Summary
holding that, for inheritance tax purposes, a wife's contribution of "services, industry, and skills to operation of the farm enterprise constituted contribution `in money's worth' in the production of the joint income used to acquire the jointly held assets."
Summary of this case from In re Estate of ZimmermanOpinion
No. 74 (1974).
Submitted on briefs February 2, 1976. —
Decided March 2, 1976.
APPEAL from an order of the county court of Marathon county: ROBERT W. DEAN, Judge. Affirmed.
For the appellant the cause was submitted on the briefs of Bronson C. La Follette, attorney general and E. Weston Wood, assistant attorney general.
For the respondent the cause was submitted on the brief of Tinkham, Smith, Bliss, Patterson Richards of Wausau.
Facts.
This appeal by the Wisconsin department of revenue is from an order of the county court of Marathon county granting the petition of Doris Kersten for a redetermination of the inheritance tax payable on the estate of her deceased husband, Lester Kersten, who died on January 24, 1973. As personal representative, Doris Kersten filed a Wisconsin inheritance tax return which listed as jointly owned property the following:
Certificates of Deposit $9,786.30 Checking Account 1,617.24 Savings Account 8,905.66 Real Estate 45,000.00 Household Furnishings 500.00 Farm Personal Property 10,000.00 Livestock 20,000.00 The total taxable estate was shown as $99,139.52 and the tax thereon, $3,685.46, was paid. Subsequently, Doris Kersten petitioned the Marathon county court for a redetermination of the inheritance tax due on the ground that she had made a contribution to the acquisition of the joint property, and that the taxable estate should be reduced by the amount of that contribution pursuant to sec. 72.12(6), Stats.A hearing on the petition was held on October 30, 1973. The material facts, as established by the testimony at the hearing, appear not to be in dispute. In 1940, Lester Kersten purchased approximately 40 acres of land adjoining his parents' 79-acre farm. Shortly before his marriage to Doris in 1948, Lester acquired title to his parents' farm under an agreement to support them. Following the marriage, Doris moved onto the farm with Lester and his parents. Shortly thereafter the support-of-parents agreement was replaced with an agreement on the part of Lester and Doris to pay his parents $6,000 for their farm. Lester's parents remained on the farm for about six years during which time Lester and Doris paid the agreed purchase price with money earned from working the farm. When Lester's parents had been paid and moved off the farm, the title was changed to reflect the joint ownership in the names of Lester and Doris Kersten.
Lester Kersten brought only his 40 acres of land into the marriage, and Doris Kersten contributed a number of items of household furnishings and personal property. Neither inherited anything. Almost all that was owned by the couple at the time of the death of Lester Kersten had been acquired by them during their marriage. Lester and Doris Kersten made substantial capital improvements to the farm, all of which were paid for from farm profits. These included expansion of the milking facilities, remodeling of the house, and addition of several structures, including a silo, machine sheds, milk house, heifer barn and garage. In addition, farm personalty worth $10,000 and various items of household furnishings had been acquired with farm earnings. Lester and Doris Kersten devoted all their working efforts during marriage to operating the farm. In addition to maintaining the household (the couple raised four children), Doris helped keep the farm books, cared for and trained the calves, helped with the milking, operated tractors during baling operations, and generally assisted her husband in the farm work.
Additionally, Doris Kersten ran the farm alone for two periods of time during which periods of time her husband was ill. However, she testified that neither could have successfully operated the farm without the assistance of the other. Art Kersten, Lester's cousin, who lived on a neighboring farm, testified that Lester and Doris operated as a team and that Lester could not have operated the farm without his wife's help and assistance. On cross-examination, Doris Kersten testified that there was never a written partnership or joint venture agreement between herself and her husband. Doris Kersten never reported personal income for either state or federal income tax purposes. Farm income was reported by Lester Kersten as his income for social security purposes. The milk check, the primary source of farm income, was made out to Lester Kersten. The couple did not attempt to separate the bookkeeping records for the farm operation between them.
The trial court found that all assets originally reported as such were jointly owned by Lester Kersten and Doris Kersten at the time of Lester's death except for the 39.77 acres of land, inventoried at $9,398, which Lester had owned at the time of the marriage of the parties, and one certificate of deposit, inventoried at $8,786.30. The balance of the jointly owned property was ordered taxed on a "50-50 basis." The inheritance tax on the resulting taxable estate of $60,326.07 was recomputed to be $774.45, and the department was ordered to pay a refund of $2,911.01. The department appeals, seeking reversal with directions to the trial court to enter an order dismissing the petition for redetermination of the tax.
The sole issue here is: Did the trial court err in concluding that one-half of the jointly owned property should be excluded from the state for inheritance tax purposes?
The answering of such single question involves the interpretation and application of sec. 72.12(6), Stats, which controls and governs the taxation of survivorship interests for inheritance tax purposes. That section provides:
"(6) SURVIVORSHIP INTERESTS. (a) Rule. When property is held in the names of 2 or more persons with the right of survivorship, upon the death of one of the persons. Transfer of the full clear market value of the entire property is subject to this subchapter.
