McMurtry v. State

• Decision Date: 09 July 1930
• Citation: 151 A. 252,111 Conn. 594
• Court: Connecticut Supreme Court
• Parties: McMURTRY et al. v. STATE et al.

151 A. 252

111 Conn. 594

McMURTRY et al. v. STATE et al.

Supreme Court of Errors of Connecticut.

July 9, 1930

Case Reserved from Superior Court, Fairfield County; Edward M Yeomans, Judge.

Action by George S. McMurtry and others, executors of the will of Alden L. McMurtry, against the State of Connecticut and others, to recover the amount of an inheritance tax paid by them to State of Connecticut. Reserved by the Superior Court upon the admitted allegations of the complaint, for the advice of the Supreme Court of Errors.

Questions answered.

George G. McMurtry, who died August 6, 1915, a resident of New York state, bequeathed to trustees named in his will a portion of his Estate in trust, to pay the net income thereof to his son Alden L. McMurtry for life. Upon the latter's death, the principal thereof was to be paid to such persons as he should have appointed by instrument in writing or by his will. Alden L. McMurtry died July 26, 1924 a resident of this State. By a will executed shortly before his death he exercised the power of appointment created in his father's will by appointing his executors (the plaintiffs herein) to receive the fund from his father's Estate, and directed that after the payment of his debts, funeral expenses, and expenses of the settlement of his Estate, the balance of the fund should be paid over to, or held in trust for, his wife and children. The paragraph of the will exercising the power of appointment is set forth in the footnote.^[1]

the property constituting this fund was at all times prior to Alden's death located within the State of New York and was administered there by the trustees thereof who were nonresidents of this State. The plaintiffs paid to the treasurer of the state of succession tax upon the Estate of Alden L. McMurtry, which included a tax upon the transfer of this fund under the power of appointment, which latter was paid under the belief that the statute imposing a tax upon the exercise of such power of appointment was constitutional. Thereafter the plaintiffs, believing the statute to be unconstitutional in so far as it subjects such transfer to taxation, sought authority from the Legislature to bring an action against the state to secure a refund of the tax which was granted. Special Acts of 1927, No. 373 (vol. 20).

The questions upon which our advice is asked are as follows:

1. Do the facts as above set forth establish that section 3 of chapter 190 of the Public Acts of 1923 is unconstitutional and in violation of section 1 of the Fourteenth Amendment of the Constitution of the United States, in so far as it purports to subject to taxation by the state of Connecticut the exercise by said Alden L McMurtry of the power of appointment created by said George G. McMurtry, relating to property held by the trustees under the will of said George G. McMurtry?

2. Should the amount of the succession tax levied by the state of Connecticut on the exercise of said power of appointment by said Alden L. McMurtry, plus interest thereon from the date of payment, be refunded by the state of Connecticut to the plaintiffs as executors of the will of said Alden L. McMurtry?

Raymond E. Hackett, of Stamford, for plaintiffs.

Farewell Knapp, of Hartford, and Benjamin W. Alling, Atty. Gen., for defendants.

Argued before WHEELER, C.J., and MALTBIE, HAINES, HINMAN, and BANKS, JJ.

BANKS J. (after stating the facts as above).

The statute by virtue of which the tax here in question was paid was first enacted in 1923, being section 3 of chapter 190 of the Public Acts of that year, and is set forth in the footnote.^[2] It provides that the exercise of a power of appointment " shall be deemed to be a disposition of property by the person exercising the power 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 bequeathed or devised by the donee by will."

