First Department, July, 1921.

[Vol. 197 and upon his or her death to convey, transfer and pay over the principal of the trust fund, as then existing, in the proportions and to the persons and uses that the one so dying shall by his or her last will direct and appoint, and in default of such appointment in equal shares to his or her children, the issue of any deceased child, such issue to take the parent's share by representation, and in default of such children and issue to those persons who would have taken the same if my child so dying had died seized and possessed of the same in his or her own right and had died intestate and domiciled in said Commonwealth of Massachusetts."

The surrogate has held that the life estates bequeathed to testator's two children are not taxable for the reason that the transfer to them to such extent is part of what they would have received under the wills of their ancestors if Louise S. Canda had not exercised the powers conferred upon her. Decedent's two children claim the right to elect to take under the wills of the donors of the powers, and, therefore, render their life estates in the trust immune from taxation. The surrogate's determination in this respect seems to be upheld by the authorities (Matter of Lansing, 182 N. Y. 238; Matter of Slosson, 216 id. 79) and is not questioned on this appeal.

Upon the first question above set forth and presented upon this appeal the surrogate has held (114 Misc. Rep. 161) that as the decedent was a resident of this State at the time of her death and has made a will exercising the aforesaid powers of appointment, the remainders over are assessable under subdivision 6 of section 220 of the Tax Law, and that such remainders are presently assessable at their highest ascertainable value. So far as material, subdivision 6 of section 220 of the Tax Law, under which subdivision property passing under a power of appointment is taxable, if at all, reads as follows:

"6. 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 chapter, such appointment when made shall be deemed a transfer taxable under the provisions of this chapter 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."

App. Div. 597]

First Department, July, 1921.

The subdivision as above quoted was enacted in 1911. Prior to such enactment and in 1897 the first statute of the State of New York was passed which enabled the State to tax the exercise of a power of appointment. Until 1909 the provision was contained in subdivision 5 of section 220 of the. Tax Law, but in 1909 it became subdivision 6 of such section. The statute of 1897 and the statutes prior to 1911 are in substance the same as the statute of 1911, except that they contained other provisions respecting the taxation of property passing on the failure to exercise a power of appointment. (See Tax Law [Gen. Laws, chap. 24; Laws of 1896, chap. 908], § 220, as amd. by Laws of 1897, chap. 284; Laws of 1905, chap. 368, and Laws of 1908, chap. 310; Tax Law [Consol. Laws, chap. 60; Laws of 1909, chap. 62], § 220, as amd. by Laws of 1910, chap. 706; Laws of 1911, chap. 732; Laws of 1915, chap. 664, and Laws of 1916, chap. 323; since amd. by Laws of 1919, chap. 626.)

It is claimed by the appellants that as the donors of the aforesaid powers of appointment were both residents of the State of Massachusetts and that as all of the property to which the powers of appointment relate is situate in the State of Massachusetts and decedent's will has been there probated, and not here, the State of New York has no control over the transfer which the State now claims the right to tax. On the other hand, it is asserted by the respondent, and the surrogate has held, that as decedent's will was executed in New York and decedent was a resident here, the beneficiaries under her will came into possession of the aforesaid appointed property through the exercise of a power or privilege conferred upon the testatrix by this State, and that for such reason the surrogate has jurisdiction to assess the tax on the exercise of such power.

In order to determine whether or not the aforesaid remainders. are taxable, it is necessary to ascertain whether the beneficiaries under the will of Louise S. Canda actually came into possession of the appointed property by virtue of the laws of the State of New York and by reason of a privilege conferred by this State which enables the beneficiaries to take. It must be conceded that the property in question formed no part of the estate of Louise S. Canda. (United States v.

First Department, July, 1921.

[Vol. 197 Field, 41 Sup. Ct. Rep. 256; Matter of New York Life Ins. & Trust Co., 139 N. Y. Supp. 695.) The testatrix did not even enjoy an absolute power of appointment which could have been exercised by her during her life in such a manner as to vest in her an absolute fee. Such interest of the decedent could not, therefore, have been reached by her creditors, either in equity or otherwise. Except for the purpose of taxation under the aforesaid section of the Tax Law of the State of New York, the beneficiaries under the will of Louise S. Canda, deceased, cannot be claimed to take otherwise than under the wills of the respective donors of the powers.

As the respondent contends that the right of Louise S. Canda to exercise said powers of appointment is a privilege conferred by the laws of the State of New York, where the decedent was domiciled, it is thought best to review briefly the authorities relating to the exercise of powers of appointment by a donee living in a jurisdiction other than that in which the donor resided at the time of his death. In Matter of New York Life Ins. & Trust Co. (139 N. Y. Supp. 695) the surrogate reviewed at considerable length the development of the law respecting the exercise of such powers of appointment and after considering both the English and American decisions, he concludes: "It will be perceived that in respect of powers of testamentary appointment over settled property in England or America the law of the domicile of the donor of the power, and not that of the donee of the power, determines in most cases whether or not there was a sufficient testamentary execution of the power of appointment given to the donee of the power."

