Worcester County Nat. Bank v. Comm'r of Corporations

• Decision Date: 10 April 1931
• Citation: 275 Mass. 216,175 N.E. 726
• Parties: WORCESTER COUNTY NAT. BANK v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

275 Mass. 216

175 N.E. 726

WORCESTER COUNTY NAT. BANK

v.COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Worcester.

April 10, 1931.

Appeal from Probate Court, Worcester County.

Petition by the Worcester County National Bank, executor of the will of Herbert I. Wallace, deceased, for instructions as to whether certain personalty held by petitioner as trustee under an indenture executed by decedent is subject to a legacy or succession tax imposed by the Commissioner of Corporations and Taxation. From an adverse decree, petitioner appeals.

Affirmed.J. W. Healey, of Leominster, and C. D. Bent, of Gardner, for petitioner.

G. B. Lourie, Asst. Atty. Gen., for respondent.

FIELD, J.

This is a petition brought in the Probate Court under G. L. c. 65, § 30, as amended by St. 1922, c. 520, § 19, by the administrator with the will annexed of the estate of Herbert I. Wallace, late of Fitchburg, who died September 25, 1927, herein referred to as the decedent, for instructions whether certain personal property, held by the petitioner as trustee under an indenture of trust, executed by the decedent February 12, 1919, is subject to a tax under G. L. c. 65, § 1, as amended, imposing taxes upon legacies and successions.The parties agreed upon the facts. A decree was entered that the property is subject to a tax and the petitioner appealed.

The law in force at the date of the death of the decedent imposed a tax upon personal property of deceased residents of the Commonwealth which should ‘pass * * * by deed, grant or gift, except in cases of a bona fide purchase for full consideration in money or money's worth * * * made or intended to take effect in possession or enjoyment after his [the grantor's or donor's] death’ with exceptions not here material. G. L. c. 65, § 1, as finally amended by St. 1926, c. 148, § 1. The law in force at the time the trust indenture was executed contained the same provision. St. 1907, c. 563, § 1, codified as St. 1909, c. 490, part 4, § 1 as finally amended by St. 1916, c. 268, § 1. Though changes were made from time to time in the statute imposing taxes on legacies and successions between the date of the execution of the trust indenture and the date of the death of the decedent, the tax rate applicable to the property in question was the same on both dates and our attention has not been called to a change in any other respect which would affect the amount of the tax for which the petitioner would be liable. Chapter 65 of the General Laws, which was a general revision of the laws relating to taxation of legacies and successions, is to be construed as continuing the previous laws, except in the respects in which a change is indicated (see petition of Mackintosh, 246 Mass. 482, 484, 485, 141 N. E. 496;Byfield v. Newton, 247 Mass. 46, 56, 57, 141 N. E. 658), and, of course, amendments of particular sections of statutes are to be so construed.

The petitioner contends (a) that the property held by it under the trust indenture did not pass ‘by deed, grant or gift * * * made or intended to take effect in possession or enjoyment’ after the death of the decedent and (b) that if it did so pass there was ‘a bona fide purchase for full consideration in money or money's worth.’

The facts agreed upon by the parties include the following: On February 12, 1919, the decedent was contemplating marriage with one Alice L. Geldert. He was then about sixty-three years of age, a widower and the father of three children. His entire wealth amounted to about $1,100,000. By establishing the trust under the indenture in question and by making other arrangements before his marriage for the benefit of his children, with the knowledge and consent of said Alice L. Geldert, he reduced the value of his property to about $225,000. At this time she was about forty years of age, ‘unmarried * * * and the mother of two children by a former husband.’ Her entire wealth amounted to less than $1,000. Both the decedent and Mrs. Geldert were in good health. Their marriage took place on June 3, 1919, and they lived together as husband and wife until his death on September 25, 1927.

