Graves v. Elliott

• Decision Date: 29 May 1939
• Docket Number: No. 372,372
• Citation: 307 U.S. 383,83 L.Ed. 1356,59 S.Ct. 913
• Parties: GRAVES et al. v. ELLIOTT et al
• Court: U.S. Supreme Court

307 U.S. 383

59 S.Ct. 913

83 L.Ed. 1356

GRAVES et al.

v ELLIOTT et al.

No. 372.

Argued April 28, 1939.

Decided May 29, 1939.

Mr. M. M. Kassell, of Albany, N.Y., for petitioners.

Mr. Frederick C. Bangs, of New York City, for respondents.

Mr. Justice STONE delivered the opinion of the Court.

We are asked to say whether the State of New York may constitutionally tax the relinquishment at death, by a domiciled resident of the state, of a power to revoke a trust of intangibles held by a Colorado trustee.

Decedent in 1924, while a resident of Colorado, transferred and delivered to Denver National Bank of Denver, Colorado, certain bonds to be held upon specified trusts with specified powers in the trustee to administer the trust and to invest and reinvest the trust fund. So far as now material, the trust indenture provided that the trustee should pay over the income to decedent's daughter for life and afterward to the daughter's children until each had reached the age of twenty-five years, when a proportionate share of the principal of the trust fund was to be paid over to such child. In default of such children the principal was to revert to decedent and pass under her will. She reserved the right to remove the trustee, to change any beneficiary of the trust, and to revoke the trust and revest herself with the title to the property, the trustee in that event undertaking to assign and deliver to her all the securities then constituting the trust fund.

After creating the trust decedent became and remained a domiciled resident of New York, where she died in 1931 without appointing new beneficiaries of the trust or revoking it. Until her death the trust was administered by the bank at its offices in Colorado, and the paper evidences of the intangibles—corporate bonds—comprising the trust fund remained in the possession of the trustee in Colorado.

Following her death the taxing authorities of Colorado assessed a tax on the transmission at death of the trust fund. Proceedings in New York for the assessment of estate taxes on the transfer of the trust fund at decedent's death resulted in an order of the Surrogate confirming the assessment under §§ 249-n, 249-r (as amended by Laws 1931, c. 62) of the New York Tax Law. Consol. Laws, ch. 60 ¹ On appeal the New York Court of Appeals, In re Brown's Estate, 274 N.Y. 10, 8 N.E.2d 42, reversed the order of the Surrogate, holding that so far as the provisions of the New York Tax Law purport to include the intangible trust property in the gross estate they infringe due process by imposing a tax on property whose situs is outside the state. We granted certiorari November 14, 1938, the question involved being of public importance. 305 U.S. 667, 59 S.Ct. 151, 83 L.Ed. —-.

The essential elements of the question presented here are the same as those considered in Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. —-, decided this day. As is there pointed out, the power of disposition of property is the equivalent of ownership. It is a potential source of wealth and its exercise in the case of intangibles is the appropriate subject of taxation at the place of the domicile of the owner of the power. The relinquishment at death, in consequence of the non-exercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation. Saltonstall v. Saltonstall, 276 U.S. 260, 48 S.Ct. 225, 72 L.Ed. 565; Reinecke v. Northern Trust Co., 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397; Helvering v. City Bank Farmers Trust Co., 296 U.S. 85, 56 S.Ct. 70, 80 L.Ed. 62; cf. Keeney v. New York, 222 U.S. 525, 32 S.Ct. 105, 56 L.Ed. 299, 38 L.R.A.,N.S., 1139; Bullen v. Wisconsin, 240 U.S. 625, 36 S.Ct. 473, 60 L.Ed. 830; Chase National Bank v. United States, 278 U.S. 327, 49 S.Ct. 126, 73 Ed. 405, 63 A.L.R. 388; Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758; Guaranty Trust Co. v. Blodgett, 287 U.S. 509, 53 S.Ct. 244, 77 L.Ed. 463; Porter v. Commissioner, 288 U.S. 436, 53 S.Ct. 451, 77 L.Ed. 880

