Notwithstanding the common law rule that estates created by the
execution of a power take effect as if created by the original
deed, for some purposes, the execution of the power is considered
the source of title.
This Court must follow the decision of the state court in
determining that the essential thing to transfer an estate is the
exercise of a power of appointment.
The imposition of a transfer or inheritance tax under ch. 284,
Laws of New York, 1897, on the exercise of a power of appointment
in the same manner as though the estate passing thereby belonged
absolutely to the person exercising the power does not, although
the power was created prior to the act, deprive the person taking
by appointment, and who would not otherwise have taken the estate,
of his property without due process of law in violation of the
Fourteenth Amendment, nor does it violate the obligation of any
contract within the protection of the impairment clause of the
federal Constitution.
176 N.Y. 486 sustained.
This is a writ of error to the Surrogates' Court of the County
of New York, State of New York, but its real purpose is to
Page 205 U. S. 467
review a decision of the Court of Appeals of the state
sustaining an order of the surrogates' court which imposed a
transfer tax upon certain estates arising under appointment by
Laura Astor Delano, deceased. 176 N.Y. 486.
Laura Astor Delano was the daughter of William B. Astor. Upon
the occasion of her marriage in 1844 to Frank H. Delano, Mr. Astor
executed a deed in the nature of a marriage settlement conveying
certain real and personal property to trustees in trust to pay the
income to said Laura Delano for life, with remainder to her issue
in fee or, in default of issue, to her heirs in fee, and giving her
power, in her discretion, to appoint the remainder
"amongst her said issue or heirs in such manner and proportions
as she may appoint by instrument in its nature testamentary, to be
acknowledged by her as a deed, and in the presence of two
witnesses, or published by her as a will."
In the years 1848, 1849, and 1865, William B. Astor made other
deeds, by way of addition to the original marriage settlement,
substantially similar in their terms. That of 1848 conveyed certain
real estate to Mrs. Delano for life, with power of appointment as
to said premises, or any part thereof,
"to and among her said issue, brothers, sister Alida, or their
issue, in such manner and proportions as she may appoint by
instrument in its nature testamentary, to be acknowledged by her as
a deed in the presence of two witnesses, or acknowledged by her as
a will."
The deed of 1849 conveyed to trustees certificates for $50,000
of the public debt of Ohio,
"to hold the same in trust for the benefit of Laura Astor Delano
during her life, and at her death to transfer and convey the
capital of the said stock to her issue, but, in case she left no
issue, then to her surviving brothers and sister Alida and to the
issue of any of them who died leaving issue, and said instrument
contained a power of appointment to Laura Astor Delano as
follows:"
"Provided, however, that it shall be lawful for the said Laura,
by any instrument executed duly as a will of personal estate, to
dispose of the said capital unto and amongst her
Page 205 U. S. 468
issue, brothers, sister and their issue, in such shares and
proportions as she may think fit, and upon such limitations, by way
of trust or otherwise, as, in her discretion, may be lawfully
devised."
These deeds were absolutely irrevocable, took effect upon
delivery, and were not made in contemplation of the death of the
grantor.
Laura A. Delano died June 15, 1902, in Geneva, Switzerland,
leaving no descendants. By her last will and testament, duly
admitted to probate in the County of New York on October 14, 1902,
she exercised the power of appointment conferred in the deeds from
her father in favor of the plaintiffs in error.
One of the plaintiffs in error, Arthur Astor Carey, a grandson
of William B. Astor and an appointee to whom Mrs. Delano had
appointed the property originally conveyed by the deeds of 1848 and
1849, took an appeal from the order of the surrogates' court
refusing to dismiss the petition to the appellate division of the
supreme court, where it was held that the act under which the tax
was imposed, as applied to this case, was unconstitutional.
In
re Delano, 82 App.Div. 147. The state comptroller appealed to
the Court of Appeals from the decision of the appellate
division.
That court sustained the right to impose the transfer tax upon
the interests appointed by Mrs. Delano under the powers created by
the deeds above referred to. Subsequent decisions were made
pro
forma, and a final order on the last remittitur of the Court
of Appeals was made in the surrogates' court, and the case brought
here by all the plaintiffs in error.
Page 205 U. S. 472
MR. JUSTICE DAY delivered the opinion of the Court.