"(b) Exceptions. If the property or the. consideration with which it was acquired, or any part of either, is shown to have originally belonged to the survivor and never to have been received or acquired by him from the decedent for less than adequate and full consideration in money or money's worth, the transfer of the property or the part originally furnished by the survivor is not taxed. If the property was acquired by gift, bequest, devise or inheritance by the decedent and any other person, the taxable portion is determined by dividing the clear market value of the property by the number of owners, unless the instrument creating this ownership creates interests in a different proportion." (Emphasis supplied.)
Prior to the enactment of this statute in its present form, an inheritance tax in this state was automatically assessed on one-half the value of property held by a person in joint tenancy at the time of his death. Under the older version of the statute, now replaced, the joint tenants' respective contributions to the acquisition of the subject property was immaterial. Only where the survivor could show that the joint title came into being under a transaction clearly indicating a trust relation or the existence of an agency involving the deceased joint tenant was an exception to the statute recognized.
Ch. 310, Laws of 1971.
See: Sec. 72.01(6), Stats. 1969, repealed and replaced in 1971.
See: Estate of Atkinson (1952), 261 Wis. 481, 53 N.W.2d 185, 54 N.W.2d 52; Estate of Simonson (1960), 11 Wis.2d 84, 104 N.W.2d 134.
See: Estate of Hounsell (1948), 252 Wis. 138, 31 N.W.2d 203.
The new survivorship statute, enacted in 1971, clearly changes the manner in which survivorship interests are to be taxed for inheritance tax purposes. The new general rule, as stated in the newer sec. 72.12 (6) (a), Stats., is that, when one owner of property held under right of survivorship dies, the entire value of the jointly held property is subject to the inheritance tax. Only two exceptions to such taxation of the whole property are recognized. One deals with property acquired by gift or bequest, and is not here applicable. The other is the source of the controversy here. It excludes from taxation that part of the joint property which is shown to have originally belonged to the survivor and never to have been ". . . acquired by him from the decedent for less than adequate and full consideration in money or money's worth. . . ." So the issue in this case narrows to whether Doris Kersten's personal services on the family-operated farm constituted "consideration in money or money's worth" in return for her interest in the property jointly held by her and her husband.
See: Sheedy and Sullivan, Nature of Cotenancies and Their Taxation — Death and Gift, 56 Marq. L. Rev. 3, 33-36 (1972).
Sec. 72.12(6) (b), Stats.
The exception to tax liability as to property that originally belonged to or was acquired for consideration in money or money's worth comes to the revised sub. (6) from sec. 2040 of the Federal Internal Revenue Code. As there worded it reads as follows:
"SEC. 2040. JOINT INTERESTS.
"The value of the gross estate shall include the value of all property to the extent of the interest therein held as joint tenants by the decedent and any other person . . . Provided, that where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person. . . ."
The obvious patterning of the revised sub. (6) of the state statute after sec. 2040 in the Federal Code reflects an evident legislative intent on the part of our legislature ". . . to tax the transfer of jointly held property in the same manner as the federal method." With such the legislative intent — to have no dissimilarity between state and federal rules as to jointly held property — construction by the federal courts of the parallel federal provision — here sec. 2040 — ought be given considerable weight. Under the federal court construction of the Federal Code provision, in order to establish excludability, it must be proved that the part to be excluded was originally the survivor's or, if acquired from the decedent, was purchased for an adequate and full consideration in money or money's worth. "Consideration in money or money's worth" is defined to be such consideration as is reducible to a money value or is capable of being valued in terms of money. It appears that, under the federal exemption provision, personal services can serve as consideration "in money's worth" in return for an acquisition of an interest in jointly held property.
Ch. 310, Laws of 1971, at page 1246.
See: In re Adams Machinery, Inc. (1963), 20 Wis.2d 607, 123 N.W.2d 558.
See: Phillips v. Dime Trust Safe Deposit Co. (1931), 284 U.S. 160, 167, 52 Sup.Ct. 46, 76 L.Ed. 220; Tuck v. United States (9th Cir. 1960), 282 F.2d 405.
See: Lowndes Kramer, Federal Estate and Gift Taxes (2d ed. 1962), p. 300.
Exactly such construction of the Federal Code provisions as to consideration in money or money's worth was given to sec. 2040 by the federal tax court in the Estate of Everett Otte Case. In that case the evidence showed that through thirty-five years of marriage Lura and Everett Otte had worked as a "husband and wife team" in the management and operation of the family farming enterprise. With jointly held property acquired during the marriage having been paid for from farm earnings, the tax court held that the contributions in personal service of the wife who kept the farm records and took an active part in the day-to-day operation of the farm ". . . fairly justifies a division of the property accumulated during her marriage to decedent for estate tax purposes within the purview of sec. 2040, supra." We agree with appellant department that this construction of the code provision by the tax court is not controlling, but we find it both plausible and persuasive. We follow it here. We agree with the trial court holding that the continuing contribution of Doris Kersten in services, industry and skills to operation of the farm enterprise constituted contribution "in money's worth" in the production of the joint income used to acquire the jointly held assets involved in the trial court's order. We further agree with the trial court and affirm its holding that Doris Kersten was entitled to credit for inheritance tax purposes for such contributions on her part to the jointly held property owned by her and her husband at the time of his death.