Subsequent to the payment of the tax by the plaintiffs the case of Wachovia Bank & Trust Co. v. Doughton, 272 U.S. 567, 47 S.Ct. 202, 71 L.Ed. 413, was decided by the Supreme Court of the United States, and it is in reliance upon that decision that this action is brought. In that case a resident of Massachusetts gave his residuary Estate to a Massachusetts Trust Company, one-half of it to be held in trust for his daughter, with the provision that upon her death the principal was to be transferred to such person or persons as she should by will appoint. The daughter after her father's death became a resident of North Carolina, where she died leaving a will which was there probated, in which she exercised the power of appointment under her father's will, directing that the appointed property be divided between her husband and child. Under a North Carolina statute similar to our own, the Supreme Court (189 N.C. 50, 126 S.E. 176) of that state held that the transfer of the appointed property was taxable there. Upon appeal the Supreme Court of the United States reversed the decision of the State court. It held that the property in question was not the property of the donee of the power but of the donor, that the appointees took, not under the will of the donee, but under that of her father, the donor, and that the assets of the trust Estate established by his will had no situs actual or constructive in North Carolina, and that its transfer was not subject to taxation in that State.

Counsel for the state of Connecticut, although critical of the decision in the Wachovia Case, concede that it is the law of the land and controlling as to our decision in this case unless upon the facts the two cases can be differentiated. Indeed, it appears from the record that the state has already refunded to the plaintiffs the amount of a transfer tax paid by them upon the execution of a power of appointment given to Alden McMurtry by the will of his mother, and exercised in this same will; the only substantial difference between the two being that in that case the donee appointed directly to his wife and children, so that the facts in connection with that appointment were, as defendants' brief states, exactly the same as in the Wachovia Case. The distinction upon which the defendants rely is that, in exercising the power of appointment created by his father's will, Alden McMurtry did not appoint the fund directly to his wife and children, but appointed his executors to first receive the fund and to pay it over or hold it in trust for his wife and children after the payment of his debts, funeral expenses, and the expenses of the settlement of his Estate. In the first place, this distinction seems to us to be one more of form than of substance. The net Estate, after the payment of debts and expenses of administration, goes to the wife and children. If the power under the father's will had been exercised, as it was under the mother's will, by appointment directly to the wife and children, the result would have been substantially the same. Though the property appointed was the property of the donor of the power, it was in equity charged with the payment of the debts of the donee to the extent that his own Estate was insufficient to satisfy their demands, and in making provision for the payment of his debts out of the appointed property, he was only discharging an obligation that equity would have enforced. Clapp v. Ingraham, 126 Mass. 200; Shattuck v. Burrage, 229 Mass. 448, 118 N.E. 889; Brandies v. Cochrane, 112 U.S. 344, 5 S.Ct. 194, 28 L.Ed. 760; United States v. Field, 255 U.S. 257, 41 S.Ct. 256, 65 L.Ed. 617, 18 A.L.R. 1461. The doctrine that the appointed property is chargeable with the debts of the donee was settled very early by the English Chancery Courts, apparently upon the principle of fair dealing that a man ought to pay his debts if he could. Though recognizing the logical difficulty of requiring such payment out of property of which the debtor is not the actual owner, the courts have held that the rule has been too long established as a rule of property to be set aside because of doubts as to the technical soundness of the reasons on which it was originally established. Clapp v. Ingraham, supra, Vinton v. Pratt, 228 Mass. 468, 117 N.E. 919, L.R.A. 1918D, 343.

Counsel for the state make, as we interpret their brief and argument, two distinct claims. In the first place, it is contended that, when the donee treats the property over which he has a power of appointment as his own by appointing his own executors to receive the property and pay his debts therefrom, the common-law rule that the appointees take under the will of the donor does not apply; they should be held to take under the will of the donee, and the transfer held to be taxable in the state of his domicil. The second claim is based upon the proposition that our succession tax is a tax, not upon property as such, but upon the privilege of receiving property through death, and the contention is that the appointed property in this case passed by virtue of the laws of this State and is therefore subject to the succession tax levied by it. Neither of the claims will stand analysis. They both depend upon the assumption that the appointed property comes to the appointees from the donee, Alden McMurtry, and that they take under his will rather than under that of the donor. That the donee has treated the property as his own is quite immaterial for the simple reason that it was not his.

It is well settled by the great weight of authority, both in this country and in England, that the appointee under a power of appointment derives title from the will of the donor, and that the legal title to the appointed property never vests in the donee and forms no part of his...