The tax in controversy was imposed under an amendment of the
general transfer tax law of the State of New York, chapter 284,
Laws of 1897, which 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 be 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
Page 205 U. S. 473
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 validity of this tax was attacked in the courts of New York
upon objections pertaining to both the federal and state
constitutions. The latter are not open here, and we shall consider
the case only so far as it relates to the objections made to the
validity of this statute by reason of alleged violations of the
federal Constitution. These are first that, by the imposition of
the tax, the property of the beneficiaries is taken without due
process of law, in violation of the Fourteenth Amendment, and
second that such taxation violates the obligation of a contract
within the protection of Section 10 of Article I of the federal
Constitution.
The objection that the property is taken without due process of
law is based upon the argument that the estate in remainder was
derived from the deeds of William B. Astor, and not under the power
of appointment received from those deeds by Mrs. Laura A. Delano.
In support of this contention, common law authorities are cited to
the proposition that 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; that the beneficiary takes not under
the execution of the power by the donee, but by authority and under
grant from the grantor, in like manner as if the power and the
instrument which created it had been incorporated into one
instrument. 4 Kent's Com. 327; 2 Washburn, Real Property 320. The
argument is that the estate which arose by the exercise of the
power came from William B. Astor, and not from Laura A. Delano, and
was vested long before the passage of the amendment of 1897, under
the authority of which the tax was imposed, and to tax the exercise
of the power therefore takes property without due process of
law.
However technically correct it may be to say that the estate
came from the donor, and not from the donee, of the power, it
is
Page 205 U. S. 474
self-evident that it was only upon the exercise of the power
that the estate in the plaintiffs in error became complete. Without
the exercise of the power of appointment, the estates in remainder
would have gone to all in the class named in the deeds of William
B. Astor. By the exercise of this power, some were divested of
their estates and the same were vested in others. It may be that
the donee had no interest in the estate as owner, but it took her
act of appointment to finally transfer the estate to some of the
class and take it from others.
Notwithstanding the common law rule that estates created by the
execution of a power take effect as if created by the original
deed, for some purposes, the execution of the power is considered
the source of title. It is so within the purpose of the
registration acts. A person deriving title under an appointment is
considered as claiming under the donee within the meaning of a
covenant for quiet enjoyment. 2 Sugden on Powers, 3d ed., 19.
"So, on an issue to try whether the plaintiff was entitled by
two writings, or any other, purporting a will of J.S., and the
evidence was of a feoffment to the use of such person as J.S.
should appoint by his will, in which case it was contended that the
devisees were in by the feoffment, and not by the will, the court
held that this was only
fictione juris, for that they were
not in
without the will, and therefore that was the
principal part of the title, and such proof was good enough and
pursuant to the issue, and a verdict was accordingly given for the
plaintiff."
2 Sugden on Powers 19, citing
Bartlet v. Ramsden, 1
Keble, 570.
So, in the present case, the plaintiffs in error are not in
without the exercise of the power by the will of Mrs.
Delano.
By statute in England, for the purposes of taxation, it has been
provided that the donee of the power shall be regarded, in case of
a general power, as the one from whom the estate came. In
Attorney General v. Upton, L.R. 1 Exch. 224, the Court of
Exchequer had under consideration the Succession Duty Act (16, 17
Vict. c. 51), and it was held that the
Page 205 U. S. 475
appointee under a general power of appointment, taking effect on
the death's happening since the commencement of the act, takes
succession from the donee of the power. The testator, Admiral
Fanshawe, by will devised certain lands to the use of his wife,
Caroline Fanshawe, for life, remainder to such use as she should by
deed or will appoint, and, in default of appointment, for the use
and benefit of testator's nephews, C. F. and J. F. Fanshawe, and
their issue. She by deed appointed to the use that trustees should,
after her death, receive an annuity during the lives of the wife of
the testator's nephew, and of the children of the nephew by her, in
trust for the separate use of the wife, Elizabeth Fanshawe. Section
4 of the act, which is there construed, provides that any person
having a general power of appointment under any disposition of
property taking effect upon the death of any person dying after the
time appointed for the commencement of the act shall, in the event
of his making any appointment thereunder, be deemed to be entitled,
at the time of his exercising such power, to the property or
interest thereby appointed as a succession derived from the donor
of the power. All the judges agreed that, under section 4 of the
act, the nephew's wife took the annuity as a succession from the
testator's widow, and not from the testator himself; that therefore
a duty of ten percent was payable. Bramwell, B., was of opinion
that the duty was also payable under section 2, which provides
that
"every past or future disposition of property, by reason whereof
any person has or shall become beneficially entitled to any
property . . . shall be deemed to have conferred, or to confer, on
the person entitled by reason of any such disposition . . . a
succession."
