MacClurkan v. Bugbee

• Decision Date: 19 May 1930
• Docket Number: No. 101.,101.
• Citation: 150 A. 443
• Parties: MacCLURKAN v. BUGBEE, State Comptroller.
• Court: New Jersey Supreme Court

150 A. 443

MacCLURKAN

v. BUGBEE, State Comptroller.

No. 101.

Court of Errors and Appeals of New Jersey.

May 19, 1930.

Syllabus by the Court.

The state comptroller is not authorized to levy a transfer tax on a gift intended to take effect in possession or enjoyment at or after death when the gift was by deed of trust executed in another state of which the donor, the trustee, and the beneficiary were, at the execution of the deed, all residents (the latter two having constantly so remained), all of the securities of the trust, amongst which were no shares of stock of a New Jersey corporation or of any national banking association located in New Jersey or any obligations owing by a resident thereof, were and have always been physically in that other state, and the donor, though she later died a resident of New Jersey, had no control over the fund and no exercisable power of revocation over the gift during such residency.

Appeal from Supreme Court.

Certiorari by Samuel MacClurkan, as administrator of the estate of May Logan MacClurkan, to review an assessment by Newton A. K. Bugbee, as Comptroller of the State, against the estate of May Logan MacClurkan, deceased, on the interest of Theron Logan Rathje, a life beneficiary under a trust deed made by the decedent in her lifetime. Judgment affirming the assessment (143 A. 757), and prosecutor appeals.

Reversed.

Haines & Chanalis, of Newark (Addison S. Pratt, of New York City, on the brief), for appellant.

William A. Stevens, Atty. Gen., for respondent.

CASE, J.

The comptroller of the treasury assessed a tax of $5,590.52 against the estate of May Logan MacClurkan, deceased, upon the interest of Theron Logan Rathje, a life beneficiary under a trust deed made by the decedent in her lifetime. Under writ of certiorari the Supreme Court affirmed the assessment. The administrator appeals.

On August 26, 1921, in the city of Chicago, Mrs. MacClurkan, then May Logan, executed a trust deed to Frank C. Rathje, wherein she, as donor, transferred and conveyed certain securities to the trustee, he to pay the income therefrom to the donor during her lifetime and after her death to the donor's children, but, if there were no children, then to Theron Logan Rathje, and, if the latter should afterwards die, then the income was to "revert" to his mother, Josie Logan Rathje. The instrument gave the trustee "as wide latitude in the selection and making of any investments as if he, as an individual, were the absolute owner of the trust property," but reserved to the donor the right to revoke the agreement after a period of five years from the date thereof. The donor died within the five-year period, and therefore had no exercisable right of revocation at any time during her subsequent life. The trust deed contained no provision for the disposition of the corpus after the termination of the life estates.

At the execution of the trust deed May Logan was a resident of the state of Illinois. The trustee, the beneficiary (Theron Logan Rathje), and the latter's mother were then, and have constantly remained, residents of that state. All of the trust property was then, and has ever since been, physically present there. The trust property consisted of Liberty bonds, corporate stocks and bonds, and promissory notes of individuals. It did not include any shares of stock of corporations organized under the laws of New Jersey, or of any national banking association located therein, or any obligations owing by a resident thereof. Subsequently May Logan married Samuel MacClurkan, became a resident of New Jersey, and so remained until her death, without issue and intestate, March 4, 1924.

The appellant contends that the state of New Jersey, at the time of the execution of the trust deed, had no jurisdiction over either the person of the donor or the property of the trust, that the title to the property passed forthwith under the terms of the trust deed to the trustee independent of any rights conferred, and free of any obligations imposed, by this state, and that the succession tax laid upon the transfer is therefore illegal because it violates the first clause of article 1 and paragraph 16 of article 1 of the New Jersey Constitution, and also contravenes the due process clause of the Fourteenth Amendment to the United States Constitution. Respondent counters with the argument that the transfer was intended to take effect in beneficial possession and enjoyment after the death of the donor, and that the law of the jurisdiction where the donor was domiciled at the time of her death is effective for the taxation of intangible personal property so transferred. The issue differs from that of any decided case brought to our attention, in that the decedent, though resident in this state at the time of her death, was not so resident at or prior to the execution of the trust deed, and, during the period of her residence here, had no exercisable power of revocation. We consider that a determination may be reached without reference to either the state or the Federal Constitution.

The comptroller assumed to act under the authority of "An act to tax the transfer property, of resident and nonresident decedents, by devise, bequest, descent. distribution by statute, gift, deed, grant, bargain and sale, in certain cases," approved April 20, 1909 (P. L. p. 325), as variously supplemented and amended, and particularly as amended by chapter 174 of the Pamphlet Laws of 1922 (page 293). By that amendment section 1 of the act is re-framed to provide for a transfer tax on decedents' estates in five instances classified numerically. Under the admitted facts of the case, it is apparent that, if the statute justifies the tax, the authority is to be found in the following provision from the third subdivision: "A tax shall be and is hereby imposed upon the transfer of any property * * * or of any interest therein or income therefrom, in trust or otherwise * * * in the following cases * * * Third. When the transfer is of property made by a resident * * * by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death. * * *"

The Attorney General leans heavily upon the opinion of this court rendered in Carter v. Bugbee, 92 N. J. Law, 390, 106 A. 412, wherein the Chief Justice, with his accustomed clarity and acumen, applies to an antecedent trust by a nonresident donor the rule concerning the vesting of contingent estates, and concludes that, because there was neither actual tradition of the property nor transfer of title to the estate in remainder to the beneficiaries until the death of the donor, there was no constitutional objection to a tax upon the transfer. The estate was that of a nonresident decedent, and the trust deed had been executed before the passage of the tax act. The tax was imposed with respect to shares of stock of New Jersey corporations. The narrow question there decided, to use the language of the opinion, was whether a transfer tax could be ligitimately imposed by the Legislature upon property which had been made the subject of a trust deed executed and delivered before the enactment of the statute, when such deed did not operate to transfer the title to such property until after the tax act came into being. That is not the present question. Inasmuch as the gift to Theron Logan Rathje was contingent upon there being no...