First Department, July, 1921.

[Vol. 197 right to levy a tax upon the exercise of a power of appointment in any case wherein such power is executed by virtue of the authority granted by the State whenever such authority or privilege is necessary to pass the title of the property to the beneficiary.

The Court of Appeals has held in Matter of Fearing (200 N. Y. 340) that when property is transferred under a power of appointment and the appointee is a resident of another State, a tax cannot be assessed on the transfer for the reason that the privilege of exercising the power is granted by the laws of a State other than the State of New York. The opinion was written by Judge GRAY, who says, in part: "Such an appointment to others was, for the purposes of taxation, to be deemed the equivalent of a bequest, or devise, by the donee of the power of property belonging to the donee. Prior to this amendment of the Transfer Tax Law, there was no provision for the taxation of transfers under powers of appointment; but, with the passage of the amendment, the privilege of exercising the power by will was subjected to the charge of a tax upon the right of the appointees to take. Whereas, previously, the source of the appointees' right of succession was deemed to be in the will creating the power of appointment; thereafter, it was to be deemed to be in the execution of the power itself. The actual transfer effected by the exercise of the power was to be taxed. The Legislature, in the exercise of its control over testamentary dispositions of property, could validly burden such transfers with a tax, regardless of the technical source of the title of the appointee under the rules of the common law."

In the Fearing case the donee of the power was a non-resident of this State. The property transferred under her will in the exercise of such power was bonds outside of the State of New York. The grantor of the power, Daniel B. Fearing, died in 1870, a resident of the State of New York, leaving a will which created the power and which will was in this State admitted to probate. The only question which appears to have been determined in Matter of Fearing is that a tax cannot be levied under our Tax Law upon the exercise of a power of appointment by a donee who is a non-resident of this State and who attempts to execute the power by a will or deed

App. Div. 597]

First Department, July, 1921.

made pursuant to authority conferred by another State. It does not, however, necessarily follow that the State of New York has any constitutional authority to levy a tax upon a transfer of property under a power of appointment the exercise of which is not wholly dependent upon a privilege granted by this State. In the case at bar the decedent has exercised the power of appointment conferred upon her under the wills of her father and grandfather by an instrument which has been admitted to probate in the State of Massachusetts and which has not been offered for probate in the State of New York. It is not apparent that the exercise of the power or the validity of the will in question is in any respect dependent upon the laws of the State of New York, or upon any authority or privilege granted or extended by the laws of New York to the testatrix. Something more than the mere residence or domicile of the testatrix is necessary in order to subject the property to taxation which passed under the exercise of the powers of appointment. The State Comptroller claims that an important privilege has been conferred upon the testatrix by reason of which the State is entitled to assess a tax upon the transfer. One cannot read the will of the testatrix without being impressed that it was her intention to exercise the powers of appointment under the laws of Massachusetts and by a will executed agreeably to the laws of that State, and that she realized and appreciated that she need not take advantage of the laws of the State of New York or of any privilege thereby extended in order to pass a valid title to the property over which she had such power of appointment.

The respondent contends that the question at issue has been twice passed upon in the Surrogate's Court of New York and Kings counties, the first case being that of Matter of Frazier (N. Y. L. J. March 28, 1912), and the later case, Matter of Seaman (Id. Dec. 5, 1913). In Matter of Frazier (supra) the decedent was a resident of this State and exercised a power of appointment under a last will and testament which was propounded and admitted to probate in this State. The learned surrogate, in commenting upon the right of the State to assess a transfer tax, said: "The right of an individual to make a will or testamentary instrument is not a natural or inherent right, but a privilege which the State can grant or withhold at its

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discretion. * * The transfer tax is not a tax on property, but on the privilege granted by the State to an individual to succeed to the property of a deceased person, and the power which confers this privilege may impose a tax upon it. [Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283.] As the decedent was a resident of this State the privilege of making a will by which she disposed of the property constituting the trust fund was one granted by this State. That she might have exercised the power by an instrument in writing in the nature of a last will and testament is immaterial, because as a matter of fact she did not attempt to exercise the power by any other writing than that propounded in this State as her last will and testament. * * *The trustees of her father's estate paid to the executors appointed under the decedent's will in this State the property constituting the trust fund held by them, and the executors distributed this property to the various legatees in accordance with the provisions of decedent's will. Therefore, the right of these legatees to succeed to the property was derived from the will of decedent, and upon this privilege the State of New York may impose a tax."