(1972), 31 T.C.M. 301 (C. C. H. Dec. 31, 319 (M)).
Id. at page 307.
In urging a contrary construction of sec. 72.12(6), Stats., the state department of revenue relies heavily upon two recent cases dealing with liability for state income taxes. The first is Skaar v. Department of Revenue, finding no bona fide partnership in the husband-wife operation of a farm enterprise for income tax purposes. The second is Stern v. Department of Revenue, finding no partnership for income tax purposes in the operation by a married couple of an interior decorating business. In both cases the test as to the existence of a bona fide partnership for income tax purposes was taken from the Uniform Partnership Act. We hold that this test applied for income tax purposes does not apply to contributions to jointly held property by a survivor for inheritance tax purposes. The Skaar decision made clear that "the personal income tax treatment of married individuals under the federal and Wisconsin tax provisions is dissimilar." As to liability under sec. 72.12(6) for inheritance tax purposes, we have held the legislative intent and result to be that the transfer of jointly held property is to be taxed in this state in the same manner as it is taxed under the federal code. Therefore, cases involving income tax liability do not control or apply to a surviving spouse seeking a determination of inheritance taxes due on property jointly held with the husband or wife who has passed away.
(1973), 61 Wis.2d 93, 211 N.W.2d 642.
Id. at page 99.
(1974), 63 Wis.2d 506, 217 N.W.2d 326.
Id. at page 510.
Skaar v. Department of Revenue, supra, footnote 13, at page 98, stating: "Since Wisconsin has adopted the Uniform Partnership Act, we must initially look there for guidance." (Referring to Ch. 178, Stats.)
Id. at page 97, this court adding: "Under the federal system, married individuals are permitted to file a joint return and effectively split their income even though all income and deductions belong to only one spouse. Wisconsin, on the other hand, while permitting married individuals to file jointly, taxes each spouse individually on his income and deductions and income splitting is not allowed."
In its written decision the trial court found that Doris Kersten had "contributed substantially to the management and work and carrying out the duties of operating a farm." The trial court did not make a finding as to actual monetary value to be placed on the wife's services. The trial court's decision and order, in our opinion, do constitute a holding that the services of the wife constitute "adequate and full consideration in money or money's worth" for her interest in the jointly held property. We hold that to be sufficient, for once the initial determination of adequate contribution has been made, the value of the jointly held property to be taxed can be reduced to the extent of the survivor's interest or "share," here one-half of the jointly acquired and jointly held property involved in the trial court decision. We find this to be the approach used by federal courts in applying the similar provisions of sec. 2040, Federal Code. We also find this an appropriate and proper approach to the application of the comparable state statute. We adopt it as to the application of sec. 72.12(6), Stats., here. As it was for the trial court here, the threshold question for a trial court should be whether the services or contributions of the surviving spouse, taking into consideration their nature and extent, constitute adequate and full consideration in money or money's worth for such survivor's interest in the jointly held property. If they do, the value of the property for purposes of inheritance tax is to be reduced by one-half, assuming that there is, as here, the usual husband-wife joint tenancy involved. Given such threshold finding and such reduction in value taxable under sec. 72.12(6), it is not necessary to place a monetary value on such services or contributions. In the case before us, we find the trial court determination that the wife had contributed substantially to the acquiring of the joint property acquired to be supported by the evidence. It is an affirmative answer to the question to be asked and it warranted the trial court in concluding, as it did, that "one-half of the assets owned jointly by the decedent and petitioner at the time of decedent's death originally belonged to the survivor and never were received or acquired by her from the decedent for less than adequate and full consideration in money or money's worth within the meaning of sec. 72.12(6) (b), except a certain parcel of real estate approximately 39.77 acres in size . . . and except a joint savings account at the Franklin Savings Loan Association. . . ." The order of the trial court that the correct taxable estate is $60,326.07 and that the correct inheritance tax due from the petitioner, Doris Kersten, is $774.45 and that petitioner, Doris Kersten, is entitled to a refund of $2,911.01 is affirmed.
See: Estate of Everett Otte, supra, footnote 11; Rogan v. Kammerdiner (9th Cir. 1944), 140 F.2d 569; Richardson v. Helvering (D.C. Cir. 1935), 80 F.2d 548; Berkowitz v. Commissioner of Internal Revenue (3d Cir. 1939), 108 F.2d 319; Singer v. Shaughnessy (2d Cir. 1952), 198 F.2d 178.
By the Court. — Order affirmed.