Trust

Co. v. Blodgett, 287 US 509, 53 S Ct 244, 77 L Ed 463 (1933)

(similar as to Connecticut statute); Bunting v. Sullivan, 152

Conn 331, 336, 206 A2d 471 (1965) (state of domiciliary with

a lifetime interest in trust property and a power only to add

to trust corpus could impose tax upon domiciliary’s death;

“What is sought to be taxed is not the property itself, but

rather and only the * * * succession to * * * the title and ben-

eficial enjoyment of the property which took place by reason

of [the] death * * *.”) (citations and internal quotation marks

omitted). In any event, this court does not reach a sweep-

ing conclusion as Plaintiff contends. Plaintiff asserts that

Oregon law would not include the trust property in Helene’s

14

The remainder beneficiaries’ due process argument was an objection to the

“retroactive” feature of the tax, which the state adopted after the decedent had

created the trust but before her death. The Court reasoned that the beneficiaries

held mere contingent remainder interests that did not vest until after the taxing

statute had been passed. Id. at 287.

Cite as 24 OTR 126 (2020) 143

estate were it not for the QTIP election, and Defendant does

not disagree. Accordingly, this court’s decision concerns

only the limited situation of a QTIP trust, a mechanism

that Congress devised, and Oregon has adopted, to allow

spouses in a marriage to shift value from one to the other

in order to defer the imposition of tax until both spouses are

deceased.

Plaintiff argues that the quid pro quo rationale

that supports including the value of QTIP in a surviving

spouse’s federal estate is absent with respect to Helene’s

Oregon estate. For that reason, Plaintiff asks the court

either to conclude that Oregon’s tax base cannot include the

trust property or to require Defendant to ignore the QTIP

election solely for Oregon tax purposes. The quid pro quo

in the QTIP context is commonly understood to refer to

the inclusion of the value of trust property in the surviving

spouse’s estate in exchange for the earlier deduction of the

value of that property from the estate of the original dece-

dent. See Bittker, Federal Taxation of Income, Estates, and

Gifts at ¶ 129.4. Plaintiff’s premise is that the Due Process

Clause would have barred Oregon from imposing its tax on

Donald’s estate in the first place; therefore, the QTIP election

could not reduce his estate’s Oregon tax liability. However,

Plaintiff has not shown why the Due Process Clause would

prohibit Oregon from including the trust property in the

measure of its tax on Helene’s estate regardless of a quid

pro quo or the lack of one. Plaintiff at times notes that the

QTIP election merely “deems” property to have been trans-

ferred from the first-to-die spouse to the surviving spouse.

According to Plaintiff, this means that the trust property is

never transferred “from” the surviving spouse to the residu-

ary beneficiaries; therefore, due process forbids a state from

taxing the extinguishment of the surviving spouse’s life-

time interest. This argument ignores the theoretical basis

of Curry, Whitney, and other cases discussed above: The

state of the surviving spouse’s domicile may tax the release

of rights to residuary beneficiaries occasioned by the death

of the surviving spouse. Helene held a very real exclusive

lifetime interest in the trust property. For the same reasons

previously discussed, Oregon is not constitutionally com-

pelled to ignore the QTIP election.

144 Estate of Helene J. Evans v. Dept. of Rev.

Plaintiff also asserts a nonconstitutional basis for

undoing the election, arguing that Oregon incorporates,

or should follow,15 the IRS’s Revenue Procedure 2001-38,

2001-1 CB 1335. As explained above, that procedure dis-

regards an unneeded QTIP election for federal estate tax

purposes, as for example when the first spouse dies leaving

an estate that is so small as to be nontaxable even if the

property in the trust is included. Plaintiff’s interpretation

of Oregon’s estate tax statutes is incorrect. Although Oregon

has adopted the definitions of terms used in the portions of

the Internal Revenue Code relating to federal estate taxes,

Oregon has not thereby adopted federal Treasury regula-

tions or IRS promulgations governing elections or other

procedures for purposes of the Oregon estate tax. See ORS

118.007 (adopting federal definitions of terms).

The Oregon income tax statutes contain an express

requirement to regard federal “rules or regulations” as rules

adopted by the Department of Revenue. ORS 316.032(3)

(personal income tax), ORS 314.011(4) (income taxation gen-

erally), ORS 317.013(3) (corporation excise tax). But those

requirements apply expressly for purposes of those chapters,

and nothing in ORS chapter 118, or elsewhere, imposes a com-

parable requirement for estate tax purposes. Although fed-

eral regulations and other administrative pronouncements

may, on their own merits, have persuasive value in inter-

preting federal statutes that Oregon incorporates, Revenue

Procedure 2001-38 is a procedural pronouncement, not an

interpretation of a federally defined term such as “taxable

estate.” The revenue procedure ultimately draws its author-

ity from powers that Congress delegated to the Secretary of

the Treasury in a specific statute. IRC section 7805 autho-

rizes the Secretary to “prescribe all needful rules and regu-

lations for the enforcement of [the Code],” including author-

ity to prescribe the time and manner of making elections,

except as otherwise set forth in the Code. IRC §§ 7805(a),

(d); see also Treas Reg § 301.91001 (election extensions

generally).

15

Plaintiff does not argue that Oregon has adopted its own rule or procedure

comparable to Revenue Procedure 2001-38; nor has the court found any such

rule.

Cite as 24 OTR 126 (2020) 145

The Oregon legislature has made its own general

delegation of rulemaking authority to Defendant. See ORS

305.100(1) (“The Department of Revenue shall * * * [m]ake

such rules and regulations it deems proper to regulate its

own procedure and to effectually carry out the purposes for

which it is constituted.”). Although the Oregon estate tax

statutes authorize or require rulemaking in various pro-

visions, nothing in Oregon’s statutory delegation requires

Defendant to conform its procedures with respect to QTIP

elections to federal regulations or pronouncements.

IV. CONCLUSION

The court concludes that inclusion of the trust

property in Helene’s estate does not violate the federal Due

Process Clause because Helene had an exclusive lifetime

interest in the trust property and was an Oregon domicili-

ary at the time of her death. Nothing in Oregon law requires

Defendant to apply Revenue Procedure 2001-38 to ignore

Donald’s federal QTIP election. Now, therefore,

IT IS ORDERED that Plaintiff’s cross-motion for

summary judgment is denied; and

IT IS FURTHER ORDERED that Defendant’s

motion for summary judgment is granted.