131 N.Y. 274, In re Stewart's Estate

Citation:131 N.Y. 274
Party Name:In the Matter of the Estate of CORNELIA M. STEWART, Deceased.
Case Date:March 01, 1892
Court:New York Court of Appeals

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131 N.Y. 274

In the Matter of the Estate of CORNELIA M. STEWART, Deceased.

New York Court of Appeal

March 1, 1892

Argued February 1, 1892.

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Simon W. Rosendale, Attorney-General, for appellants. The property passing to the trustee, and through him to Charles J. Clinch and Sarah N. Smith, is liable to taxation under chapter 483 of the Laws of 1885, as amended by chapter 713 of the Laws of 1887, for the reason that it was property which passed by the will of the testatrix, who was a resident of the state, to the persons named who did not occupy such relationship to the testatrix as to exempt the transfer from the payment of the tax. (Middleton v. Crofts, 2 Atk. 661; Lady Gresham's Case, Mo. 261; Smith v. Garey, 2 Dev. & B. [ N. C.] Eq. 42; Wallace v. Myers, 38 F. 184; Mager v. Grima, 8 How. [ U. S.] 490; Scholey v. Rew, 23 Wall. 331; Eyre v. Jacob, 14 Grat. 422; Miller v. Com., 27 id. 110; Strode v. Com., 52 Penn. St. 181; In re Howe, 112 N.Y. 103; Comrs. v. Williams, 13 Penn. St. 29.) The property passing to the trustee, Hilton, by virtue of the codicils to the will, was liable for the tax without regard to the persons or corporations which might ultimately become entitled to it or receive it upon the execution of the trust by the trustee. (Perry on Trusts, § § 305, 310, 311, 316, 318, 389; Nichol v. Walworth, 4 Den. 385; Bennett v. Garlock, 79 N.Y. 302.) It is submitted that the construction given by the General Term to the Collateral Inheritance Law is an extremely narrow and technical one, which, if adopted, will, in a large class of cases, defeat the plain object and intent of the law. (Laws of 1885, chap. 483; Laws of 1887, chap. 713; Laws of 1889, chap. 479; Bradish v. Gibbs, 3 Johns. Ch. 549; Little v. Lewis, 7 id. 44.) The surrogate properly held that the tax on the legacy given to the appellant Clinch directly in the will, which amounted to one-fourth of the residuary estate, must bear interest from the expiration of eighteen months after the death of the testatrix. (Laws of 1887, chap. 713, § § 4, 5.) The liability to pay interest is not affected by section 2650 of

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the Code of Civil Procedure. (McKnight v. Chauncey, Seld. Notes, 97.)

Benj. F. Dos Passos for appellants. There being a clearly defined intention in the act of 1885 to tax estates or property passing by will to collateral heirs through powers of appointment, the rule of strict construction relied on by respondents does not apply. (In re Enston, 113 N.Y. 184; In re Romaine, 127 id. 88; Cooley on Taxn. 205; 3 Pars. on Cont. 287; Stief v. Hart, 1 N.Y. 30.) The rights of the appellants, upon the question of appraisement, are not affected by section 2 of chapter 713 of the Laws of 1887, as that section has no application to the power in trust devised to Hilton. (Laws of 1885, § 2, chap. 483; Laws of 1887, chap. 713, § 25, as amended by Laws of 1889, chap. 479; In re Miller, 110 N.Y. 216; In re Kemeys, 56 Hun, 117; Sherill v. Christ Church, 121 N.Y. 701.) If section 2 of the amendatory act controls, then it is the 'property or fund' by which the estate is supported (such is the language of section 2) which shall be appraised, and the trust fund to Hilton could have been appraised immediately at decedent's death. (Laws of 1887, chap. 713, § § 2, 6; U.S. v. Trucks, 27 F. 541; In re Clark, 1 Connelly, 431; In re Vanderbilt, 10 N.Y.S. 239; Com. v. Duffield, 12 Penn. St. 279; Com. v. Williams, 13 id. 29; Com. v. Sharpless, 2 Chest. 246; Com. v. Schumacher, 9 L. Bar. 199; Nieman's Appeal, 131 Penn. St. 351.) The estate passing to Hilton as trustee is taxable and appraisable under the statute against the trustee, irrespective of the right on the part of the estate to tax the interest of the beneficiaries. (Laws of 1885, chap. 483, § § 6, 7, 8.)

