American Nat. Bank & Trust Co. of Chattanooga v. Benson
| Decision Date | 06 December 1971 |
| Citation | 3 Pack 600,474 S.W.2d 427,225 Tenn. 600 |
| Parties | , 225 Tenn. 600 The AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHATTANOOGA, Executor of the Estate of Inez Brown, Deceased, Appellee-Appellant, v. Thomas D. BENSON, Commissioner of Revenue, State of Tennessee, Appellant-Appellee. |
| Court | Tennessee Supreme Court |
David M. Pack, Atty. Gen., Everett H. Falk, Asst. Atty. Gen., for appellant-appellee.
Howard I. Levine, Miller, Martin, Hitching, Tipton, Lenihan & Waterhouse, Chattanooga, for appellee-appellant.
The American National Bank and Trust Company of Chattanooga, sued Thomas D. Benson, Commissioner of Revenue, State of Tennessee, to recover inheritance taxes and interest paid under protest by it as executor of the estate of Inez Brown. After a trial on answer and stipulation, a decree was entered awarding recovery as to a portion of the tax, and denying recovery as to the other portion. Both parties have appealed and assigned error.
The material facts of the case as admitted and stipulated are that decedent, Inez Brown, was the trustee under a declaration of trust. Under the terms of the trust Inez Brown was to enjoy the income from the trust for life, and, upon her death, the corpus of the trust was to be distributed to the sister of Inez Brown, Mary B. Harding, and/or her issue, subject to a power of appointment in Inez Brown to appoint the corpus to members of this class in such portions as she might see fit. At the time Inez Brown died, Mary B. Harding was dead, and the class of possible appointees so far as appears from the record, included John Slosson Harding, her son, and Elizabeth Harding Wolf, her daughter, and three children of Elizabeth Harding Wolf.
At her death on December 28, 1967, Inez Brown exercised her power of appointment in her will and appointed the trust corpus to John Slosson Harding and the three children of Elizabeth Harding Wolf. John Slosson Harding was appointed one-half of the trust corpus and the three children of Elizabeth Harding Wolf were appointed the other half in equal shares. Nothing was appointed to Elizabeth Harding Wolf, who, prior to the death of Inez Brown, had been adjudged legally incompetent and continued as such until her death, intestate, approximately eight months after the death of Inez Brown.
Because of the testamentary exercise of the power of appointment by Inez Brown, the Commissioner of Revenue included the corpus of the trust estate Inez Brown appointed for inheritance tax purposes, pursuant to T.C.A. § 30--1602(h), and assessed additional inheritance taxes in the amount of $101,442.19, plus interest. The American National Bank, as executor, paid this assessment under protest and sued to recover it.
The executor's theory of suit was that John Slosson Harding took under the power of appointment the same interest in the trust that he would have taken had the power not been exercised, and so no tax was payable. The executor's contention with respect to the portion of the trust fund appointed to the three children of Elizabeth Harding Wolf was that since Elizabeth Harding Wolf was incompetent to make any disposition of her property by will, by force of the facts, her children were in much the same situation as their uncle, John Slosson Harding, in that they would have ultimately received through the laws of descent and distribution the same interest appointed to them; with the result, as contended for in John Slosson Harding's case, that no inheritance tax was due the State of Tennessee.
The Chancellor held in a memorandum opinion that the inheritance tax should not have been imposed on the portion of the trust corpus appointed to John Slosson Harding, and that the inheritance tax was properly imposed on the portion appointed to the three children of Elizabeth Harding Wolf. Decree was entered accordingly, and both the commissioner and the executor have appealed.
The errors assigned by the executor to the Chancellor's holding that the appointment to Mrs. Wolf's children was taxable are:
(1) That the Wolf portion of the trust corpus was already vested in the appointees and so no taxable transfer resulted from Miss Brown's exercise of the power of appointment under § 30--1602(h) T.C.A.
(2) That the designation by Miss Brown of the recipients of the Wolf portion was not an effective exercise of the power of appointment.
(3) That the Tennessee Inheritance Tax Law does not tax the mere exercise of a power of appointment.
The Commissioner's assignments of error make the contention that the Chancellor erred in holding that Mrs. Brown's exercise of the power of appointment to John Slosson Harding was not taxable as in form only and transferred nothing to the appointee, because, in law and in fact, a taxable act, the exercise of a power of appointment, as prescribed by § 30--1602(h) T.C.A., had occurred.
We are of opinion the assignments of error of the executor are not well taken and must be overruled, while the assignments of error of the Commissioner must be sustained.
Dealing first with the contention that the inheritance tax law does not tax the exercise of a power of appointment, we deem it unnecessary to discuss and distinguish the executor's authorities, being of opinion the statute, itself, supports, in fact requires, the tax. Section 30--1602(h) provides that 'transfers under powers of appointment shall be taxable in like manner and to the same extent as if property of the testator or donor was transferred.' It is impossible to read this statute, bearing in mind the result sought, without appreciating that the tax is laid upon the exercise of the power of appointment, so that common law concepts as to the nature of powers of appointment and the interest of the donee of the power and the appointees thereof are inconsequential.
The tax is laid on 'transfers under powers of appointment' which, in context, purpose and intent, means the Exercise of the power of appointment; and upon the privilege of receiving, pursuant to the exercise of the power. This interpretation of the statute is consistent with its provision that the tax is levied, not with respect to the act of the donor of the power, but, with respect to an act by the donee, a 'transfer', which can only be accomplished by the exercise of the power of appointment.
This statutory conception results in the taxation of the receipt of property by will, statutes of descent and distribution, and the exercise of the power of appointment; an arrangement encompassing the various means by which the devolution of property is accomplished.
Bridgewater v. Turner, 161 Tenn. 111, 29 S.W.2d 659 (1929), on which the executor relies, is not point. That case did not involve the inheritance tax statutes. It dealt with the common law theory of vesting of unappointed interests, and held that where the life tenant died without exercising a testamentary power of appointment in favor...
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