Schneider v. Laffoon, 39337

• Decision Date: 22 December 1965
• Docket Number: No. 39337,39337
• Citation: 212 N.E.2d 801,4 Ohio St.2d 89
• Parties: , 33 O.O.2d 468 SCHNEIDER, Tax Commr., Appellant, v. LAFFOON et al., Exrs., Appellees. In re ESTATE of LAFFOON.
• Court: Ohio Supreme Court

Page 89

4 Ohio St.2d 89

212 N.E.2d 801, 33 O.O.2d 468

SCHNEIDER, Tax Commr., Appellant, v. LAFFOON et al., Exrs., Appellees. In re ESTATE of LAFFOON.

No. 39337.

Supreme Court of Ohio.

Dec. 22, 1965.

Syllabus by the Court

1. Where the Ohio General Assembly has adopted statutory provisions from another state after those provisions have been construed by the highest court of that state, such construction will be given great weight in this state and will usually be followed.

2. Where a power of appointment over intangible property was created by a trust set up outside Ohio by one who was never a resident, where the property subject to the power has always been outside Ohio in the custody of nonresident trustees, where the donee of the power had no authority to appoint any part of the property subject to such power to herself or her estate and where the power was to be exercised only inter vivos by a modification of the trust 'in writing signed by' the donee 'and delivered to the trustee,' neither the exercise of such power by such donee when a resident of Ohio nor her failure to exercise such power where such donee was a resident at her death is taxable as a succession under Section 5731.02(D), revised Code.

This proceeding originated in the Probate Court of Hamilton County on exceptions of the Tax Commissioner to an order of that court determining inheritance or succession tax in the estate of Emily Woodall Laffoon who was a resident of Ohio at her death. In 1927, decedent's husband, Polk Laffoon, who predeceased her and who was never a resident of or domiciled in Ohio, irrevocably conveyed in Kentucky certain assets to a Kentucky bank as trustee. In the instrument declaring the trust the settlor provided that the income from the trust was to be paid to his wife until their two children reached certain ages. When their daughter reached 25 (she did in 1941), the income from one-half of the trust was to be paid to the daughter. When their son reached 25 (he did in 1944), the income from the other half was to be paid to the son. When the son reached 35, he was to be entitled to his one-half of the principal. On the death of the daughter, her one-half of the principal was to be distributed to her issue. There were other provisions for distribution in the event of death of the son before 35 or death of the daughter without issue.

The trust instrument provided further in part:

'Donor grants to his wife, Emily Woodall Laffoon, the power to modify this trust at any time so as to provide for any child or children of donor hereafter born, or to change the proportions, amounts and times of payment to the beneficiaries named above or their issue, but no such modification shall provide for the payment of any income or principal to donor. Such modification shall be in writing signed by donor's said wife, and delivered to the trustee.'

In 1941, when the daughter became 25, the decedent, as donee of the foregoing power, exercised that power by specifying in writing that the income from the trust be paid to her, the decedent, for life. In 1956, she again exercised that power by specifying in writing that, on her death, her son was to receive four-fifths, if then living, and the children of her then deceased daughter were to receive one-fifth of the trust estate with other provisions for disposition of those shares in the event of death prior to death of the donee.

All the trust assets are intangibles having no claimed relationship to Ohio and it does not appear that any of the evidences thereof are located in Ohio.

The Tax Commissioner contends that because the donee was a resident of Ohio both at her death and at the time she exercised the power of appointment the successions to the trust assets are taxable under those portions of Section 5731.02, Revised Code, which reads:

'A tax is hereby levied upon the succession to any property passing * * * to or for the use of a person * * * in the following cases:

'* * *

'(D) Whenever any person or corporation exercises a power of appointment derived from any disposition of property, such appointment when made shall be deemed a succession taxable under this section in the same manner as if the property to which such appointment relates belonged absolutely to the donee of such power and had been bequeathed or devised by said donee by will; and whenever any such person or corporation possessing such power of appointment fails to exercise the same within the time provided therefor, in whole or in part, a succession taxable under this section takes place as to the property passing by such failure, in the same manner as if the persons, institutions, 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 who failed to exercise the power, taking effect at the time of such failure * * *.'

