In re Duryea's Estate

Decision Date08 March 1938
Citation14 N.E.2d 369,277 N.Y. 310
PartiesIn re DURYEA'S ESTATE.
CourtNew York Court of Appeals Court of Appeals

OPINION TEXT STARTS HERE

Proceeding in the matter of the appraisal under the Transfer Tax Law of the estate of Ellen W. Duryea, deceased. From an order of the Appellate Division, First Department, 250 App.Div. 305, 293 N.Y.S. 985, leave to appeal from which was denied in 251 App.Div. 705, 296 N.Y.S. 995, which modified and unanimously affirmed as modified an order of the Surrogate's Court, 156 Misc. 144, 281 N.Y.S. 237, assessing a transfer tax on the estate of Ellen W. Duryea, deceased, the State Tax Commission and others appeal; James C. Webster and others, as executors of Lisa W. Sandford, being respondents.

Order of Appellate Division modified, and, as so modified, affirmed.

LEHMAN, J., dissenting in part, and O'BRIEN, J., dissenting. Appeal from Supreme Court, Appellate Division, First Department.

Harry T. O'Brien, Jr., of Troy, for appellant State Tax Commission.

Clifton P. Williamson, of New York City, for appellant Robert H. Heighe.

James C. Webster, of New York City, for respondents.

HUBBS, Judge.

Ellen W. Duryea, testatrix, died December 23, 1927. On June 2, 1923, she had established a $200,000 inter vivos trust, the income payable to her sister, Lisa W. Sandford, for life, reserving to herself power of appointment over the corpus of the trust. She left a will dated February 16, 1927, and two codicils. By the third clause of her will she gave to her sister, Lisa W. Sandford, the corpus of the inter vivos trust, and by the fourth paragraph of the third clause she gave to her said sister an additional sum of $200,000. By the ninth paragraph, she provided as follows: ‘I direct that all transfer inheritance and estate taxes be paid out of my residuary estate, and that all the foregoing gifts, legacies and devises shall be free from and without deduction of any such taxes thereon.’ By the tenth paragraph of the will she gave her residuary estate to her nephew, the appellant, Robert H. Heighe, a son of her sister, Lisa W. Sandford. By the second codicil, dated December 14, 1927, first clause, she revoked the bequest of the trust fund to her sister, Lisa W. Sandford, and provided as follows: ‘* * * In lieu of said gift, I hereby give to my dear sister the power to appoint by will the disposition of the corpus of said trust fund, * * * and should she fail to exercise such power of appointment, I hereby give and bequeath the remainder of said trust fund from and after her death to her children to whom I now give and bequeath the same subject to such exercise of said power.’ By the same codicil, second paragraph, she revoked the bequest to her sister of $200,000 and gave the same to her executors and trustees in trust, the income to be paid to her said sister during her lifetime, and upon the death of her sister gave and bequeathed said sum so held in trust ‘to such person or persons and in such proportions and amounts as my sister may by will designate and appoint, and failing such appointment, to her heirs at law.’

The ‘children’ and ‘heirs at law’ of Lisa W. Sandford who would have taken under the will of Ellen W. Duryea in default of the exercise of these powers of appointment of which Lisa W. Sandford was donee were the appellant, Robert H. Heighe, and his sister, Lisa W. Heighe. Lisa W. Sandford died on February 7, 1934, leaving a will and codicil in which she exercised the power of appointment as to both trusts, and gave one-half to her daughter, Lisa W. Heighe, and the other half to the respondent, Baronig Baron, an adopted son, thus entirely excluding from participation in the trust funds the appellant, Robert H. Heighe, who would otherwise have taken a one-half interest therein under the second codicil of the will of Ellen W. Duryea.

The appellant, Robert H. Heighe, petitioned the surrogate to have excluded from the taxable estate of Ellen W. Duryea the two trust funds in question and to have stricken from the order assessing the tax the provisions for a tax thereon payable out of the residuary estate of Ellen W. Duryea, deceased. The surrogate held the tax upon both trust funds not payable out of the estate of Ellen W. Duryea, deceased. The Appellate Division reached a contrary conclusion, modified the order, and directed that the tax on both trust funds be paid from the estate of the donor.

Subdivision 4 of section 220 of the Tax Law, Consol.Laws, c. 60, as amended in 1926, Laws 1926, c. 357, states that whenever any person shall exercise a power of appointment, the appointment shall be deemed a taxable transfer ‘in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power.’

