Maxson v. Riley

GRAY, J., pro tem. The inheritance tax appraiser reported that decedent died intestate leaving (1) an estate which was insolvent after the payment of debts, administration expenses and a family allowance, (2) life insurance policies, payable immediately to his widow, in the total sum of $72,366.81, (3) policies payable to her on a life mutual income basis, of the present value of $67,399.66, and (4) policies payable to his minor daughter upon the latter basis of the present value of $14,873.22. He allocated to the widow $46,000 as her share of the $50,000 deductible under subdivision 9, section 2, of the Inheritance Tax Act of 1935 (Stats. 1935, p. 1266). In computing the taxable part of the proceeds received by the widow from the policies, he added the sums of $72,366.81 and $67,399.66 and then subtracted from this total, first, the sum of $46,000, and secondly, one-half of the remainder. He also made other additions and subtractions not involved in this appeal. The widow objected to his computation, claiming that one-half of his total should have been first eliminated and that then the sum [568]of $46,000 should have been deducted from the remainder. After a hearing the court decided her method of computation was correct and fixed her inheritance tax accordingly. The state controller appeals.

In their computations and arguments, both parties assume that the insurance proceeds are community property and agree that one-half of community property is not subject to an inheritance tax. But they differ as to legal method of computing such one-half. Respondent argues that the total proceeds are to be halved, while appellant urges that only the part of such proceeds remaining after the deduction allowed by subdivision 9, section 2, of the act is made, are to be so divided. The latter method, by decreasing the amount of the community exclusion by one-half of the other deduction, denies the widow the full amount of both deductions and increases the taxable proceeds, over the amount of her computation, by the sum of $22,862.34.

The parties agree that the following are the relevant portions of the act: “Section 1. . . . (2) The words . . . ‘property’ . . . shall . . . mean . . . property ... of the . . . insured, passing or transferred to individual . . . beneficiaries . . . ; provided, further, the one-half of the community property which belongs to the surviving spouse . . . shall not be subject to the provisions of this act . . . ; provided, further, that in case of a transfer of community property from one spouse to the other within the meaning of any subdivision of section 2 of this 'act, one-half of the community property so transferred to the wife . . . shall not be subject to the provisions of this act. . . .