Flournoy v. Varian

California Court of Appeal Jul 23, 1968 No. Civ. 24839Published

Before: Devine

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Holding. A beneficiary's renunciation of a testamentary gift does not exempt the interest from inheritance tax under Revenue and Taxation Code section 13409, even when the renunciation is in favor of a charitable organization. The tax is imposed on the privilege of receiving the property as designated by the testator, and renunciation does not alter the tax liability established by the will.

Issues

Whether Revenue and Taxation Code section 13409 applies to a beneficiary's renunciation of a life interest when the renunciation is in favor of a charity.
Whether the inheritance tax on a renounced life interest is avoided if the interest falls into a charitable remainder.
Whether the imposition of inheritance tax on renounced interests violates the equal protection clause of the Fourteenth Amendment.

Disposition. reversed

Quotations verified verbatim against the opinion

“It is the privilege of receiving and neither the property itself nor the actual receiving of it which is taxed.”

DEVINE, P. J.

The will of Russell H. Varían, deceased, provides certain specific bequests and disposes of the residue,

[250]

in excess of six million dollars, by use of a trust. The trustees are directed to pay $100 a month to testator’s father-in-law, and should his wife survive the 'father-in-law, to her for ¡life; and $50 a month to testator’s aunt, for the rest of their lives. The rest of the trust income is to go to the widow.

On the death of each beneficiary, his or her share of the' trust-" fund is to go to the trustees for a charitable use.. The trust is described in broad terms. It is to be for the benefit of'mankind through support of any charitable, scientific, literary, or educational organization, as determined by the trustees. The will provides that taxes of.every kind shall be paid from the residue. ...

A few months after the testator’s- death, the widow and the two other living beneficiaries (the father-in-law had-died) irrevocably disclaimed their rights to trust income. But the inheritance tax appraiser declared the life interests to be taxable despite the renunciations. Also, tax was levied- on the bequest of the tax itself. The total was $145,342! Objection was filed on the ground that the disclaimers had" caused the life interests to fall into the remainder which, being a charitable bequest, is exempt from tax. The court sustained the objection and reduced the tax accordingly, the lowered tax being $5,372. The State Controller appeals. ' r

Section 13409 of the Revenue and Taxation Code .provides explicitly that if -a transferee renounces, his rights under the will or agrees that any part of the estate shall be .distributed otherwise than as provided in the will, the tax nevertheless is computed in accordance with the terms of the will admitted in probate. The section makes a like provision in cases of renunciation of inheritance by reason of intestacy.

Attempts to avoid the tax by renunciation have been made but have failed.

(Estate of Watkinson,

191 Cal. 591. [217 P. 1073] ;

Flournoy v. Varian

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DEVINE, P. J.

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