Flournoy v. Devenish

Opinion

THOMPSON, J. This is an appeal by the State Controller from an order sustaining objections to report of inheritance tax appraiser and fixing amount of tax due in the estate of George B. Devenish. We affirm the order.

Facts

George Devenish, a widower, died October 15, 1967, leaving a net taxable estate of $533,469.28. His will leaves all of his estate to a pour-over inter vivos trust to be administered and distributed as part of the trust estate. With minor exceptions not pertinent to the case at bench, the testamentary scheme embodied in the trust creates equal life estates in the three children of the decedent and their spouses with contingent remainders to the issue of the children. The remainders fully vest when the remainderman reaches age 35. If the remainderman dies before reaching that age, his share is distributable to his issue, or, if he leaves no issue, is to be added to the other shares of the trust.1 The trust instrument defines issue as including “adoptive descendants.”

At the date of his death, George Devenish was survived by his three children, a daughter-in-law, and issue of each of the three children, tlie* controversy here before us involves the computation of inheritance tax upon the share of the estate passing for life to John C. and Ann Devenish, the son and daughter-in-law of the decedent, with remainder to the issue of John. On the date of death, John had two natural children. Approximately 16 months later, John, by a stepparent adoption, legally adopted Paul M. Hagasian (Devenish) and Lois A. Hagasian (Devenish). Both Paul and Lois were under the age of 21 at the time of the adoption.

The inheritance tax appraiser computed the inheritance tax upon the pertinent share of the estate by treating Paul and Lois as issue of John for [554]the purposes of distribution of the estate but as strangers to the decedent for the purpose of applying the appropriate exemption and rate of tax. The tax so computed is greater than that resulting from a computation which either: (1) treats Paul and Lois as not potential beneficiaries of the estate at the date of death; or (2) treats them consistently as “issue” both at that time and when actually adopted, Respondent filed his objection to the report of inheritance tax appraiser. He made no objection to that portion of the report which included the adopted children as beneficiaries of the estate. He did object to the use by the appraiser of the rate and exemption applicable to “strangers.” The trial court sustained the objection to the report of inheritance tax appraiser. It found that Paul and Lois were strangers to the decedent at the date of death, that they had no interest in his estate at that time, and that consequently no part of the estate is taxable as passing to Paul and Lois. The trial court determined the inheritance tax accordingly. Appellant State Controller perfected the appeal which brings the matter to this court.