In re Vanderbilt's Estate

Decision Date11 July 1939
Citation281 N.Y. 297,22 N.E.2d 379
PartiesIn re VANDERBILT'S ESTATE. Appeal of WHITNEY et al.
CourtNew York Court of Appeals Court of Appeals

OPINION TEXT STARTS HERE

Appeal from Supreme Court, Appellate Division, First Department.

Proceeding in the matter of the appraisal under the Estate Tax Law, s 249-m et seq., of the estate of Alice G. Vanderbilt, deceased, between Gertrude Vanderbilt Whitney and others, as executors of Alice G. Vanderbilt, deceased, and another, and the State Tax Commission and Gertrude Vanderbilt Whitney, individually. From an order of the Appellate Division, 255 App.Div. 776, 7 N.Y.S.2d 647, affirming an order of the Surrogate's Court, 163 Misc. 667, 297 N.Y.S. 554, determining the value of the estate of the decedent for the purpose of the estate tax imposed by the Tax Law, s 249-m et seq., Gertrude Vanderbilt Whitney and another, as executors of Alice G. Vanderbilt, deceased, and another, appeal. Permission to appeal was granted by the Appellate Division in 255 App.Div. 964, 8 N.Y.S.2d 996.

Order of the Appellate Division affirmed. Arthur A. Ballantine, Roy C. Gasser, Thomas B. Gilchrist, Horace R. Lamb, and Leo Gottlieb, all of New York City, for appellants Gertrude V. Whitney et al.

Thomas B. Gilchrist and Hampton D. Ewing, Jr., both of New York City, for appellant Thomas B. Gilchrist general guardian of property of Gloria S. Morgan, an infant.

Mortimer M. Kassell, of Albany, and Harry T. O'Brien, Jr., of Troy, for respondent State Tax Commission.

LEHMAN, Judge.

Alice G. Vanderbilt died on April 22, 1934. Her ‘gross estate’ was appraised at $10,120,907.17. Deductions of $766,319.32, allowed by statute, left a ‘net estate’ of $9,354,587.85. A transfer tax measured by that ‘net estate’ has been assessed. The decedent was the widow of Cornelius Vanderbilt, who died in September, 1899. By his will Cornelius Vanderbilt created a fund to provide an income of $250,000 to his wife during the lifetime. He directed that at the death of his wife ‘the principal set apart * * * to create the annual payment of two hundred and fifty thousand dollars to my wife, shall be given to our children, Gertrude, Alfred G., Reginald C. and Gladys Moore; and if any then be dead, to their issue, in such proportions and amounts as my said wife may direct or appoint in her last Will and Testament, and in default of such appointment the same shall be divided among our said four children equally, share and share alike, the issue of any such child or children to take its parent's share, per stirpes and not per capita.’ The decedent Mrs. Vanderbilt exercise the power of appointment conferred upon her. At her death the fund which was subject to that power was appraised at $5,935,572.07, and the full amount was included in the decedent's taxable estate by the tax appraiser. This, the appellants contend, was error.

By the exercise of her power of appointment the decedent gave to one daughter and the issue of a deceased son far more than they would otherwise have received under the will of Cornelius Vanderbilt, thus correspondingly reducing the amount which the other daughter and the issue of the other son would have received if she had failed to exercise her power. The legatees, who received less through the exercise of the power than they would otherwise have received, have asserted a right to elect to take under the will of the creator of the power. The Surrogate has sustained their right to such election and the State does not challenge that ruling. Their legacies, then, are taxable, if at all, as part of the estate of Cornelius Vanderbilt, the donor of the power, and the amounts which they have received have been eliminated from the gross estate of Mrs. Vanderbilt, the donee of the power. Cf. Matter of Duryea's Estate, 277 N.Y. 310, 14 N.E.2d 369. Upon this appeal the question is whether the shares of the trust fund passing to the other daughter and grandchildren in accordance with the exercise of the power of appointment by the donee of the power were properly included in the gross estate of Mrs. Vanderbilt, subject to tax as part of her estate. The shares so included constitute the major portion of the trust fund and more than half of the estate of Mrs. Vanderbilt, the donee of the power.