In the Seaman Case (supra) the surrogate based his decision upon the authority of Matter. of Frazier (supra).

In the case at bar, however, no distribution has taken place by virtue of the laws of the State of New York, nor has any property been transferred for distribution to an executor or administrator appointed in this State, nor has the decedent's will been admitted to probate in the State of New York. In fact, neither the testatrix nor any of her personal representatives have endeavored in any way to take advantage of the laws of the State of New York for the purpose of passing the title to or distributing any part of decedent's estate.

While the last two cases cited seem to be some authority on the side of the respondent, Matter of Thomas (39 Misc. Rep. 136) holds that under a quite similar state of facts the State was not authorized to assess a tax upon the transfer under a power of appointment there involved. The decision was made in 1902. The donor of the power there under consideration was Edwin L. Parker, who was a resident of Baltimore county in the State of Maryland. In his will, made and proved in Maryland in 1868, he devised and

App. Div. 597]

First Department, July, 1921.

bequeathed a portion of his residuary estate to three trustees then and at all times thereafter residents of the State of Maryland, upon a trust to keep the same invested and pay the income to the testator's daughter, Cordelia P. Thomas, during her lifetime, and after her death to pay or transfer the same in such manner as she by her last will and testament might direct. Cordelia P. Thomas married and died in 1902, a resident of the county of New York, leaving a will in which she exercised the power of appointment thus conferred. This will was admitted to probate in the county of New York and was subsequently determined to be a valid execution of the power of appointment under her father's will in the city of Baltimore, in a decree which directed that the trustees under the will of her father pay over the fund in their hands to the appointees of the testatrix. All of the assets of the estate, like those in the case at bar, were outside of the State of New York. The learned surrogate said: "A strictly literal construction of the statute would require the imposition of the tax, but I cannot think that the Legislature intended such a result, as applied to the facts of the present case, and I am of opinion that, if it did, the statute cannot be enforced. In all of the cases it is quite clearly asserted that the tax is one, not upon property, but upon transfers of property made by will or descent, where the right to make or receive such transfers is accorded by the laws of this State, and which right the sovereign power of this State may. lawfully abridge by the amount of the tax. It was upon this ground that the provision of law now under consideration was determined to be constitutional.

"In the present case no transfer of any kind of any part of the assets of the estate of Edwin L. Parker, in the hands of his trustees at the time of the death of his daughter, has been effected or permitted by any law of the State of New York. All of those assets were in the State of Maryland, held by trustees residing in Maryland, under a will of a citizen of Maryland, pursuant to the laws of that State. It is true that the will of the decedent which effected the appointment was executed here, but it derived none of its force or validity from our law. Its legal effect depended entirely upon the law of Maryland, and if its probate in this State was necessary

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or useful for any purpose, it was only because the law of the State of Maryland so declared."

Had it become necessary in the case at bar to admit the decedent's will to probate in this State for the purpose of passing the title to any part of the property over which the decedent had a power of appointment, or had the personal representatives of the deceased elected to take advantage of our laws for the purpose of passing the title to such property, there might be some argument that the State would be authorized to assess a tax upon the remainders upon the theory that such power was exercised by virtue of a privilege conferred by the laws of New York. It was not necessary to the exercise of such power to probate the will here, and it was not probated here. The case, therefore, is barren of any proof showing that the State of New York has granted any right or privilege which has in any way affected the passage of the title to the property which the beneficiaries clearly have the right to possess under the laws of the State of Massachusetts and under the wills in question.

It, therefore, follows that the determination reached by the surrogate in respect to the right of the State to assess a tax under the section of the Tax Law above mentioned was

erroneous.

Having reached the conclusion that said remainders are in no event subject to taxation, it is unnecessary to consider the second question raised by the appellant respecting the manner and time of such taxation, or the amount of tax to be assessed.

The order appealed from should be reversed, with costs to the appellants against the respondent, and the matter remanded to the surrogate of New York county for disposition in accordance herewith.

DOWLING, LAUGHLIN, SMITH and GREENBAUM, JJ., concur.

Order reversed, with costs to appellants against respondent, and proceeding remitted to Surrogates' Court for further action in accordance with opinion. Settle order on notice.