In re Brez's Estate

• Decision Date: 21 October 1902
• Citation: 172 N.Y. 609,64 N.E. 958
• Parties: In re BREZ'S ESTATE.
• Court: New York Court of Appeals Court of Appeals

172 N.Y. 609

64 N.E. 958

In re BREZ'S ESTATE.

Court of Appeals of New York.

Oct. 21, 1902.

Appeal from supreme court, appellate division, Second department.

In the matter of the appraisal, under the transfer tax act, of the estate of John D. Brez. Proceedings by the comptroller of the state against Jules Racine and others, executors. From an order of the appellate division (75 N. Y. Supp. 1122) affirming a decree of the surrogate's court, the comptroller appeals. Reversed.

Bartlett, O'Brien, and Vann, JJ., dissenting.

Robert B. Bach, for appellant.

Frederic R. Coudert, Jr., and Howard Thayer Kingsbury, for respondents.

CULLEN, J.

We are of opinion that all the questions presented on this appeal, including both the construction and the constitutionality of the statute of 1899 (chapter 76) providing for the present appraisal and taxation of remainders created by will upon contingencies, or where the ultimate beneficiaries cannot be immediately ascertained, are disposed of by our recent decision in Re Vanderbilt's Estate, 172 N. Y. 69, 64 N. E. 782; and the order appealed from must therefore be reversed on the authority of that case. We feel, however, justified in calling the attention of the legislature to an inequality caused by the statute, which may have escaped its notice, and which we submit to its wisdom whether it would not be proper to remedy. In all the cases covered by this statute there must be one or more intermediate estates, generally life estates, during the period elapsing between the death of the testator and the happening of the contingency (commonly the death of the life tenant) on which the remainders become vested absolutely, and the remaindermen become certain. The tax on the remainders, being paid out of the corpus of the estate, diminishes the income of the life tenant by the interest on the amount of the tax. The constitutionality of this provision, though it affects the life tenant, we have upheld because the rate or amount of tax on the succession of the life tenant is within the discretion of the legislature to prescribe, and the scheme, in effect, is simply the imposition of an additional tax on the life tenant. It is evident, however, that the legislature has determined that in many instances the tax may be excessive; for, while it directs that the tax shall be imposed at the highest rate for any possible succession that may occur in any contingency, it provides that, if it eventually transpires that the succession which actually happens is subject to a lower rate, the excess of tax, with interest, shall be repaid by the state. The interest on this excess ought fairly to go to the life tenant, though the statute is silent on the subject. But even if given to the life tenant, it can be repaid to his estate only after his death, for it is commonly his death that finally settles the rate of tax. This is hardly an equivalent for the diminution of his income during life,-an income oftentimes necessary for his support. It seems to us that, bearing in mind the general character of the tax, and that the legislature has deemed it right to prescribe different rates of taxation, depending on the relation of the legatee or devisee to the deceased, if it is desired to make taxes on remainders payable immediately it would be fairer to the life tenant to have the tax assessed at the lowest rate of any succession provided for by the will, and that, in case the remainder eventually vesting should prove taxable at a higher rate, then such increased tax should be payable at the time of its enjoyment. Nor would this change be detrimental to the state. Our experience informs us that in the majority of cases the remainders are first appointed to the issue of the life tenant and descendants of the testator, and are given to collaterals or strangers only in default of issue. The lowest rate of tax thus usually proves the final rate. Where the state imposes in the first instance a higher rate of tax, it becomes obligated to repay the excess, after a lifetime, with 6 per cent. interest, while it could borrow the money at half that rate.

The orders of the surrogate and appellate division should be reversed, and proceedings remitted to the surrogate of Kings county to assess the tax as prescribed in the statute.

BARTLETT, J. (dissenting).

I am of opinion that the recent decision of this court in Re Vanderbilt's Estate, 172 N. Y. 69, 64 N. E. 782, does not cover all the questions raised in this case, and is therefore not a controlling authority.

John D. Brez died November 18, 1899, leaving a last will and testament, which was admitted to probate in Kings county on January 23, 1900. The testator, after certain directions as to the investment of his residuary estate, directed his executors and trustees to pay to his sister, Elizabeth Aline Gillet, the income thereof, not exceeding $20,000 per year; the remainder to be capitalized and added to the principal. In a construction suit, this provision as to income was held illegal and void, and it was determined that Mrs. Gillet was entitled to receive the total income of the residuary estate, if she had no issue. If issue were born to her, the income in excess of $20,000 per year should be paid to such issue. If she died leaving issue, they would be entitled to the principal of the residuary estate. If she died leaving no issue, the will provides that the income of the residuary estate ‘be devoted to purposes of charity or religion of the Protestant faith only, or, still better, to education and art, applied to industry, either directly or by means of encouragement, such as prizes for essays or prizes for examples, or in any other way which, according to their best judgment, will be most beneficial to mankind; said income to be devoted and distributed by said executors and trustees, or by a society organized for that purpose, according to their best judgment and the wants of the times.’ This clause of the will was also judicially construed, and it was held that, upon the death of Mrs. Gillet without issue, the discretionary powers ‘will vest in the qualifying executors then living or acting,...