The property which was included in Mrs. Vanderbilt's estate did not at any time belong to her. It did not at her death pass from her to those whom she appointed to take. Her power of appointment was not general. By its exercise she could obtain no benefit for herself, her creditors or her estate. During her life the fund was held by trustees under the terms of the will of Cornelius Vanderbilt. She enjoyed under his will a life interest in the fund, and a tax measured by the value of that life interest was paid upon the death of Cornelius Vanderbilt. The remainder, which would vest in others upon her death, was not included in the tax assessed upon the transfer of his property. Mrs. Vanderbilt might, by exercise of her power of appointment, determine the shares which members of a limited group defined by the will of Cornelius Vanderbilt should receive out of property in the estate of Cornelius Vanderbilt and held by trustees under his will. When she exercised that power she gave her appointees nothing which belonged to her and she relinquished no rights which she might have asserted for herself. Nevertheless, the transfer of that property has been taxed in her estate and not in the estate of Cornelius Vanderbilt. The tax so imposed is many times greater than it would have been if the transfer had been taxed in the estate of the donor of the power. The appellants maintain that the Tax Law, Consol.Laws, ch. 60, properly construed, does not authorize the inclusion in the taxable estate of Mrs. Vanderbilt of property which was in no real sense a part of her estate, and that the Legislature could not authorize its inclusion without violation of restrictions placed by the Constitution of the United States upon the legislative power. The questions raised reuire a detailed statement and analysis of the history of the statutes of the State imposing death duties and of the proceedings had in fixing the tax upon the estate of Cornelius Vanderbilt in accordance with the statute in effect at his death.

The Tax Law then in effect (Laws of 1896, ch. 908, as amended by Laws of 1897, ch. 284) provided that ‘a tax shall be and is hereby imposed upon the transfer of any property * * * in the following cases:

‘1. When the transfer is by will or by the intestate laws of this state from any person dying seized or possessed of the property while a resident of the state. * * *

‘5. Whenever any person or corporation shall exercise a power of appointment derived from any disposition of property made either before or after the passage of this act, such appointment when made shall be deemed a transfer taxable under the provisions of this act in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power and had been bequeathedor devised by such donee by will; and whenever any person or corporation possessing such a power of appointment so derived shall omit or fail to exercise the same within the time provided therefor, in whole or in part, a transfer taxable under the provisions of this act shall be deemed to take place to the extent of such omissions or failure, in the same manner as though the persons or corporations thereby becoming entitled to the possession or enjoyment of the property to which such power related had succeeded thereto by a will of the donee of the power failing to exercise such power, taking effect at the time of such omission or failure.’ s 220, subds. 1 and 5.

We are concerned primarily with those provisions of the statute which might apply to taxation of transfers of property effected through the exercise of a power of appointment by the donee of the power. We are not concerned with those provisions of the statute which might apply where there has been failure to exercise such a power.

Thus when the tax was assessed on the estate of Cornelius Vanderbilt, though the life estate passing under the testator's will to his wife was at that time subject to a tax as part of his estate, the transfer of the fund at the death of his wife, either by her exercise of the power of appointment conferred upon her or, upon her failure to exercise that power, in accordance with the terms of the will of the donor of the power was declared by the statute to be taxable only at the date of the death of the donee of the power ‘in the same manner as though the property * * * belonged absolutely to the donee of such power and had been bequeathed or devised by such donee by will.’ The statute, it is clear, is not intended to draw any distinction between general powers of appointment and special or nonbeneficial powers. It applies to every form of power. It was so construed and applied in assessing the tax upon the transfer of the estate of Cornelius Vanderbilt and we are not referred to any case in which any other construction was urged ‘where there is an absolute gift of a power of appointment.’ Cf. Matter of Burgess' Estate, 204 N.Y. 265, 270, 97 N.E. 591, 593. Such an absolute gift of a power of appointment was made here. Even though choice by the donee of the power was limited to a small group of persons and there may have been a theoretical possibility that none of that group would be in existence at the time fixed for the exercise of that power, yet under all possible circumstances the property was ‘certain to pass under the exercise or non-exercise of the power of appointment,’ and, therefore, the transfer was taxable in the estate of the donee. That would not be true where the gift of the power is to take effect only in contingencies which might never arise. In that respect this case differs from Matter of Burgess' Estate, supra, where the testator himself chose the persons to whom remainders should pass in...

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