1. A state may not subject to taxation things wholly beyond her
control. P.
272 U. S.
575.
2. The exercise of a power of appointment through a will made in
North Carolina by a resident of that state
held not
taxable there
Page 272 U. S. 568
when the property was a trust fund in Massachusetts created by
the will of a citizen of that state bestowing the power of
appointment -- this in view of the Massachusetts law which treats
the property in such cases as passing under that law from the
original donor to the appointee, and governs the interpretation of
the power and its execution and the distribution of assets
thereunder. P.
272 U. S.
575.
189 N.C. 50 reversed.
Error to a judgment of the Supreme Court of North Carolina which
sustained a tax upon the value of property which passed to citizens
of that state under a power of appointment executed by a resident
of that state, but created by the will of a resident of
Massachusetts, where the property was situate.
Page 272 U. S. 571
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Stanford L. Haynes, of Springfield, Massachusetts, died May 21,
1920, leaving a will which was duly probated at that place. The
fifth clause gave to the Springfield Safe Deposit & Trust
Company, Massachusetts corporation, the residue of the estate in
trust, one-half to be set aside and the net income paid to his
daughter, Theodosia, so long as she should live, and, at her death,
to be transferred
Page 272 U. S. 572
to
"such person or persons and in such proportions as said
Theodosia shall by will appoint, or in the event that said
Theodosia shall fail to exercise the power of appointment hereby
conferred upon her and shall leave issue surviving her, such
payment and transfer shall be made to such issue by right of
representation."
The corporation accepted the trust and received a large
fund.
After her father's death, Theodosia intermarried with Taylor and
resided at Morgantown, North Carolina. She died there June 23,
1921, leaving an infant child. By will dated March 18, 1921,
executed in North Carolina and adequate under the laws of the state
and of Massachusetts, she directed that the property described by
the fifth clause of her father's will should be divided between her
husband and child. She also disposed of some land and personal
property in North Carolina. The will was duly probated in the
latter state, and plaintiff in error became administrator of the
estate. The fund held by the trust company and subject to
appointment was made up of stocks and bonds valued at
$395,279.93.
Section 6, c. 34, Public Laws N.C.1921, ratified March 8, 1921,
directs that all real and personal property passing by will or the
intestate laws of the state shall be subject to a tax, and --
"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 the rate shall be
determined by the relationship between the beneficiary under the
power and the donor, and whenever any person or corporation
possessing such power of appointment so derived shall omit or fail
to exercise the same within the time
Page 272 U. S. 573
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 omission 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."
Acting under this statute, the proper officer demanded payment
of a tax computed upon the value of the property which passed under
the appointment by Mrs. Taylor. The Supreme Court of North Carolina
approved the demand and specifically held that enforcement would
not offend the Fourteenth Amendment by depriving the interested
parties of property without due process of law. It declared that
the statute taxed the exercise of the power of appointment made by
permission and under direct protection of local laws. 189 N.C.
50.
In
Orr v. Gilman, 183 U. S. 278, and
Chanler v. Kelsey, 205 U. S. 466,
this Court held that, by an Act passed subsequent to the instrument
which created a power of appointment, New York might tax its
execution without violating the Fourteenth Amendment. But, in each
of these causes, the first testator or creator of the trust and the
trustees thereunder were residents of New York, and the fund was
there held. Here, the original testator resided in Massachusetts,
his will was probated there, and the trustee holds the funds there
for disposition under the local laws. The power of appointment was
exercised by a resident of North Carolina by a will there executed,
and that state has attempted to impose the tax. These circumstances
differentiate the causes.
In
Chanler v. Kelsey, the statute, c. 284, N.Y. Laws
1897, provided:
"Whenever any person or corporation shall exercise the power of
appointment derived from any
Page 272 U. S. 574
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 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."
Mrs. Delano, acting under the power granted by her father,
appointed by her will those who should take the full beneficial
interest in property held by trustees in New York and actually
located there. The New York court held that the tax was upon the
exercise of the power by will as an effective transfer within the
purposes of the act, and this Court said:
"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. . . . 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."
Except perhaps where the instrument which created the power
provides that the appointment must be by will
Page 272 U. S. 575
executed according to the law of the donee's domicile, to be
proved and allowed there, the following propositions are
established in Massachusetts: "Personal property over which one has
the power of appointment is not the property of the donee, but of
the donor of the power." The appointee takes not as the legatee of
him who appoints, but of the original donor.
"Property in the hands of domestic trustees appointed under the
will of a domestic testator, who conferred a power of appointment
upon a nonresident, must be distributed according to the law of
this Commonwealth, and . . . the execution of the power must be
interpreted according to our law and in conformity to the power
conferred."
Walker v. Treasurer & Receiver General, 221 Mass.
600, 602, 603, and cases there cited;
Shattuck v. Burrage,
229 Mass. 449.
These principles are commonly accepted.
Blount v.
Walker, 134 U. S. 607;
United States v. Field, 255 U. S. 257,
255 U. S. 264;
Murphy v. Deichler, House of Lords, L.R. (1909) A.C. 446;
In re Harriman's Estate, 208 N.Y.S. 672;
Matter of New
York Life Insurance & Trust Co., 209 N.Y. 585;
Bingham's Appeal, 64 Pa. 345;
Rhode Island Trust Co.
v. Dunnell, 34 R.I. 394;
Prince de Bearn v. Winans,
111 Md. 434;
State ex rel. Bankers' Trust Co. v. Walker,
70 Mont. 484;
Estate of Bowditch, 189 Cal. 377.
We think the assets of the trust estate established by the will
of Haynes had no situs, actual or constructive, in North Carolina.
The exercise of the power of appointment was subject to the laws of
Massachusetts, and nothing relative thereto was done by permission
of the state where Mrs. Taylor happened to have her domicile. No
right exercised by the donee was conferred on her by North
Carolina. A state may not subject to taxation things wholly beyond
her jurisdiction or control.
Frick v. Pennsylvania,
268 U. S. 473.
The judgment below must be
Reversed.
Page 272 U. S. 576
MR. JUSTICE HOLMES.
In
Bullen v. Wisconsin, 240 U.
S. 625, where a fund was given in trust for the donor's
widow and children, reserving to the donor a general power of
revocation and the disposition of the income during his life, it
was held that, upon his death, an inheritance tax could be levied
in Wisconsin, the place of his domicile, although the trustee and
trust fund were outside of the jurisdiction. The general power was
considered to have the same effect as ownership. In this case, the
power was not so broad, because it was to be executed only by will,
but the command over the fund was substantially the same. Mrs.
Taylor, the donee, had the life interest and the power to dispose
of the remainder by a will which she could bind herself to make. I
dare say that it may be desirable to limit the
universitas, as was done in
Frick v.
Pennsylvania, 268 U. S. 473, but
I cannot help doubting whether the present decision can be
reconciled with
Bullen's case.
MR. JUSTICE BRANDEIS and MR. JUSTICE STONE concur in this
view.