Newton's Estate, In re

• Decision Date: 07 September 1950
• Court: California Supreme Court
• Parties: , 19 A.L.R.2d 1399 In re NEWTON'S ESTATE. KUCHEL v. NEWTON. L. A. 20827.

Page 952

221 P.2d 952

35 Cal.2d 830, 19 A.L.R.2d 1399

In re NEWTON'S ESTATE.

KUCHEL v. NEWTON.

L. A. 20827.

Supreme Court of California, in Bank.

Sept. 7, 1950.

Rehearing Denied Oct. 2, 1950.

James, W. Hickey, Sacramento, Morton L. Barker, Los Angeles, Vincent J. McMahon, Sacramento, for appellant.

Leon W. Delbridge, Pasadena, Brady & Nossaman, and Walter L. Nossaman, all of Los Angeles, for respondent.

McCutchen, Thomas, Matthew, Griffiths & Greene, San Francisco, amici curiae.

SHENK, Justice.

The state controller has appealed from an order sustaining objections to the report of the inheritance tax appraiser and fixing inheritance tax in the sum of $14.08, which was less by $31,105.19 than the amount fixed in the report.

The facts are not in dispute. A testamentary trust was created in the state of New York by Charles E. Newton, the decedent's father, who died a resident of that state on October 19, 1921. The trust provided for an income to the decedent during his life. Further provisions gave him the power by will to appoint his wife to take on his death a specified proportion of the trust assets. The decedent executed a will in New York on May 2nd, 1930, whereby he appointed his wife as the beneficiary. Later he and his wife removed to California where as a resident he died on March 11, 1943, leaving his widow, the respondent herein. His will was admitted to probate.

The assets of the trust subject to the appointment consist entirely of intangibles valued at $412,510.36 held in trust by New York trustees. There are no shares of California corporations. The widow objected to the controller's report on the ground that under the decision in Re Estate of Bowditch, 189 Cal. 377, 208 P. 282, 23 A.L.R. 735, the state was without jurisdiction to impose the portion of the tax measured by the appraised value of the intangibles held in New York.

There is no merit in the contention that the exercise of the power of appointment occurred at the time the decedent made his will in New York. Since a will takes effect as of the time of the death of the testator there can be no question that the death of the decedent determined the time of the exercise of the power. Nichols v. Emery, 109 Cal. 323, 329, 41 P. 1089, 50 Am.St.Rep. 43.

Prior to 1922 the history regarding the taxation in this state of transfers of property through the gift or exercise of powers of appointment was substantially the following:

The Inheritance Tax Act of 1905, Stats.1905, p. 341, section 1, made taxable the exercise of powers of appointment as a transfer of property by will from the donee of the power. (Provisions regarding non- exercise of the power will not be noted.) The Inheritance Tax Act of 1913, Stats.1913, 1913, p. 1066, repealed that provision with a saving clause, and in section 3 provided that the gift of a power of appointment was a taxable transfer of property from the doner to the donee upon the death of the donor. In 1917, Stats.1917, p. 880, the 1913 enactment was repealed with a saving clause and the legislature reverted to the 1905 provision, again making taxable the transfer by the exercise of the power, section 2(6), and it remained so until 1935. In the 1917 act, sec. 1(2), the words 'estate' and 'property' included all personal property of resident decedents within or without the state.

