In Re Leuthold's Estate

Hill, C. J.

(dissenting) — This is an inheritance tax case.

The majority opinion says very little about inheritance taxes and who should pay them. It does explore in considerable detail the character of the community interest in life insurance policies, but it fails to explain how any portion of the cash surrender value of such policies passes to anybody by will or inheritance, which is the taxable event. It expressly overrules In re Knight’s Estate (1948), 31 Wn. (2d) 813, 199 P. (2d) 89 .

The author of the Knight Estate opinion had some rather forthright views on the matter of inheritance taxes and *311 the attempt of taxing authorities to make estates liable for a death tax instead of an inheritance tax, in which views I am still proud to have concurred. He said, speaking for the court (p.8l7), that an inheritance tax is

“ . . . an excise or impost laid upon the privilege of receiving property by inheritance; it is a tax on the right or privilege of succession.”

A tax is imposed, not because somebody died, but on the right of someone to succeed to the property left by the decedent.

Let us then ask in the present case: Who has succeeded to what? The majority says:

“The state asserted that her [Mrs. Leuthold’s] death was a taxable event which passed her half of the community interest in the cash surrender value of the policies to her legatees.”

Neither the state in its brief nor the majority in its opinion indicates just how the legatees in Mrs. Leuthold’s will are going to realize anything from her one-half interest in the cash surrender value of the policies. Indeed, from my examination of the record and the briefs, I find no statement as to who these legatees may be, and we are forced to proceed in our discussion with nameless legatees, hypothetical as to number.

That the executor will pay the tax in the first instance, does not change the fact that the share of each legatee entitled to share in Mrs. Leuthold’s community half of the cash surrender value of the insurance policies on Mr. Leuthold’s life will be charged with an inheritance tax (RCW 83.08.060, Rem. Supp. 1943 § 11202, part) on an amount that such legatees have not received and cannot get. The rate of the tax will vary, if the legatees are in different classes. RCW 83.08.020 through RCW 83.08.040.

In a case from this state, Waechter v. United States (1951), 98 F. Supp. 960 (affirmed United States v. Waech-ter (1952), 195 F. (2d) 963), the executor of May F. Waech-ter’s estate had included as part of the gross estate the total cash surrender value of the life insurance policies ($21,- *312 284.75) on the life of her surviving husband. A Federal estate tax ($1,459.33) was paid, based on the value of the wife’s community half of the cash surrender value. The executor was held to be entitled to recover the tax paid. The trial judge took a realistic view of the problem, saying (p. 962):

“Under Washington law, the executor is given the right to the possession or management of all the real and personal property of the deceased, and to receive the rents and profits of the real estate until the estate is settled. Remington, Revised Statutes, Sec. 1464. It is made his duty, within one month after his appointment, to return a true inventory of ‘all the property of the estate which shall have come into his hands’, and to apply to the Court for the appointment of appraisers to appraise the property so inventoried. Remington, Revised Statutes, Sec. 1465.

“In the case of a life insurance policy upon the life of the husband, there is no provision in the law of the State of Washington for liquidating any interest which the wife may have had in the property. Granted that the policy has a possible cash surrender value, there is no provision in law for reducing it to the possession or control of the wife’s executor. He cannot compel the husband to cancel the policy, in order that its surrender value might be equally divided between the estate and the husband. And the surrender value remains in the realm of possibility, unless there be power to compel surrender.”

The majority cite and quote from California Trust Co. v. Riddell (1956), 136 F. Supp. 7 , a case from the southern district of California, which reached a result contrary to the Waechter case. It is interesting to note that Judge Hamlin, in a very recent case in the northern district of California, considered both the Riddell and Waechter cases and was “more persuaded” by the reasoning in the Waech-ter case. See Stewart v. United States (Dec. 18, 1957), 158 F. Supp. 25 . All three cases are concerned with Federal estate taxes. I have heretofore tried to make clear, perhaps with indifferent success, that there is a difference between an estate tax and an inheritance tax. Under our inheritance tax statute before property can be subject to a tax, it must pass

*313 “ . . . by will or by the statutes of inheritance . . . or by deed, grant, sale, contract or gift made in contemplation of the death of the grantor, or donor, or by deed, grant or sale, contract or gift made or intended to take effect in possession or in enjoyment after death of the grantor, or donor, to any person in trust or otherwise . . . ” RCW 83.04.010.

As intimated in Windust v. Department of Labor & Industries (1958), ante p. 33, 323 P. (2d) 241 , it is well to give some consideration to the terms of the statute with which we are concerned. It is my purpose to demonstrate that Mr. Leuthold is the only person who has received the benefit of Mrs. Leuthold’s interest in the cash surrender value of the insurance policies; and to demonstrate further that he did not receive it (a) by will, (b) by inheritance, or (c) by a contract made in contemplation of the death of the grantor or donor.

