In re Stewart's Estate

• Decision Date: 01 March 1892
• Citation: 131 N.Y. 274,30 N.E. 184
• Parties: In re STEWART'S ESTATE.
• Court: New York Court of Appeals Court of Appeals

131 N.Y. 274

30 N.E. 184

In re STEWART'S ESTATE.

Court of Appeals of New York.

March 1, 1892.

Appeal from supreme court, general term, first department.

An order of the surrogate of the county of New York, entered July 23, 1890, affirmed parts of an order of the surrogate, entered May 7, 1890, assessing and fixing the collateral inheritance tax under the will of Cornelia M. Stewart, deceased. The general term reversed that part of the surrogate's order which imposed a tax on the interests which Charles J. Clinch and James Clinch Smith, as executor of Sarah N. Smith, deceased, respectively received by transfer from a trustee under a power of appointment contained in the will, and the attorney general, on the part of the people of the state, and of Theodore W. Myers, comptroller of the city of New York, appeals. The general term affirmed that part of the surrogate's order which adjudged that the tax assessed on the interest which Charles J. Clinch received directly under the will should bear interest from April 25, 1888, and the executors of the estate and Clinch, individually, take a cross-appeal. The order of the general term, so far as it reverses the decree of the surrogate, reversed, and the decree of the surrogate in all things affirmed.

S. W. Rosendale, Atty. Gen., for the People.

Benjamin P. Dos Passos, for appellant Myers.

Horace Russell and Jabish Holmes, Jr., for the executors and appellant Clinch.

Martin & Smith, (M. W. Divine, of counsel,) for respondent Smith.

ANDREWS, J.

This appeal involves a question 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 19 legatees in the will, including 3 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, on the day mentioned, January 16, 1890, appointed the balance of the trust fund, amounting to more than $2,000,000, among 10 of the 19 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. The question is whether the sum so received by Charles J. Clinch under the power of appointment is taxable under the law of 1885.¹ 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 Charles J. Clinch under the power of appointment is not taxable is placed upon two propositions: First, that until the power of appointment was actually exercised Charles J. Clinch had, at most, a mere possibility that he might share in the distribution, and had no estate vested or contingent in the fund, and that this possibility or chance was incapable of any valuation at the decedent's death, as he might receive something or nothing, depending on the will of the donee of the power; and, second, that the statute contemplates the taxation of such interests only as are capable of valuation at the death of the decedent, and provides no method for taxing an uncertain and contingent interest which may never vest in possession. It is doubtless true that Charles J. Clinch, at the death of Mrs. Stewart, took no legal interest in the trust fund given to Hilton. The will, while it designated the class of persons for whose benefit the power of appointment should be exercised, nevertheless conferred upon the trustee the power to select any one or more of the class as the objects of the power. The trustee could appoint the whole property to one or more of the sisters, or to one or more of the nephews. He could exclude any one or more of the legatees from any share in the distribution. When he had appropriated such part of the fund as he deemed requisite for the purposes of the school and the cathedral, he was bound to appoint the remainder among individuals of the class, and the performance of this duty might be compelled if he had refused to exercise the power, but the court could not control his discretion in the selection of the beneficiaries. Delaney v. McCormick, 88 N. Y. 174. Unless the power had been exercised, no one of the class could maintain that he was entitled to any part of the fund. It is very clear, then, that there was no basis for fixing a tax, at the death of Mrs. Stewart, on the mere possibility which Charles J. Clinch had, that the power of appointment might be exercised in his favor. If authority were needed for so plain a proposition, the case In re Cager, 111 N. Y. 344, 18 N. E. Rep. 866, is ample to sustain it. The possibility, however, became a certainty when, on the 16th day of January, 1890, the donee of the power of appointment exercised it in favor of members of the class mentioned in the will, and set apart to Clinch the tenth part of the trust fund. To the extent of such application Clinch became vested, as of that date, with an interest in the estate of Mrs. Stewart. If the $248,540.16 received by him under the power had been given to him directly by the will, it would unquestionably have been subject to taxation. It is claimed to be exempt in the actual situation, because the legislature failed to provide a method for the taxation of interests acquired under the circumstances of this case.

The subjects of taxation under the act of 1885 are declared and defined in the first section. They include ‘all property which shall pass by will, or by the intestate law of this state, from any person who may die seised or possessed of the same * * * to any person or persons, or to a body politic or corporate, in trust or otherwise, or by reason whereof any person or body politic or corporate shall become beneficially entitled, in possession or expectancy, to any property, or to the income thereof, other than to and for the use of father, mother, husband, wife, children, brother, and sister, and lineal descendants born in lawful wedlock, and the wife and widow of a son, and husband of a daughter, and the societies, corporations, and institutions now exempted by law from taxation.’ The tax imposed is five dollars on every hundred dollars ‘of the clear market value of such property.’ Looking at this section alone, it would seem to be clear that the property which passed to Clinch under the power of appointment was taxable. The tax imposed by the act is in form a tax on property passing by a will, or under the statutes of descents or distribution. The tax is imposed on all such property, except such as passes to persons or corporations within the clause of exception. Estates in possession or expectancy, gifts of the corpus or of the income, and estates in trust are alike embraced within the comprehensive words of the section. The obvious intent of the legislature was to impose a tax on every interest, immediate or future, derived under a testator or intestate, not embraced in the exception. No collateral inheritance was excepted in terms, and the object and spirit of the act are alike opposed to any exemption of such interest from the operation of the section. Whether the section embraces in its scope...