In re Bartow's Estate

In July, 1879, the decedent above named, owing to advanced age, and desiring to be relieved of the care of her estate, and to provide for the just disposition of the same after her decease, conveyed to trustees her real estate in Westchester and New York counties, upon the trust to receive"the rents, income, and profits, and, after payment of all legal charges, to apply the net income thereof, to the extent of $6,000 a year, to her use during her lifetime, and to apply the surplus income, if any, to the use of her children for the same period. In case the net income should not be sufficient to pay $6,009 a year to the creator of the trust, the trustees, upon her request, were required to raise the deficiency by sale or mortgage of the property conveyed. A power to sell or mortgage such property during the lifetime of the grantor thereof for the purpose of paying incumbrances, or to make up the $6,000 a year, was reserved. After her death the property was to be held

Subdivision 5, § 220, of the tax act of 189o6 (added to the section by chapter 284 of the Laivs of 1897) provides as follows:

“Whenever any person or corporation shall exercise a power of appointment derived from any disposition of property made either before or after the passage of this act, such appointment when made shall be deemed a transfer taxable under the provisions of this act in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power and had been bequeathed or devised by such donee by will; and

whenever any person or corporation possessing such a power of appointment .so derived shall omit or fail to exercise the same within the time provided therefor, in whole or in part, a transfer taxable under the provisions of this act shall he deemed to 'take place to the extent of such omissions or failure, in the same manner as though the persons 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 failing to exercise such power, taking effect at the time of such omission or failure.”

The plain intent of this enactment was- to change the rule of the •common law, and to make such change, retroactive. If, therefore, it is conceded that, for the purposes of administration, the property passing to the children of Clarina B. Morgan, the deceased daughter of the grantor, retained its character as real estate, notwithstanding the actual conversion of the same pending the trust, and before the vesting in possession of the trust estate, the fiction by which it is permitted to retain its character as realty has been abrogated, and its actual form at the time of its transfer in possession is to be alone regarded, and it must be held to be taxable. In a different form, the question is this: Had Clarina B. Morgan been the absolute owner of the trust estate, and bequeathed or devised it by will to her children, would the .transmission of the property be taxable? Had she owned the property absolutely, it seemes clear that no fiction of law by which the nature or character •of property is deemed altered would apply.. The courts have held that the doctrine of equitable conversion cannot be invoked for the purpose of subjecting property to taxation under this act. In re Sutton’s Estate, 3 App. Div. 208 , 38 N. Y. Supp. 277 , affirmed, on the opinion below, in 149 N. Y. 618 , 44 N. E. 1128 ; In re Swift, 137 N. Y. 77 , 32 N. E. 1096 , 18 L. R. A. 709 . The converse of that proposition must be true, and the doctrine should not be invoked for the purpose of exempting property from taxation. It. is only by applying that fiction that the securities now constituting the trust fund can be regarded as realty. “The better rule is to assess the tax on the property transferred as the testator leaves it [in the case at bar, under the statute, as the donee of the power leaves it], without regard to the operation or effect of equitable rules that apply only to the administration of the estate. Such a rule is in accord with the policy of the law which exempts real estáte transferred to or for the use of the persons named in section 2 of the act, and in harmony with the fact, which doubtless dictated the state’s policy, that real estate always bears the burden of annual taxation, while personal property, to a very large extent in proportion to its value, •escapes taxation.” In re Sutton’s Estate, supra. The statute declares, in express terms, that a transfer affected in this manner shall be deemed a transfer of the property of. which the donee of the power was absolute owner. It is unreasonable that an equitable rule should attach to such absolute property, giving to it a fictitious character, or that a testator should give to such absolute property such a fictitious character, different from its real nature, so as to affect the right of the state to subject the same to taxation. This construction of the law carries out the policy of the state to exempt the transfer of real estate to lineals, which beans its an

Application denied.