Weddle v. Kirkwood

McCOMB, J.

This is an appeal by Nancy Skinker Weddle, executrix of the last will and testament of Isabella N. Skinker, and B. M. Switzler, attorney for said executrix, from an order overruling objections to the report of the inheritance tax appraiser and fixing an inheritance tax due by reason of the death of Isabella N. Skinker.

Chronology

i. Isabella N. Skinker died July 19, 1955.

ii. Decedent’s will was probated August 5, 1955, and Nancy Skinker Weddle appointed as executrix.

iii. At the time of decedent’s death section 901 of the Probate Code read in part as follows:

“The executor, when no compensation is provided by the will or he renounces all claim thereto, or the administrator, shall receive commissions upon the amount of estate accounted for by him, as follows: For the first thousand dollars, at the rate of seven per cent; for the next nine thousand dollars at the rate of four per cent; for the next ten thousand dollars, at the rate of three per cent; for the next thirty *293thousand dollars, at the rate of two per cent; and for all above fifty thousand dollars, at the rate of one per cent. . . "1

iv. By an amendment to section 901 of the Probate Code effective September 7, 1955, the fee schedule was increased as follows:

Size of Estate Former Rates New Rates2
First..........$ 1,000 7% 7%
Next .......... 9,000 4 4
Next .......... 10,000 3 3
Next .......... 30,000 2 3
Next .......... 100,000 1 2
Next .......... 350,000 1 1½
Over .......... 500,000 1 1

v. The inheritance tax appraiser filed his inheritance tax report and allowed as deductions executor’s and attorney’s commissions based on the “old rates” which were in effect on the date of decedent’s death.

vi. Pursuant to section 14509 of the Revenue and Taxation Code, objections were filed to the report by the executrix and her attorney, appellants.

Appellants contended that the deduction allowable for inheritance tax purposes should be computed on the new and higher rates as set forth in section 901 of the Probate Code effective September 7, 1955.

The objections were overruled, and an order was made approving the inheritance tax report as filed and fixing the inheritance tax on the basis of the “old rates.”

The estate is not in condition for closing.

Question

In fixing the inheritance tax due by reason of the death of decedent, should there be permitted as a deduction the statutory commissions allowed the executrix and her attorney as set forth in section 901 of the Probate Code in effect at the time of decedent’s death on July 19, 1955, or the increased fees as allowed by section 901 of the same code as amended and effective September 7, 1955f

We are of the opinion that the commissions of the executrix and her attorney, allowed as deductions for inheritance tax *294purposes, should be the amount of the statutory commissions in effect at the time of decedent's death, to wit, July 19, 1955, and not the increased fees as allowed by section 901 of the Probate Code as amended and effective September 7, 1955.

The question here posed is clearly determined by the provisions of section 13988 of the Revenue and Taxation Code, which reads in part as follows:

“The ordinary expenses of administration in the estate of any decedent are deductible from the appraised value of property included in any transfer subject to this part made by the decedent.
“Included in ‘ordinary expenses of administration’ are the following:
“(a) The ordinary commissions allowed executors and administrators under Section 901 of the Probate Code, computed on the value of the decedent’s estate as of the date of the decedent’s death.
“(b) The ordinary fees allowed attorneys for executors and administrators under Section 910 of the Probate Code, computed on the value of the decedent’s estate as of the date of decedent’s death.

If the statute specifically stated that ordinary expenses of administration included executor’s and administrator’s fees “under section 901 and 910 of the Probate Code in effect as of the date of death” there would be no question but that the “old rates” should be used in computing the ordinary expenses of administration.

The code section is not that explicit. It does, however, restrict its operation to the date of death in that it allows ordinary commissions “... computed on the value of decedent’s estate as of the date of decedent’s death.” (Italics added.) In view of such language, the reasonable assumption is the Legislature intended that in said computations those rate schedules in effect as of the date of decedent’s death were to be used.

Deductions allowable for inheritance tax purposes are not necessarily those paid by the estate. Under section 13989 of the Revenue and Taxation Code, the federal estate tax deduction is not necessarily the actual tax paid. It is either that amount or a smaller amount based on the approximate calculations. (Cf. Estate of Slack, 86 Cal.App.*2952d 49 at 53 [1] [194 P.2d 61]; Estate of Guthman, 125 Cal.App.2d 408 at 411 [1 et seq.] [270 P.2d 875].)

This is also the situation with respect to section 13988 of the Revenue and Taxation Code. The actual commission paid in the probate proceeding pursuant to section 901 of the Probate Code is based “upon the amount of estate accounted for. ...” Section 13988 of the Revenue and Taxation Code allows as a deduction said commissions “computed on the value of the decedent’s estate as of the date of decedent’s death.”

Often the commissions allowed for inheritance tax purposes are not the amount of the commissions actually paid in the probate proceeding. The evident intent on the part of the Legislature was not to allow as deductions the actual burden sustained by an estate, but a close approximation thereof, based on standards set up in the inheritance tax law.

This is apparent from the provision in section 13988 of the Revenue and Taxation Code, which allows as a deduction only “ordinary expenses of administration.” Extraordinary expenses of administration although borne by the estate are not a deduction for inheritance tax purposes.

The reasonable interpretation of section 13988 of the Revenue and Taxation Code based upon the examination of the statutory provisions is that there should be allowed as deductions for inheritance tax purposes commissions based upon the schedule of rates provided by section 901 of the Probate Code at the time of decedent’s death, that is, in the instant case, the so-called “old rates.”

