Pennsylvania Co. For Insurance On Lives

• Decision Date: 15 November 1943
• Docket Number: No. 6483.,6483.
• Citation: 34 A.2d 538
• Parties: PENNSYLVANIA CO. FOR INSURANCE ON LIVES AND GRANTING ANNUITIES et al. v. KELLY, State Tax Commissioner. In re PENDLETON'S ESTATE.
• Court: New Jersey Prerogative Court

34 A.2d 538

PENNSYLVANIA CO. FOR INSURANCE ON LIVES AND GRANTING ANNUITIES et al.

v. KELLY, State Tax Commissioner.In re PENDLETON'S ESTATE.

No. 6483.

Prerogative Court of New Jersey.

Nov. 15, 1943.

COPYRIGHT MATERIAL OMITTED.

Proceeding in the matter of the assessment of transfer inheritance tax in the estate of Emily B. Pendleton, deceased. From the assessment made by William D. Kelly, State Tax Commissioner, the Pennsylvania Company for Insurance on Lives and Granting Annuities, and William M. David, executors of the last will and testament of Emily B. Pendleton, deceased, appeal.

Assessment affirmed.

1. The power of this state to tax a transfer of intangibles where the owner, domiciled here, keeps the paper evidences of the intangibles outside its boundaries, is well settled.

2. Under our transfer inheritance tax statute, it is not the property which is taxed (so its location is not important), but rather the succession to the title and the beneficial enjoyment of the property which takes place by reason of the death.

3. For purposes of taxation, a general power of appointment of which the testatrix here was both donor and donee, is regarded as equivalent to ownership of the property subject to the power.

4. A power of appointment at common law has been defined as a liberty or authority reserved by, or limited to, a person to dispose of real or personal property for his own benefit, or for the benefit of others, and operating on an estate or interest, vested either in himself or in some other person, the liberty or authority, however, not being derived out of such estate or interest, but overreaching or superseding it, either wholly or partially.

5. At common law there was a variety of classifications of powers of appointment, such as general powers, special powers, powers in gross, general testamentary powers in gross, special testamentary powers in gross, powers appendant, powers appurtenant, special collateral powers, and general collateral powers.

6. For all practical purposes powers of appointment may be classified as either general or special. The general are those in which the donee of the power may appoint to anyone, and the special, in which the donee of the power is restricted to passing on the property to certain specified individuals or to a specific class of individuals.

7. The donee of a general power of appointment may exercise it in favor of any beneficiary she desires, including her estate and her creditors.

8. Property gratuitously appointed by a donee of a general power of appointment is under some circumstances considered in equity part of her assets to which her creditors can resort.

9. One cannot create a spendthrift trust in property for his own benefit nor by any other device exclude creditors while retaining the beneficial interests and the incidents of ownership and control.

10. A transfer intended to take effect in beneficial possession and enjoyment at or after the death of a donor is amenable to a transfer inheritance tax effective at the time of the death of the donor, even though the taxing act is enacted subsequent to the date of the transfer in trust.

Endicott & Endicott, of Atlantic City, and Edmonds, Obermayer & Rebmann, of Philadelphia, Pa. (Daniel J. Dowling, of Atlantic City, and J. Warren Brock, of Philadelphia, Pa., of counsel), for appellants.

David T. Wilentz, Atty. Gen., and William A. Moore, Asst. Atty. Gen., for respondent.

JAYNE, Vice Ordinary.

It is the conviction of the State Tax Commissioner that one Emily Barton Pendleton, a resident of Ventnor City, Atlantic County, New Jersey, transmitted property at her death having a net taxable value of $854,618.68. This appeal, however, implicates only the assessment of a transfer and succession tax upon certain intangible personal property valued at $148,578.25. A brief survey of the acknowledged facts will reveal the basis of discord between the taxing authority and the representatives of the decedent's estate.

Mrs. Pendleton died testate on February 24, 1940. She had been a resident of this state since 1907. She left no issue, and her surviving next of kin were two first cousins and a first cousin once removed. Her last will and testament was executed on January 5, 1933, and has been probated in Atlantic County, New Jersey. On February 27, 1882, the decedent, then unmarried and a resident of Pennsylvania, assigned in trust certain of her assets to The Pennsylvania Company for Insurance on Lives and Granting Annuities, a corporation of the Commonwealth of Pennsylvania, having its principal office and place of business in the City of Philadelphia. The uses and purposes were stated as follows:

‘In Trust during the life time of her the said Emily Barton, to pay to her, from time to time, the net income thereof, free and clear of her debts, contracts, alienations and anticipations, and of all liability for levies and attachments.