Subsequent to the death of the said Ellen W. Duryea, article 10, section 220 et seq., of the Tax Law, of which section 220 was a part, was repealed as to the estates of persons dying subsequent to September 1, 1930, and article 10-C, section 249-m et seq., substituted therefor, but Ellen W. Duryea having died before article 10-C took effect, section 220, subdivision 4, remained in full force and effect as to her estate under the specific provisions of section 249-mm of article 10-C. Of course, had the donee of the power, Lisa W. Sandford, died without exercising the power, the principal of both trust funds would have passed under the will of Ellen W. Duryea, the donor of the power, and would have been taxable as a part of the estate of Ellen W. Duryea. Lisa W. Sandford having exercised the power, the gift would be taxable as a transfer from her as donee under article 10-C unless, by some controlling principle of law or effective testamentary provision in the will of the donor of the power, that article is rendered inapplicable.

Not every exercise of a power has been held taxable to the estate of the donee, as where the appointment is identical in amount and to persons who would have taken in default of exercise of the power. Matter of Lansing's Estate, 182 N.Y. 238, 74 N.E. 882;Matter of Backhouse's Estate, 110 App.Div. 737, 96 N.Y.S. 466; affirmed 185 N.Y. 544, 77 N.E. 1181;Helvering v. Grinnell, 294 U.S. 153, 55 S.Ct. 354, 79 L.Ed. 825, or where a beneficiary receives less than he would have taken in default of the exercise. Matter of Slosson's Estate, 216 N.Y. 79, 110 N.E. 166.

Likewise, a testator may, by clearly-expressed intention, charge his estate with the payment of transfer estate or succession taxes on gifts or devises made by him. Decedent Estate Law, Consol. Laws, c. 13, § 124, Matter of Gihon's Estate, 169 N.Y. 443, 62 N.E. 561;Isham v. New York Association for Improving the Condition of the Poor, 177 N.Y. 218, 69 N.E. 367.

The questions here are whether the testatrix did clearly express an intention to charge her estate with a tax on the interest of each of the appointees, Lisa W. Heighe and Baronig Baron, in the trust funds, and, if not, whether the transfer in each instance is one properly held taxable to the estate of the donee under established principles of law.

It is clear that it was the intent of the testatrix to direct payment of all gifts, legacies, and devises provided for under her will free from and without deduction on account of taxes properly assessed on account of such gifts, legacies, and devises, and that the taxes thereon should be paid out of her residuary estate. It must be assumed, since she affirmed that part of her original will in the codicil by which she gave the powers of appointment, that it was her intention that the taxes assessed on gifts made by her under those powers should likewise be payable out of her residuary estate. The question is whether it is either necessary or proper to assume it to have been her intention to make payable out of her residuary estate taxes which pursuant to statute would otherwise be assessed in the estate of the donee of a power granted in her will. We believe not. To so assume would necessitate basing the tax on a law totally different from the law applicable when the will was drawn or during the lifetime of the grantor of the power. Under the order of the Appellate Division the tax assessable has been held to be against the estate of the donee under article 10-C enacted after the death of the donor, but it is made payable out of the estate of the donor, to which is applicable the provisions of the prior law. No such result could have been contemplated by the donor or is to be inferred as her intent from the language used.

We must, therefore, seek authority to uphold a finding that the tax assessed on account of transfers to the appointees or either of them is payable from the estate of the donor of the powers in decisions which have for their basis something other than an expressed intention of a testator.

Eliminating the question of intent as expressed by the testator, nothing remains upon which to reach a conclusion that the tax on the share passing to Baronig Baron may be held to be payable from the estate of the donor of the power. He is a stranger who under no circumstances would take under the will of testatrix, except by virtue of an exercise of the power of appointment. The property transferred to him must be included in the gross estate of the donee under section 249-r of article 10-C of the Tax Law, since the estate of the donee is subject to the provisions of the new estate tax law, and the tax is to be based on the provisions of that law. That an appointment to a stranger or an appointment through which the appointee takes benefits greater than would have accrued in the absence of an appointment is taxable in the estate of the donee of the power where the power is absolute is well established by authority. Matter of Cooksey's Estate, 182 N.Y. 92, 74 N.E. 880;Matter of Delano's Estate, 176 N.Y. 486, 68 N.E. 871,64 L.R.A. 279.

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