In speaking of this section, the Baron said:
"Now will these annuitants take by reason of the will of Admiral
Fanshawe? We must look, not at the
causa remota, but at
the
causa proxima, and that is the disposition of Caroline
Fanshawe. Again, the act says that the term 'predecessor' 'shall
denote the settlor, disponer, testator, obligor, ancestor, or other
person from whom the interest of the successor is or
Page 205 U. S. 476
shall be derived.' From whom, then , is the interest derived? As
I said in
Barker's case, (1) these are ordinary English
words, and ought to be construed by lawyers as ordinary Englishmen
would construe them. Now not one man in a hundred would say that
this interest was derived from Admiral Fanshawe, nor from any other
person than the donee of the power. I do not mean to deny or
attempt to cast any doubt on the rule of law that an appointee
takes his estate from the donor of the power, but I say that it is
a rule not applicable to the construction of this statute, and it
is not true, as is supposed, that there is any decision of the
House of Lords to the contrary."
The learned Baron seems to have gone farther, as to section 2,
than his brethren were willing to.
Attorney General v.
Mitchell, L.R. 6 Q.B.D. 548. His observations are,
nevertheless, suggestive.
While the entire bench recognized the common law rule that the
estate is taken to come from the donor of the power, it enforced
the statutory change as to a subsequent exercise of the power
treating the estate as coming from the donee, by whose act it was
appointed to the beneficiary.
The statute of New York in question acts equally upon all
persons similarly situated. It affects an estate which only became
complete by the exercise of a power subsequent to its
enactment.
The exercise of the power bestowing property in the present case
was made by will. And we need not consider the case, expressly
reserved by the Court of Appeals in its opinion, as to the result
if it had been exercised by deed.
That the will was effectual to transfer the estate was ruled by
the Court of Appeals, and its decision on this question is binding
here, as was held in
Orr v. Gilman, 183 U.
S. 278, which came here for a review of a decision of
the Court of Appeals of New York rendered in
In re Dows,
167 N.Y. 227 -- a case which arose under the same statute of 1897.
In that case, the testator devised real estate in trust to pay the
income to his son for life, and, upon his death, to vest
absolutely
Page 205 U. S. 477
and at once in his children and the issue of his deceased
children, as his son should appoint by will. If, however, the son
should die intestate, the estate was to vest absolutely and at once
in his children then living and the issue of the deceased children.
The son exercised the power of appointment by his last will,
probated in 1899. The Court of Appeals held that the property was
subject to the taxation imposed by the act of 1897; that such tax
was on the right of succession, and not on the property. It became
important in that case to determine whether the property passed by
virtue of the will of the donor, David Dows, Senior, and then
became vested in the grandchildren, or only became vested in them
when the power of appointment was exercised by the will of David
Dows, Junior.
This Court held that the answer to this question must, of
course, be furnished by the Court of Appeals in that case. 183 U.S.
183 U. S. 282.
In other words, the Court of Appeals of New York had the exclusive
right to construe instruments of title in that state and determine
for itself the creation and vesting of estates through wills under
the laws of the state.
"The Court of Appeals held that it was the execution of the
power of appointment which subjected grantees under it to the
transfer tax. This conclusion is binding upon this Court insofar as
it involves a construction of the will and of the statute."
183 U.S.
183 U. S. 288.
In the present case, the New York Court of Appeals has spoken in no
uncertain language upon the subject:
"As the tax is imposed upon the exercise of the power, it is
unimportant how the power was created. The existence of the power
is the important fact, for what may be done under it is not
affected by its origin. If created by deed, its efficiency is the
same as if it had been created in the same form by will. No more
and no less could be done by virtue of it in the one case than in
the other. Its effective agency to produce the result intended is
neither strengthened nor weakened by the nature of the instrument
used by the donor of the power to create it. The power, however or
whenever created, authorized the donee by her will to divest
certain defeasible estates,
Page 205 U. S. 478
and to vest them absolutely in one person. If this authority had
been conferred by will, instead of by deed, the right to act would
have been precisely the same, and the power would have neither
gained nor lost in force. . . ."