* * *

‘In Trust upon her decease (with power to make all allotments and conveyances necessary to perfect the partition, including conveyances to purchasers, if they shall find it advisable to sell with a view to a better partition) to pay over, assign and convey the principal to such persons, for such estates, legal equitable, life or otherwise, and with such powers, as she, the said Emily Barton by any last Will or writing in the nature thereof, shall appoint, or, upon her decease in case she shall not exercise this power of appointment, to divide the principal into as many parts or shares as there shall be children of hers then alive; and children of hers then deceased, represented by descendants then living, and to sub-divide the shares falling to each set of descendants of a child of hers then dead, among them ‘per stirpe’ upon the principle of representation and to pay over to such child and descendant, who shall then be found entitled, its share in fee. In Trust in case of the death of the said Emily Barton without her having exercised her power of appointment there shall be no descendants of hers then alive, to pay over, assign and convey the said principal to such persons as would then take the real and personal estate, as heirs and next of kin of the said Emily Barton had she then died actually seized and possessed thereof.'

The assets so assigned have continuously remained in the custody of The Pennsylvania Company at its office in Philadelphia where the trust has also been regularly administered.

The decedent made no specific reference in her will or codicil to the power of appointment reserved by her under the terms of the trust indenture of 1882. Paragraph 12 of her will reads in part: ‘Twelfth. All the rest, residue and remainder of my estate, real, personal and mixed of whatsoever nature and wheresoever situate, including all lapsed legacies, lapsed bequests, lapsed sums of every nature and kind arising from any and all personal property, sales of real estate held in my residuary estate, principal to pay annuities in case of death and also including the principal of the trust funds over which I am given the power of appointment by the Will of Susan R. Barton, deceased, and in execution of any and all powers given to me and contained in the said Will of the said decedent, I give, devise and bequeath in equal shares or parts to the Jefferson Medical Hospital of Philadelphia (1) for research work in the application of radium for the treatment of cancer and for the purchase of radium for such treatment, or for such other purposes in the treatment of the said disease as the Board of Trustees of the said Hospital may hereafter determine to be advisable and shall be found and determined by them to be the best method of the treatment of the said disease, having in mind the probable development of research work in connection with its treatment, in memory of my husband, Edward Gray Pendleton, and (2) to the said Jefferson Medical College Hospital of Philadelphia, Department of Disease of the Chest, for the study of tuberculosis and the care of those who may be in the said Hospital for the treatment of the same, in memory of my mother, Emily C. Barton. These gifts are conditioned upon the agreement by the said Hospital that no part of the fund, income or principal, shall be used for any purpose connected with vivisection, to which I am unalterably opposed.’

The executors sought to have this court construe the decedent's will to determine, inter alia, whether or not the testatrix executed the power of appointment. David v. Atlantic County S. P. C. A., 129 N.J.Eq. 501, 19 A.2d 896.

In that cause, Vice Chancellor Sooy stated that in view of the fact that a court of competent jurisdiction of the State of Pennsylvania then had that question before it for determination, this court should not attempt to exercise any jurisdiction that it might have.

Although I do not discover any proof of the event in the record, yet the briefs impart the information that the Philadelphia County Orphans' Court has resolved that the general residuary clause (paragraph 12, supra) was operative under the law of Pennsylvania to transport the trust estate to the Jefferson Medical College Hospital to the exclusion of the decedent's heirs at law and next of kin who would have succeeded to the property had the determination been that the testatrix failed to exercise the power of appointment.

It is conceded that all of the trust property was committed to the custody of the trustee during the years 1882 to 1886, inclusive, manifestly preceding the enactment of the first collateral inheritance tax law in this state, effective March 23, 1892. P.L.1892, p. 206.

Incidentally, the possibility of a diminution in the amount of the levy is foreseen, depending upon whether the hospital (perhaps a charitable institution) or the next of kin of the deceased, ultimately succeed to the trust assets. This, however, is an administrative detail which can be adjusted as the event may require.

The tax commissioner...