Trainer v. Scott

• Citation: 248 N.Y. 171,161 N.E. 459
• Parties: TRAINER v. SCOTT.
• Decision Date: 01 May 1928
• Court: New York Court of Appeals

248 N.Y. 171

161 N.E. 459

TRAINER

v.SCOTT.

Court of Appeals of New York.

May 1, 1928.

Petition by Roxy Corlies Trainer for an order directing petitioner's reimbursement for taxes paid by Thomas B. Scott, as executor of the last will and testament of Millicent D. Scott, deceased. An order of the Surrogate's Court (224 N. Y. S. 91), directing the payment of the tax by the executor out of the residuary estate, was affirmed by the Appellate Division (222 App. Div. 824, 226 N. Y. S. 914), and the executor appeals by permission.

Order of Appellate Division and Surrogate's Court reversed, and petition dismissed.

Appeal from Supreme Court, Appellate Division, Second department.

W. G. Murphy, of New York City, for appellant.

Ewing R. Philbin and Garrett A. Brownback, both of New York City, for respondent.

CARDOZO, C. J.

Louis Dreka, a resident of Pennsylvania, died in 1922, leaving a will, proved in that state, whereby, he gave to trustees $150,000 to pay the income to his daughter, Millicent D. Scott, during her life, and to pay the principal upon her death ‘to such persons and institutions as she by her last will and testament may appoint, and in default of any appointment to those of my daughter's next of kin who would be entitled thereto under the intestate laws of Pennsylvania.’

A statute of Pennsylvania provides that, where there is a taxable transfer ‘to take effect in possession or to come into actual enjoyment after the expiration of any one or more life estates, * * * the tax on such estate shall not be payable, * * * until the person liable for the same shall come into actual possession of such estate by the termination of the estates for life.’ Act Pa. June 20, 1919, P. L. 521 (Pa. St. 1920, § 20467). The rate varies according to the relationship, being 2 per cent. for husband or wife, parents, or lineal descendants, and 10 per cent. for others.

The beneficiary of the trust, Mrs. Scott, died in Suffolk county, New York, in 1926. The question before us involves the construction of a provision of her will. In exercise of the power of appointment she ‘gives and bequeaths' the principal of the trust fund of $150,000 created under the will of her father to ‘Roxy Corlies Trainer, of Media, Pennsylvania, her heirs and assigns forever.’ There are three legacies of $10,000. There is a gift to the husband of the residuary estate. There is then the following provision as to taxes:

‘All estate, inheritance, transfer, succession and legacy taxes payable by my estate or payable on the legacies given herein shall be paid out of the residue of my estate.’

Upon the death of Mrs. Scott, the trustees of the Dreka will brought proceedings in Pennsylvania to determine the tax payable upon the interest in remainder. This tax, being assessed at $11,672.22, was paid by the trustees out of the principal of the fund. The residue of the fund they paid to Mrs. Trainer, the appointee of the remainder. She has petitioned the Surrogate's Court for an order directing the executor of the Scott estate to reimburse her out of that estate for the tax thus deducted. An order for such payment has been unanimously affirmed.

[1] Any tax laid upon a transfer made by Mrs. Scott was payable under her will out of her residuary estate. A state is privileged to say that the exercise of a power of appointment shall be treated as equivalent to a transfer by the donee of the power, and shall be taxed upon that basis. Matter of Dows, 167 N. Y. 227, 60 N. E. 439, 52 L. R. A. 433, 88 Am. St. Rep. 508; Orr v. Gilman, 183 U. S. 278, 22 S. Ct. 213, 46 L. Ed. 196;Matter of Delano, 176 N. Y. 486, 68 N. E. 871,64 L. R. A. 279;Chanler v. Kelsey, 205 U. S. 466, 27 S. Ct. 550, 51 L. Ed. 882;Matter of Burgess, 204 N. Y. 265, 97 N. E. 591. This is what what the Legislature of New York has done, where the appointment relates to property within its jurisdiction. Tax Law (Consol. Laws, c. 60) § 220, subd. 4; Frick v. Pennsylvania, 268 U. S. 473, 45 S. Ct. 603, 69 L. Ed. 1058, 42 A. L. R. 316;Matter of Fearing, 200 N. Y. 340, 93 N. E. 956. If a tax had been assessed under the authority of that provision, the exercise of the power being treated as equivalent to a transfer, we assume that any payment made might be reclaimed by the appointee out of the residuary estate. But...