The Probate Court determined that no part of the foregoing trust created by decedent's husband should be treated as a taxable succession from decedent.

That determination was affirmed by the judgment of the Court of Appeals.

The cause is now before this court on an appeal from that judgment, pursuant to allowance of a motion to certify the record.

William B. Saxbe, Atty. Gen., and Jon A. Ziegler, Columbus, for appellant.

Spencer Ferguson and William J. Rielly, Cincinnati, for appellees.

TAFT, C. J.

The Tax Commission refers to the power involved in the instant case as 'a limited or special power of appointment.' We believe that the term 'limited or special power of appointment' does not describe completely the power here involved. Thus, the donee was permitted to appoint to herself, until her death in 1962, the income accruing from one-half of the trust after 1941 and from the other half after 1944. To that extent, this gave the donee income that she would have not received without such an exercise of the power. This was apparently permitted on the assumption that the 'power * * * to change the proportions, amounts and times of payments to the beneficiaries named' would permit the donee to enlarge the amounts of and extend the times of payments to her of income since she was 'named' as a beneficiary of income from the trust although not named as a beneficiary of principal of the trust. To that extent, the power cannot be classified as a special power because 'it can be exercised wholly in favor of the donee' at least for her lifetime. See 3 Restatement of the Law of Property 1828, Section 320. However, so far as it relates to the principal of the trust, all parties apparently recognize that the donor of the power expressed the intention that the power should be a 'special power' and thus apparently agree that the donee could have appointed no part of that principal either to herself or her estate.

The Tax Commissioner does not contend that, to the extent that the power was exercised for the benefit of the donee by increasing the income payable to her during her lifetime, the income so received by her should be treated as, to use the words of Section 5731.02, Revised Code, 'a succession taxable under this section in the same manner as if the property to which such appointment relates [i. e., the additional income paid to donee in her life] belonged absolutely to the donee * * * and had been bequeathed * * * by said donee by will.' Therefore, and since the only power dealt with by either party in the briefs or arguments is that part of the power relating to the principal of the trust estate, we will deal only with that portion. Thus, for the purposes of this opinion, we will consider, as the parties have considered, the power here involved as a power under which the donee had no authority to appoint anything to herself or her estate.

It should be noted further that, although the donee exercised the power during her lifetime, she could have exercised it again at any time before her death. Her failure to do so represented a nonexercise of the power. Hence, even though we should determine that the exercise of the power by a resident donee is not taxable as a succession, there would still remain the Tax Commissioner's contention that her nonexercise of such power is taxable as a succession.

Therefore, the ultimate question to be determined may be stated as follows:

Where a power of appointment over intangible property was created by a trust set up outside Ohio by one who was never a resident, where the property subject to the power has always been outside Ohio in the custody of nonresident trustees, where the donee of the power had no authority to appoint any part of the property subject to such power to herself or to her estate and where the power was to be exercised only inter vivos by a modification of the trust 'in writing signed by' the donee 'and delivered to the trustee,' is either the exercise of such power by such donee when a resident of Ohio or her failure to exercise such power where such donee was a resident at her death taxable as a succession under Section 5731.02(D), Revised Code?

Section 5731.02(D), Revised Code, was first enacted in 1919. It is substantially the same as a statute which originated in and was first enacted in New York in 1897. A similar statute was enacted in Massachusetts in 1909. See Opinions of Attorney General (1922) 536, No. 3237.

In Matter of Lansing (1905), 182 N.Y. 238, 74 N.E. 882, a grandfather, before enactment of a statute substantially identical to Section 5731.02(D), Revised Code, left certain property to his daughter in trust for life, with remainder over to his granddaughter but subject to a power in the daughter to appoint the property by will to her heirs or to her collateral heirs. The daughter, after enactment of that statute, did exercise the power by appointing to the granddaughter who was the daughter's only heir.

The granddaughter, who would have taken in default of any appointment, elected not to take...