"As we said through Judge Cullen in the
Dows case:"
"Whatever be the technical source of title of a grantee under a
power of appointment, it cannot be denied that in reality and
substance it is the execution of the power that gives to the
grantee the property passing under it."
"This accords with the statutory definition of a power as
applied to real estate, for it includes an authority to create or
revoke an estate therein. (Real Property Law, ยง 111). Such was the
effect of the exercise of the power under consideration, for it
both revoked and created estates in the real property and the
interests in the personal property. No tax is laid on the power, or
on the property, or on the original disposition by deed, but simply
upon the exercise of the power by will, as an effective transfer
for the purposes of the act."
176 N.Y. 494.
As in
Orr v. Gilman, supra, we must accept this
decision of the New York Court of Appeals holding that it is the
exercise of the power which is the essential thing to transfer the
estates upon which the tax is imposed. That power was exercised
under the will of Laura Delano, a right which was conferred upon
her under the laws of the State of New York, and for the exercise
of which the statute was competent to impose the tax in the
exercise of the sovereign power of the legislature over the right
to make a disposition of property by will.
United States v.
Perkins, 163 U. S. 625,
163 U. S. 628;
Magoun v. Illinois Trust & Savings Bank, 170 U.
S. 283,
170 U. S.
288.
We cannot say that property has been taken without due process
of law, within the protection of the Fourteenth Amendment, by the
manner in which the Court of Appeals has construed and enforced
this statute.
Orr v. Gilman, supra.
Nor do we perceive that the effect has been to violate any
contract right of the parties. It is said that this is so
because,
Page 205 U. S. 479
instead of disposing of the entire estate, ninety-five percent
of the property included in the power has been transferred and five
percent taken by the state; but, as there was a valid exercise of
the taxing power of the state, we think the imposition of such a
tax violated no contract, because it resulted in the reduction of
the estate.
Certainly the remainderman had no contract with the donor or
with the state. For whether the remaindermen received aliquot parts
of the entire estate or the same was divested in whole or in part
for the benefit of others in the class depended upon the exercise
of the power by the donee. The state was not deprived of its
sovereign right to exercise the taxing power upon the making of a
will in the future by which the estate was given to the
appointees.
We find no error in the judgment of the surrogates' court
entered on the remittitur from the Court of Appeals, and the same
is affirmed.
MR. JUSTICE HOLMES, dissenting:
I have the misfortune to differ from the majority of my brethren
in this case, and although the argument which seemed and still
seems to me unanswerable was presented and has not prevailed, I
think that the principles involved are of sufficient importance to
justify a statement of the reasons of my dissent. A state
succession tax stands on different grounds from a similar tax by
the United States or a general state tax upon transfers. It is more
unlimited in its possible extent, if not altogether unlimited, and
therefore it is necessary that the boundaries of the power to levy
such taxes should be accurately understood and defined.
I have always believed that a state inheritance tax was an
exercise of the power of regulating the devolution of property by
inheritance or will upon the death of the owner -- a power
Page 205 U. S. 480
which belongs to the states, and I have been fortified in my
belief by the utterances of this Court from the time of Chief
Justice Taney to the present day.
Mager v.
Grima, 8 How. 490,
49 U. S. 493;
United States v. Perkins, 163 U.
S. 625,
163 U. S.
627-628;
Magoun v. Illinois Trust & Savings
Bank, 170 U. S. 283,
170 U. S. 288;
Plummer v. Coler, 178 U. S. 115,
178 U. S.
124-126,
178 U. S. 137;
Billings v. Illinois, 188 U. S. 97,
188 U. S. 104;
Campbell v. California, 200 U. S. 87,
200 U. S. 94;
Cahen v. Brewster, 203 U. S. 543,
203 U. S. 550.
See also In re Sherman, 153 N.Y. 1, 4. For that reason,
the power is more unlimited than the power of a state to tax
transfers generally or the power of the United States to levy an
inheritance tax. The distinction between state and United States
inheritance taxes was recognized in
Knowlton v. Moore,
178 U. S. 41,
178 U. S. 58,
and, whatever may be thought of the decision in
Snyder v.
Bettman, 190 U. S. 249, I
do not understand it to import a denial of the distinction
reaffirmed by the dissenting members of the Court. 190 U.S.
190 U. S.
256.