On February 12, 1919, the decedent and Alice L. Geldert entered into a written agreement whereby it was recited that a marriage between them was intended and that they desired ‘that all rights in each others property * * * shall be fixed and settled for all time,’ and it was agreed that the decedent should place certain securities in trust, ‘to permit the trustee to hold said securities or sell’ them on his written order, to reinvest the proceeds and ‘to collect the income therefrom and to pay the net income’ to him ‘quarterly,’ and ‘on his death to pay the principal of said trust fund free and clear of all trusts to said Alice L Geldert, her heirs, executors, administrators and assigns, whether said marriage is had and solemnized or not;’ that he, if he survived said Alice L. Geldert, would not claim any part of her property; that, if the securities or their equivalent were placed in trust as agreed, she would ‘accept her provisions of said trust agreement and the fund to be paid to her thereunder, in full satisfaction of all right of dower or other of her rights in the property of Herbert I. Wallace, statutory or otherwise, and all claims which she might have against the estate of said Herbert I. Wallace if she should survive him,’ and that ‘if any provisions * * * [were] made for her in the will of said Herbert I. Wallace (to make which there is no obligation on the part of said Wallace) she * * * [would] accept said provisions as mere gifts to her as though she were a stranger.’ On the same day an indenture of trust was made between the decedent and a trustee, a predecessor as such of the petitioner,whereby the decedent, in accordance with his written agreement with Alice L. Geldert, hereinafter referred to as the beneficiary, transferred to such trustee securities of the value of $71,700 to be held in trust on the terms fixed by the agreement, and the trustee accepted the trust and acknowledged the receipt of the securities. This indenture of trust was accepted by the beneficiary as in ‘full compliance with the requirements of said ante-nuptial agreement.’ ‘There is no suspicion of bad faith, or of intention to avoid payment of taxes, in the drawing of the agreement. It was purely a business transaction, honorable and above board.’

At the death of the decedent the value of the securities held by the petitioner in trust under the indenture was about $124,500, and the value of the interest taken by his widow under the will was about $167,000. The rest of the estate, amounting to $26,000, was bequeathed to other persons.

[3][4][5] First. The property held by the petitioner under the trust indenture passed ‘by deed, grant or gift * * * made or intended to take effect in possession or enjoyment after * * * [the] death’ of the decedent, within the meaning of the statute.

The transaction was within the description of the statute. The property passed from the decedent to the beneficiary ‘by deed, grant or gift.’ Though upon the creation of the trust an equitable remainder in the trust fund, after the life estate of the decedent in such fund, vested in interest in the beneficiary, she was not entitled to ‘possession or enjoyment’ of the fund or any part of it until the death of the decedent. The ‘deed, grant or gift’ was ‘intended to take effect in possession or enjoyment after his death.’ Her present right to the future ‘possession or enjoyment’ of the trust fund, which was ‘vested’ in the sense of being assignable and transmissible by her during the life of the decedent (see Nickerson v. Harding, 267 Mass. 203, 207, 166 N. E. 703), was not ‘possession or enjoyment,’ within the meaning of the statute. The statute recognizes the familiar distinction between taking effect in possession or enjoyment and vesting in right, title or interest. State Street Trust Co. v. Treasurer & Receiver General, 209 Mass. 373, 378, 95 N. E. 851;Pratt v. Dean, 246 Mass. 300, 307, 308, 140 N. E. 924;Saltonstall v. Treasurer & Receiver General, 256 Mass. 519, 523-525, 153 N. E. 4;Id., 276 U. S. 260, 269, 270, 48 S. Ct. 225, 72 L. Ed. 565. See also Magee v. Commissioner of Corporations and Taxation, 256 Mass. 512, 515, 516, 153 N. E. 1;Coolidge v. Commissioner of Corporations and Taxation, 268 Mass. 443, 450, 451, 167 N. E. 757;United States v. Fidelity Trust Co., 222 U. S. 158, 160, 32 S. Ct. 59, 56 L. Ed. 137. Apparently the Legislature intended to reach for the purpose of taxation the shifting of the enjoyment of property-the ‘economic benefits' thereof or ‘economic interest’ therein (compare Saltonstall v. Saltonstall, 276 U. S. 260, 271, 48 S. Ct. 225, 72 L. Ed. 565;Reinecke v. Northern Trust Co., 278 U. S. 339, 346, 49 S. Ct. 123, 73 L. Ed. 410, 66 A. L. R. 397)-from a former owner at his death, even though such shifting of enjoyment followed necessarily from a prior transfer of title inter vivos. As was said in State Street Trust Co. v. Treasurer & Receiver General, 209 Mass. 373, 379, 95 N. E. 851, 852, ‘The policy of the law is, that the owner of property shall not defeat or evade the tax by any form of conveyance or transfer, where after death the income, profit or enjoyment enures to the benefit of those who are not exempted.’ The decision in Dexter v. Treasurer and Receiver General, 243 Mass. 523, 137 N. E. 877, is not in conflict with this interpretation of the statute for as a result of the transfer considered in that case enjoyment of the property in question shifted before the death of the former owner. ‘The possession and enjoyment vested in the beneficiaries when the trust deed was delivered to the trustees.’ Page 527 of 243 Mass.,137 N. E. 877. See also Shukert v. Allen, 273 U. S. 545, 47 S. Ct. 461, 71 L. Ed. 764, 49 A. L. R. 855;Reinecke v. Northern Trust Co., 278 U. S. 339, 49 S. Ct. 123, 73 L. Ed. 410, 66 A. L. R. 397...