In August 1922 this court decided In re Estate of Bowditch, supra, 189 Cal. 377, 208 P. 282, 23 A.L.R. 735. The resident decedent, Charlotte Bowditch, was the donee of a power to appoint and did appoint by will the beneficiary of a trust created under the will of her father, a Massachusetts domiciliary. The trust assets amounting in value to some $299,000 consisted entirely of personal property, the nature of which was not disclosed in the opinion, located in Massachusetts. The facts were in essence parallel to those of the present case and the appeal brought to this court the question whether the state had jurisdiction to include the transfer by the decedent's exercise of the power of appointment as a taxable transfer. The court recognized that a succession to property effected independently of the authority of a particular state was not taxable by that state and was not within in the purview of its inheritance tax acts. In applying the test it was observed that the state had plenary power over the administration and disposition of estates of persons domiciled here including personal property wherever situated, and that jurisdiction to exercise the taxing power attached when there was actual or constructive situs of the property within the state. The court concluded, however, that under the facts the state could not tax the transfer effected through the exercise of the power by the decedent. The court relied on United States v. Field, 255 U.S. 257, 41 S.Ct. 256, 65 L.Ed. 617, 18 A.L.R. 1461, Walker v. Treasurer & Receiver General, 221 Mass. 600, 109 N.E. 647, and Shattuck v. Burrage, 229 Mass. 448, 118 N.E. 889, in making the following statement: 'But personal property which is the subject of a power of appointment does not acquire a constructive situs in the state of the domicile of the donee of the said power under this theory (i.e. that personal estate wherever situated is deemed to have the situs of the domicile of the owner), for such property is no part of the estate of the donee. 'When a donor gives to another power of appointment over property, the donee of the power does not thereby become the owner of the property. The donee has no title whatever to the property. The power is simply a delegation to the donee of authority to act for the donor in the disposition of the latter's property.' * * * Therefore, for the purpose of testamentary succession and distribution, the property here involved has acquired no situs in this state, either actual or constructive, and the laws of Massachusetts alone control the transfer thereof under the will of Charlotte Bowditch.' (189 Cal. 377, 208 P. 283). Thus the theory was that since the interest of the transferee was derived from the will of the Massachusetts donor, there was no resort to the sovereignty of this state for the transfer of the property interest through the decedent's exercise of the power of appointment. See In re Estate of Dillingham, 196 Cal. 525, 533-534, 238 P. 367.

In 1923, Stats.1923, p. 693, sec. 1(2), the following italicized words were added in the definition of 'estate' and 'property' to include 'all personal property within or without the state or subject to the jurisdiction thereof.'

Between that year and the next statutory change the United States Supreme Court decided Wachovia Bank & Trust Co. v. Doughton, 1926, 272 U.S. 567, 47 S.Ct. 202, 71 L.Ed. 413. The facts were somewhat similar to those in the Bowditch case. The donor died in Massachusetts leaving a will probated there. A trust created thereby, located and administered in Massachusetts, gave to the donor's daughter the power to appoint the beneficiary of trust assets consisting of intangibles valued at nearly $400,000. The donee appointed beneficiaries by will and died a resident of North Carolina. The question of the jurisdiction of North Carolina to tax the exercise of the power under a statute designating the exercise thereof as a transfer taxable in the same manner as though the property belonged absolutely to the donee was presented to the Supreme Court. The court noted the principles of the cases above cited, among others, as those commonly accepted as controlling the question of the constructive situs of the intangibles in the taxing state and concluded that no right exercised by the donee was conferred by North Carolina; therefore that North Carolina did not have jurisdiction to impose the tax. Mr. Justice Holmes stated his dissenting view that the result was irreconcilable with Bullen v. Wisconsin, 240 U.S. 625, 36 S.Ct. 473, 60 L.Ed. 830, where the general power was considered to have the same effect as ownership.

In 1935, Stats. 1935, p. 1266, the legislature amended section 2(6) to make the gift of the power a taxable transfer as in the 1913 statute. As amended the section read: 'Whenever any person or corporation shall be given a power of appointment by virtue of any disposition of property made before or after the passage of this act, such gift of power of appointment shall, under the provisions of this act, be deemed a taxable transfer made from the donor of said power to the donee thereof at the date of the donor's death; provided that where the donor of a power of appointment dies prior to the taking effect of this amendment and the power is exercised thereafter the exercise of said power of appointment shall be deemed a transfer taxable as provided in subdivision 6 of section 2 of the Inheritance Tax Act of 1921 as amended in 1929.' At the same time the definition of 'estate' and 'property', sec. 1(2), was amended to include 'all intangible personal property of resident decedents within or without the State or subject to the jurisdiction thereof.'

The foregoing provisions of section 2(6), with the addition of the words 'general or limited' preceding the words 'power of appointment', were in effect retained by the amendment of 1941, Stats. 1941, p. 1222, now embodied in secs. 13692 and 13693, Rev. and Tax Code. The 1935 act as amended in 1941 was the statute in force at the time of the decedent's death in 1943. The result was to impose the tax on a transfer by the gift of the power of appointment made by a resident donor, except that the imposition of the tax on a transfer through the exercise of the power by a resident donee was saved where the donor had died prior to the effective date of the 1935 amendment. The death of the donor, decedent's father, prior to the effective date of the 1935 statute calls for the application of the saving clause to the decedent's exercise of the power. There is no question of the correctness of the inheritance tax appraiser's computation...