The general rule respecting the passing of an estate under a power of appointment was well stated by Chancellor KENT in 4 Kent's Commentaries, 337, as follows: "An estate created by the execution of a power takes effect in the same manner as if it had been created by the deed which raised the power. The party who takes under the execution of the power, takes under the authority, and under the grantor of the power, whether it applies to real or personal property, in like manner as if the power, and the instrument executing the power, had been incorporated in one instrument."

The above rule is stated and reiterated in Matter of Harbeck

App. Div. 597]

First Department, July, 1921.

(161 N. Y. 218), and seems to have been adopted by the courts of other States of the Union where the question has been authoritatively determined. In Sewall v. Wilmer (132 Mass. 131) it was held: "But the property of which Mrs. Wilmer has a power of appointment. is not her property, but the property of her father; and the instrument executed by her takes effect, not as a disposition of her own property, but as an appointment of property of her father under the power conferred upon her by his will."

In England such has been the rule since 1838 when the case of Tatnall v. Hankey (2 Moo. P. C. 342) was decided by the English Privy Council. In the Tatnall case it was determined that the English Court of Probate had jurisdiction to examine into the execution of the power of testamentary appointment executed outside of the kingdom for the purpose of determining whether the instrument whereby it was exercised in fact and in law made testamentary disposition of the property included within the power of appointment. The will in question was executed in Paris and was not in accord with the laws of England, but was ultimately proved in England and accepted by the English Probate Court for the purpose of establishing the due exercise of the power of appointment by the donee. Again, in 1909, the English House of Lords, in Murphy v. Deichler (A. C. 446) confirmed the rule laid down in Tatnall v. Hankey (supra) and held that a power of appointment by will over Irish property was properly exercised by a will of the donee executed in English and Irish form, although the testator was domiciled in Germany and the will was not executed according to the law of the domicile of the appointor.

In Bingham's Appeal (64 Penn. St. 345) the facts were as follows: William Bingham, the donor of the power, was domiciled in Pennsylvania, where his will was proven in 1856. In his will he created a trust, the income therefrom to be paid to his son Alexander with a power of appointment to his said son by his last will and testament. The son, Alexander Bingham, died in England in 1865, that country being then his domicile, leaving a will. The court held: "Whether a power contained in a Pennsylvania will over Pennsylvania property has been duly executed, is evidently a question of Pennsylvania law, and not that of a foreign country

*

First Department, July, 1921.

[Vol. 197 The will, the property, and the domicile of William Bingham being within Pennsylvania, the law of this State must govern the interpretation both of the power and the execution of it."

Similar rules were laid down in the following cases: Cotting v. DeSartiges (17 R. I. 668); Lane v. Lane (4 Pennewill [Del.], 368); Prince de Bearn v. Winans (111 Md. 434).

In a very similar case to the one at bar the Supreme Court of Massachusetts in Walker v. Treasurer & Receiver General (221 Mass. 600) held as follows: "It follows that no privilege by which the property passes, whether by exercise of the power or by failure to exercise it, is conferred by the law of this Commonwealth. Hence no commodity exists here on which the tax can be levied. By resort to the courts of Maryland all questions as to the succession of this trust estate will be determined without invoking the law of Massachusetts. That will be settled without dependence upon the moral support or actual assistance of our laws. The circumstance that the will has been set up in this Commonwealth is not of controlling significance. There is nothing in this Commonwealth upon which St. 1909, c. 527, Sec. 8 can operate."

In the case at bar the existence of the power did not of itself vest any estate in the donee, and no part of the aforesaid property which was subject to the power of appointment vested in the testatrix, nor could it be distributed as a part of her estate. (United States v. Field, 255 U. S. 257; 41 Sup. Ct. Rep. 256.)

In Matter of Harbeck (161 N. Y. 211) it was held that a bequest in the exercise of a power of appointment by will was not taxable under the Transfer Tax Act of the State of New York as it then existed. The will in question was made by John H. Harbeck, who died in February, 1878. The testator bequeathed the sum of $300,000 in trust, the income thereof to be paid to his wife during her life and after her death the principal to such persons as she should appoint by her last will and testament. Decedent's wife made a will dated October 20, 1887, which was admitted to probate in February, 1896. The State of New York attempted to assess the transfer through the exercise of the aforesaid power of appointment under our then existing Transfer Tax Law. The court held that the law as it then existed was not suffi