For reasons stated in our opinion in Curry v. McCanless, supra, we cannot say that the legal interest of decedent in the intangibles held in trust in Colorado was so dissociated from her person as to be beyond the taxing jurisdiction of the state of her domicile more than her other rights in intangibles. Her right to revoke the trust and to demand the transmission to her of the intangibles by the trustee and the delivery to her of their physical evidences was a potential source of wealth, having the attributes of property. As in the case of any other intangibles which she possessed, control over her person and estate at the place of her domicile and her duty to contribute to the support of government there afford adequate constitutional basis for imposition of a tax measured by the value of the intangibles transmitted or relinquished by her at death. Curry v. McCanless, supra, and cases cited.

Reversed.

Mr. Chief Justice HUGHES, dissenting.

I think that the decision in this case pushes the fiction of mobilia sequuntur personam to an unwarranted extreme and thus unnecessarily produces an unjust result.

The same property is subjected to an inheritance or transfer tax by two States. The decedent, in 1924, while a resident of Colorado, created a trust in certain securities, consisting of federal, state and other bonds. The trustee was a Denver bank. The income of the trust property was payable to the settlor's daughter during her life and thereafter to her children until they respectively arrived at the age of twenty-five years, when they were to have the principal in equal shares. If the daughter left no children, the trust estate was to revert to the settlor. The settlor reserved the right to change the beneficiaries, to revoke the trust, and to remove the trustee. The legal title to the securities was thus vested in the trustee, which entered upon its administration and continued it both before and after the settlor's death. There was no revocation of the trust or change of beneficiary or trustee, or diversion of the income from the use of the daughter, and the beneficiaries were all living when the settlor died.

Prior to her death, the settlor removed to New York. The trust res continued to be in Colorado. An inheritance tax upon the decedent's property situated in Colorado, and including the bonds held there in trust, was imposed by that State. The New York Court of Appeals has held, and I think rightly, that this trust property was not subject to an estate tax in New York. In re Brown's Estate, 274 N.Y. 10, 8 N.E.2d 42.

It is true that the Constitution of the United States contains no specific provision against double taxation, but the Constitution does impose limitations upon the taxing power of a State which I think are applicable and should prevent a double exaction in this case.

The principle governing the application of the due process clause of the Fourteenth Amendment, U.S.C.A.Const., to the State's taxing power is well established. That principle, as repeatedly declared by this Court, and apparently not disputed now, is that it is 'essential to the validity of a tax that the property shall be within the territorial jurisdiction of the taxing wer'. Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 204, 26 S.Ct. 36, 37, 50 L.Ed. 150, 4 Ann.Cas. 493. What is meant is that due process in taxation requires that the property shall be attributable to the domain of the State which imposes the tax. This rule has its most familiar illustration in the case of land which, to be taxable, must be within the limits of the taxing State. The fact that the owner is domiciled within a State, if the land is elsewhere, does not give the State of his domicile the authority to tax. In Union Refrigerator Transit Co. v. Kentucky, supra, we held that the principle against the taxability of land within another jurisdiction applies with equal cogency to tangible personal property having an actual situs outside the State's domain. True, the fiction expressed in the maxim mobilia sequuntur personam might have seemed to justify such a tax on personal property by the State of the owner's domicile. But as said in Pullman's Car Co. v. Pennsylvania, 141 U.S. 18, 22, 11 S.Ct. 876, 877, 878, 35 L.Ed. 613: 'The old rule, expressed in the maxim mobilia sequuntur personam, by which personal property was regarded as subject to the law of the owner's domicil, grew up in the Middle Ages, when movable property consisted chiefly of gold and jewels, which could be easily carried by the owner from place to place, or secreted in spots known only to himself. In modern times, since the great increase in amount and variety of personal property, not immediately connected with the person of the owner, that rule has yielded more and more to the lex situs,—the law of the place where the property is kept and used'...