Such an interpretation is in keeping with the whole tenor of the inheritance tax law, which keys everything to the date of decedent’s death. Section 13311 of the Revenue and Taxation Code defines “market value” as to any transfer as the market value as of the date of decedent’s death. Section 13402 assesses the tax upon that portion of the property “in excess of the exemptions allowable on the date of the transferor’s death and at the rates which are then in effect.” Section 13408 provides that where there are several transfers, the tax is computed as if all the property had been transferred by a single transfer at the date of death. Section 13951 makes the date of death the valuation date. Section 13983 allows as deductions debts of the decedent at the date of death. Section 13987 allows as deductions certain taxes which are a lien at the time of death. Likewise, section 14102 makes every tax due and payable at the date of decedent’s death.

*296These statutory provisions indicate a clear legislative intent to restrict the deductions for executor’s and attorney’s commissions to that computation in effect at the date of decedent’s death, that is, in the present case, pursuant to the “old rates.”

The application of the “new rates” to the deductions for inheritance taxes allowable under section 13988 of the Revenue and Taxation Code would be unconstitutional as constituting a gift of public monies, and such construction should be avoided. It is established that inheritance taxes are fixed and determined in accordance with the law in effect at the date of the transfer, which in this ease would be the date of death.

The Legislature cannot by a subsequent act increase or decrease the rate, remit the tax, or in any way surrender, impair or limit rights that have become fixed. (Estate of Stanford, 126 Cal. 112, 118 et seq. [54 P. 259, 58 P. 462, 45 L.R.A. 788] ; Estate of Rossi, 169 Cal. 148,149 [146 P. 430].)

Where a tax has become due, a subsequent act of the Legislature reducing the tax by reason of the change in the exemptions, tax rates, or for that matter in any way, is held to be a gift of state monies and is prohibited by article IY, section 31, of the California Constitution.3

Retroactive effect of such legislation is therefore prohibited. (See Estate of Stamford, supra, where it is stated at page 121:

“We are, therefore, of the opinion that to give retroactive effect to the law of 1897 would conflict with the provisions of the constitution prohibiting the Legislature from making any gift or donation of any public money or thing of value.
“We quite agree with the appellant’s counsel that ‘an heir or legatee must take his estate on such conditions as at the time the state may have imposed’; and that subsequent legislation could not affect such vested right. And this rule, as already held, applies equally to the state, whose right to the fund in question accrued under the act of 1893.”)

The foregoing principles are applicable to the instant case.

On July 19, 1955, the date of decedent’s death, the tax *297became due and owing in accordance with the inheritance tax law in effect at that time. Such law included section 13988 of the Revenue and Taxation Code, and the rates for executor’s commissions applicable at that time were the “old rates.” To read into section 13988 a change by virtue of section 901 of the Probate Code, as it became effective approximately two months thereafter, would be to read into the statute a construction which would result in the tax due at the date of death being reduced. Such a construction would constitute a gift of state monies and should be avoided.

It is an established principle of statutory construction that when two alternative interpretations are presented, one of which would be unconstitutional and the other constitutional, the court will choose that construction which will uphold the validity of the statute and will be constitutional. (County of Los Angeles v. Legg, 5 Cal.2d 349, 353 [2] [55 P.2d 206].) The proper interpretation of section 13988 requires the application in the instant case of the “old rates.”

Estate of Spires, 126 Cal.App. 174 [14 P.2d 340], and Estate of Parker, 200 Cal. 132 [251 P. 907], relied on by appellants, are not applicable to the facts of the present case. Each of the cited cases dealt with fees for extraordinary services. Extraordinary commissions and fees are different from statutory commissions. Whether any extra fees or commissions should be allowed in a given case, and if so and how much, is committed to the discretion of the court. In the case of statutory commissions and fees, the determination is made by the Legislature. The court’s function is limited to a ministerial computation.

It follows that statutory fees and commissions, such as are involved in this case, are in the nature of fixed charges. The interest thus created, both from the standpoint of the heirs, devisees, the personal representative and the attorney, are substantive in character and not procedural. (Cf. Estate of Potter, 188 Cal. 55, 60 [5] [204 P. 826].)

The soundness of the above principles was recognized by this court in Estate of Parker, supra, where it is said at pages 141-142: “The amendment in question, to the extent that it removes all limitation upon the amount which may be allowed to executors and administrators as extra compensation for extraordinary services performed by them, has the effect of imposing new and additional liabilities upon estates in probate. A statute will not be given a retroactive *298construction by which it will impose liabilities not existing at the time of its passage. ‘Laws which create new obligations, or impose new duties, or exact new penalties because of past transactions, have been universally reprobated by civil and common law writers, and it is to be presumed that no statute is intended to have such effect unless the contrary clearly appears.’ ”

The order is affirmed.

Gibson, C. J., Shenk, J., Traynor, J., Schauer, J., and Spence, J., concurred.

Hereinafter the rates in effect pursuant to section 901 of the Probate Code at the time of decedent’s death on July 19, 1955, will be referred to as the “old rates.”

The rates in effect pursuant to section 901 of the Probate Code effective on and after September 7, 1955, will be referred to as the “new rates.”

Article IV, section 31, of the California Constitution, in imposing restrictions upon the Legislature, declares: . . nor shall it have power to make any gift or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever; provided, that nothing in this section shall prevent the Legislature granting aid pursuant to Section 22 of this article.”