If, then, a given state tax must be held to be a succession tax
in order to maintain its validity, or if in fact it is held to be a
succession tax by the state court of which it is the province to
decide that matter, it follows that such a tax cannot be levied
except where there is a succession, and when some element or step
necessary to complete it still is wanting when the tax law goes
into effect. If some element is wanting at that time, the
succession depends, for taking effect, on the continuance of the
permission to succeed or grant of the right on the part of the
state, and, as the grant may be withdrawn, it may be qualified by a
tax. But if there is no succession, or if the succession has fully
vested or has passed beyond dependence upon the continuing of the
state's permission or grant, an attempt to levy a tax under the
power to regulate succession would be an attempt to appropriate
property in a way which the Fourteenth Amendment has been construed
to forbid. No matter what other taxes might be levied, a succession
tax could not be, and so it has been decided in New York.
In re
Pell, 171 N.Y. 48, 55;
In re Seaman, 147 N.Y. 69.
Page 205 U. S. 481
It is not denied that the tax under consideration is a
succession tax. The Court of Appeals treated it as such in the
present case. It said:
"If the power had been exercised by deed, a different question
would have arisen; but it was exercised by will, and, owing to the
full and complete control by the legislature of the making, the
form, and the substance, of wills, it can impose a charge or tax
for doing anything by will."
In re Delano, 176 N.Y. 486, 494,
reversing 82
App.Div. 147. That it was such a tax and valid for that reason was
decided in
In re Dows, 167 N.Y. 227, affirmed by this
Court.
Orr v. Gilman, 183 U. S. 278,
adopting the New York view, 183 U.S.
183 U. S. 289.
And these decisions and some of the other decisions of this Court
cited above were relied upon by the Court of Appeals. 176 N.Y. 492.
See further In re Vanderbilt, 50 App.Div. 246,
aff'd, 163 N.Y. 597;
In re Lansing, 182 N.Y. 238,
248. Probably the tax would be invalid for other local reasons
besides those mentioned in
In re Dows but for the
construction which it has received.
In re Pell, 171 N.Y.
48, 60.
This being, then, a succession tax, I should have thought it
plain that there was no succession for it to operate upon. More
precisely, even if otherwise any element of succession could have
been found -- a matter that I think would need explanation -- the
execution of the power did not depend in any way upon the continued
cooperation of the laws of New York by way of permission or grant.
I am not concerned to criticize the statement of the Court of
Appeals that in substance it is the execution of the power that
gives to the grantee the property passing under it. It is enough if
it is remembered that the instrument executing the power derives
none of its efficiency in that respect from the present laws of New
York. It is true that the instrument happens to be a will, and that
it could not have operated as a will except by the grant of the
privilege from the state at the time when Mrs. Delano died. But
what would execute the power depended, in the first place, upon the
deed creating it, and if that deed did not
Page 205 U. S. 482
require a will, but only an instrument otherwise sufficiently
characterized, it did not matter whether the instrument was also
good as a will or not.
Ela v. Edwards, 16 Gray 91,
100.
What the deeds which I am considering required was
"an instrument in its nature testamentary, to be acknowledged by
her (Mrs. Delano) as a deed in the presence of two witnesses, or
published by her as a will."
The language was chosen carefully, I presume, in view of the
incapacities of married women at that time. By the terms used a
will, was unnecessary. It was enough if Mrs. Delano sealed and
acknowledged an instrument in its nature testamentary, in the
presence of two witnesses, whether it was good as a will or not.
Strong v. Wilkin, 1 Barb.Ch. 9, 13;
Heath v.
Withington, 6 Cush. 497. This she did. In
Orr v.
Gilman, 183 U. S. 278, the
power was created by will, and, what is more obviously material, it
required a will for its execution, and so might be held to invoke
and submit itself to the law in force when the execution should
take place. Therefore, that case has no bearing upon this. The
ground upon which this tax is imposed is, I repeat, the right of
the state to regulate, or, if it sees fit, to destroy,
inheritances. If it might have not appropriated the whole, it
cannot appropriate any part by the law before us. And I also repeat
that it has no bearing upon the matter that, by a different law,
the state might have derived an equal revenue from these donees in
the form of a tax. I do not understand it to be suggested that the
state, without compensation, could have appropriated the remainder
after Mrs. Delano's life, which Mr. Astor parted with in 1844 and
shortly following years. If it could not have done so, I am unable
to see on what ground this tax is not void. The English decisions
throw no light upon the question before us, because they are
concerned only with the construction of statutes which, however
construed, are law.
MR. JUSTICE MOODY concurs in this dissent.