Horace Russell and Jabish Holmes for respondents. The tax was unlawfully imposed by the surrogate upon the property conveyed to Clinch under the power of appointment, because the Collateral Inheritance Act provides no method by which the value of such property could be ascertained at the time of decedent's death, and the act imposes no tax upon Clinch for receiving such an interest, although by the exercise

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of the power he received a part of Mrs. Stewart's property. At the time the appraiser was appointed there was only a possibility that Clinch might receive property under the power. Such possibility had no market value. (Laws of 1887, chap. 713; Laws of 1889, chap. 479; In re Enston, 113 N.Y. 174; In re Howe, 112 id. 103; In re Cager, 111 id. 343; In re Vassar, 127 id. 1; Sugden on Powers [8th ed.], chap. 9, § 3; Duke of Marlborough v. Lord Godolphin, 2 Ves., Sr., 61; Southby v. Stonehouse, 2 id. 612; Jackson v. Davenport, 20 Johns. 537; In re McPherson, 104 N.Y. 306; In re Hopkins, 6 Dem. 1; Redf. on Surr. Pr. [4th ed.] 562, 563; In re Lefever, 5 Dem. 184.) The part of the order directing that the tax imposed on the one-quarter of the residuary estate passing directly under the will to Charles J. Clinch should bear interest at six per cent per annum from April 25, 1888, was erroneous. (Fraser v. People, 6 Dem. 174; Code Civ. Pro. § 2650; In re Prout, 117 N.Y. 650; A. B. & C. Co. v. Conner, 103 id. 502; Brown v. Hiatts, 15 Wall. 177; Hoare v. Allen, 2 Dall. 102; Foxcraft v. Nagle, 2 id. 132; 1 Sedg. on Dam. 491, § 340; Stevens v. Barringer, 13 Wend. 639.)

Martin & Smith for James Clinch Smith, executor, respondent. Sarah N. Smith was not liable to the collateral inheritance tax upon the interest acquired by her on January 16, 1890, by the transfer from the trustee. (Code Civ. Pro. § 3343; Code Crim. Pro. § 718; People v. Mayor, etc., 9 Barb. 535; Sherman v. Elder, 24 N.Y. 381; Ayres v. Lawrence, 59 id. 198; People v. N.Y. & M. B. R. R. Co., 84 id. 256; Nicoll v. N.Y. & E. R. R. Co., 12 id. 121; Mendenhall v. Klinck, 51 id. 246; Smith v. Baylis, 3 Dem. 567; In re Cager, 111 N.Y. 343.) If it be claimed that chapter 479, Laws of 1889, amending section 25 of chapter 713, Laws of 1887, makes the latter law applicable to the 'estate' acquired by Mrs. Smith on January 16, 1890, and that the taxability of that estate must be determined by the provisions of this law, and not by those of the law of 1885, the appellant's case is made still clearer. (In re Arnett, 49 Hun, 599.)

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This appeal involves questions under the law for the taxation of collateral inheritances, passed June 10, 1885.

By the will of Cornelia M. Stewart, who died October 26, 1886, the testatrix gave one-half of her residuary estate to Henry Hilton, in trust, to apply in his discretion such portion thereof as he might deem expedient to the erection and endowment of a seminary of learning for women, and the erection of buildings and institutions connected with the Memorial Cathedral Church of Garden City, Long Island, with power to appoint any part of the trust estate which in his opinion would not be needed or required for the purposes of the trust, among any of the legatees named in the will. The will was admitted to probate November 13, 1886. The surrogate, on motion of the executors April 25, 1887, assessed and fixed the collateral inheritance tax upon the legacies given in Mrs. Stewart's will, which tax was paid, and on like motion appointed an appraiser 'to appraise for the purpose of said tax the clear market value at the time of the death of the decedent, of the property which passed by the residuary clause of the will.' No appraisal was made under the clause in the order until after the exercise of the power of appointment by the trustee.

This power was exercised for the first time on the 16th day of January, 1890, three years and more after the death of the testatrix. There were nineteen legatees in the will, including three half sisters of the testatrix. The other legatees were nephews, nieces and grandnieces. The trustee, after applying a portion of the trust estate to the purposes of the cathedral, appointed the balance of the trust fund, amounting to more than two million dollars, among ten of the nineteen legatees, one-tenth of which (being the sum of $248, 540.16) was appointed to Charles J. Clinch, a nephew of the testatrix. On the 19th of February, 1890, the appraiser appointed under the order of April 25, 1887, filed his report by which he appraised the value of the portion of the trust fund received by Charles J. Clinch at the sum named and decided that it was subject to a tax of $12, 427.

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The main question is whether the sum so received by Charles J. Clinch under the power of appointment is taxable under the law of 1885. The law was amended in 1887, and again in 1889. The question is the same as if these amendments had not been made, and it will avoid complication to treat the subject as if the statute of 1885 was alone applicable to the case and had remained unaltered. The contention that the sum received by...

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