The fact, unwelcome (to the inheritance tax and escheat division) but indisputable, is that, in so far as the cash surrender value of these insurance policies is concerned, the only person who has received any benefit is Mr. Leuthold, and he has received it not because he was a legatee or an heir, but because of the nature of the contract of insurance.

That he takes no interest as a legatee, is easily demonstrated. Let us assume that Mrs. Leuthold left all of her personal property in equal shares to three legatees, and that Mr. Leuthold was not one of them; Mr. Leuthold would be in exactly the same position he is in today, he would have all the cash surrender value of the insurance policies, but certainly not because he was a legatee.

If we follow the logic of the majority opinion, we must say that, since the cash surrender value of the policies involved in this estate, and with which we are here concerned, was in excess of sixty thousand dollars, Mrs. Leuthold’s community interest was in excess of thirty thousand dollars; and each of her three legatees should be taxed on a legacy in excess of ten thousand dollars, despite the fact that none has any prospect of receiving it; and Mr. Leu-thold is the only person benefited.

*314 If there were no will, it is equally- easy to demonstrate that Mr. Leuthold would take nothing by inheritance. Assume Mrs. Leuthold died without a will, leaving three children; the three children would,' under our statute of inheritance (ROW 11.04.050), divide her half of the community property between them. Mr. Leuthold would be in exactly the same position he is in today, he would have all the cash surrender value of the insurance policies, but certainly not because he inherited Mrs. Leuthold’s interest in the community property.

Again, following the logic of the majority opinion, we must say that since the cash surrender value of the policies, with which we are here concerned, was in excess of sixty thousand dollars, Mrs. Leuthold’s community interest was in excess of thirty thousand, and each of her three children should be taxed on an inheritance in excess of ten thousand dollars, which they have no prospect of collecting. Mr. Leuthold still is the only person benefited.

I do not say that it would not be proper to impose a tax on what he has received, but it is for the legislature to determine whether such a transfer of interest should be taxed, not for the court to impose a tax on such a transfer on what seems to me the completely untenable theory that he has received it by will or by inheritance.

The Knight case did not hold that a wife had no community interest in the cash surrender value of life insurance policies. It held, and I believe properly, that the interest, whatever its character, did not pass by will or by the statute of inheritance, but that it passed to her husband by the contract of insurance; and there was nothing in our inheritance tax law that made such a transfer of interest taxable.

The inheritance tax and escheat division attempted to make it possible to reach cash surrender value by adding the word “contract” to the statute setting forth the property subject to an inheritance tax. Laws of 1949, chapter 218, § 1, p. 710, reads in part as follows:

“All property within the jurisdiction of this state, and any interest therein, whether belonging to the inhabitants *315 of this state or not, and whether tangible or intangible, which shall pass by will or by the statutes of inheritance of this or any other state or by deed, grant, sale, contract or gift made in contemplation of the death of the grantor, or donor, or by deed, grant or sale, contract or gift made or intended to take effect in possession or in enjoyment after death of the grantor, or donor, to any person in trust or otherwise . . . shall, for the use of the state, be subject to a tax.” (Italics mine.)

The majority by-pass the contract theory entirely. It is my view that the amendment, adding the word “contract”' as above indicated, did not accomplish the result desired by the inheritance tax and escheat division. The contracts referred to in the statute are the contracts of a deceased person, which were made in contemplation of death and in which it was intended that the death of the contracting party would constitute the event which passed the property treated in the contract from the deceased to someone else.

It is contended by the inheritance tax and escheat division that we should follow the administrative construction that has been placed upon the statute, i. e., a construction which would make the surviving husband hable for the tax on the wife’s half interest in the cash surrender value of the insurance. We have repeatedly said there is no room for construction where the intention of the legislature is clear and the language of the statute is unambiguous. Sandona v. Cle Elum (1951), 37 Wn. (2d) 831, 226 P. (2d) 889 ; Martin v. Tollefson (1945), 24 Wn. (2d) 211, 163 P. (2d) 594 . The language of the statute will not bear the administrative construction placed upon it.

To summarize: It is my view that no interest in the cash surrender value of the insurance policies involved in this case passed by will or inheritance; that a tax imposed on Mrs. Leuthold’s legatees, based on the assumption that something of value passed to them, is completely unjustified; that the interest therein received by Mr. Leuthold was by reason of the contract of insurance. I do not deny that Mr. Leuthold’s position has been improved. I do deny *316 that the inheritance tax statute covers such an interest as he has received, and whether it does or does not should be the only issue in this case.

If such an interest should be taxed, the matter cán be submitted to the legislature fairly and clearly as a tax- on the transfer of the decedent’s interest in the cash surrender value of insurance carried on the life of a person other than the decedent.

It should be noted that such a tax has been a “departmental request” in the 1949, 1951, 1953, and 1955 sessions of the legislature, but that the legislature has failed each time to take action on such “departmental request”-; sometimes letting the bill die in committee, and sometimes voting it down.

I would leave legislation to the legislature, particularly the imposition of taxes.

I dissent.

Rosellini and Hunter, JJ., concur with Hill, C. J.,