In re the Estate of Zborowski

Fowler, S. The state comptroller appeals from the order assessing a tax upon the estate of the decedent and contends that the remainder after the temporary life estate of decedent’s son should be taxed at the ■highest rate prescribed by the statute. The order appealed from assessed a tax on this remainder at the — 343 — lowest rate. The decedent, who was a resident of Mew York, died on the 9th of July, 1911. She gave her residuary estate in trust to pay the income to her son, Louis Zborowski, until he arrived at the age of twenty-one, when he was to receive the principal; if he died before reaching the age of twenty-one, leaving issue, the principal to go to such issue; if he did not leave issue, the principal to be paid as follows: $100,000 to Alice Talmidge Enthoven, $75,000 to Bertie Venables, $100,000 to Clarice Louise Hodges, $150,000 to Mercedes Bonsoms, $100,000 to Henry Lewis Morris, and all the rest to her husband’s sister, Anna Elliott Zborowski, or, if she should not then be living, to her children and the descendants of a deceased child, per stirpes. All of these legatees, with the exception of decedent’s son and his issue, belong to the class taxable at the five per cent primary rate. The decedent was survived by her son, Louis Zborowski, an infant over fourteen years of age and unmarried. The state comptroller in his brief on the appeal bases his argument upon the assumption that the taxability of this estate is governed by the Tax Law in force prior to July 11, 1910. This is obviously incorrect, as the decedent died July 9, 1911, while chapter 706 of the Laws of 1910 went into effect on July 11,1910. The state comptroller ’s brief being based upon a misapprehension of the law applicable to the taxability of the estate, the cases cited therein have no relevancy to the question raised by the appeal. The court, however, will examine the question raised by the notice of appeal, namely, whether the taxation of the remainder after the temporary life estate of decedent’s son has been made in accordance with the provisions of the Tax Law. The order assessed a tax upon the value of the remainder after the temporary life estate of Louis Zborowski as if it vested indefeasibly in him. There — 344 — is no authority in the statute for such a method of taxation. Either the value of the remainder should be taxed under section 230, as if it vested in the possession of the various remaindermen entitled to it in the event of the death of the life tenant without issue before reaching the age of twenty-one, or taxation thereon should be suspended, as prescribed by section 222 of the Tax Law, until it vested in possession. Under the Inheritance Tax Law of 1885 it was held that contingent interests were not to be appraised or taxed until the happening of the contingency upon which they were limited (Matter of Stewart, 131 N. Y. 274), and under the act of 1892 it was held that taxation on contingent or future estates, or vested estates which were defeasible, the value of which could not be ascertained at the time of decedent’s death, was to be postponed until such estates vested in the possession or enjoyment of the beneficiary. Matter of Roosevelt, 143 N. Y. 120. In 1899 the Tax Law was amended by adding the following provision: ‘1 When property is transferred in trust or otherwise, and the rights, interests or estates of the transferees are dependent upon contingencies or conditions whereby they may be wholly or in part created, defeated, extended or abridged, a tax shall 'be imposed upon said transfer at the highest rate which, on the happening of any of the said contingencies or conditions, would be possible under the provisions of this article, and such tax so imposed shall be due and payable forthwith, by the executors or trustees out of the property transferred. ’ ’ The Court of Appeals, in Matter of Vanderbilt, 172 N. Y. 69, held that under this amendment remainders, whether vested or contingent, were presently taxable at the highest rate which upon the happening of the contingencies provided in the will could be imposed under the provisions of the act. At that time the — 345 — rates of taxation were one per cent for lineals and other immediate relatives and five per cent for col-laterals. The rate was based upon the relationship of the beneficiary to the decedent, and not upon the value of the legacy or devise. The law defined the words “ estate ” and.“ property ” to mean the property or interest therein of the testator, intestate, etc., passing or transferred, and not the property or interest passing or transferred to the individual legatees, devisees, etc. Chapter 706 of the Laws of 1910 effected material changes in the Tax Law. It not only changed the rates of taxation, but also the definition of the words “ estate ” and “ property ” as used in the law. These words were defined to mean the property or interest passing or transferred to individuals or corporate legatees, devisees, etc., and not the property or interest therein of the decedent, grantor or donor passing or transferred. The question presented by this appeal is whether in view of the change in the definition of the words “estate” and “property” effected by chapter 706 of the Laws of 1910 the transfer tax on the remainders created by the will of the decedent should be assessed in the manner prescribed by section 230 of the Tax Law and in accordance with the decision in Matter of Vanderbilt, supra, or whether such taxation should be suspended as provided by section 222 of the Tax Law. Construing the word ‘ ‘ property ” in that part of section 230 above quoted to mean the property or interest passing to the individual legatee, it would appear that no property has been transferred in trust to Alice Talmidge Enthoven, Bertie Venables, or the other contingent remaindermen mentioned in the will, as the trust terminates when the decedent’s son reaches the age of twenty-one or dies before that time. But if it be assumed that the words “ or otherwise ” in that section are sufficiently com — 346 — prehensive to embrace the transfer .to the contingent remaindermen under the will of the decedent, the section provides that “ a tax shall be imposed upon such transfer at the highest rate.” It is true that some interest is transferred under the will of the decedent to the contingent remaindermen, namely, the right to the amounts mentioned if Louis Zborowski dies before reaching the age of twenty-one without leaving issue him surviving, and under the section quoted this interest may be taxed at the highest rate. But what is the value of the interest to be assessed at the highest rate, and how is such value to be ascertained? It cannot be said that the bequest of $100,000 to Alice Talmidge Enthoven, which is payable only in the event of the decedent’s son dying before reaching the age of twenty-one years without leaving issue him surviving, was worth $100,000, or that it had any definite value at the date of decedent’s death. Its value was entirely speculative. If Louis Zborowski survives until he reaches the ag'e of twenty-one or dies before reaching that age, but leaving issue, the contingent interest transferred to Alice Talmidge Enthoven will be worth nothing; if he should die before reaching that age and leave no issue him surviving it would be worth $100,000. What value, then, should be placed upon this interest so that its transfer may be taxed at the highest rate under the section above quoted ? It is obvious that the value of such interests cannot be ascertained until they vest in possession. Under the Tax Law in existence at the time the Vanderbilt case was decided, the tax was imposed upon the value of the property of the decedent which was transferred. Therefore such value could be ascertained at the time of decedent’s death, and the only question that remained was the rate of tax to be imposed. At that time there were only two rates, one per cent and five per cent, so that the value — 347 — of the remainder being ascertainable it conlcl be taxed at the highest rate, namely, five per cent. But under the law in existence at the time of decedent’s death the tax is imposed upon the value of the interest of the legatee, and the rate is dependent not only upon the relationship of such legatee to the decedent, but also upon the value of the legatee’s interest. It may be as low as one per cent or as high as twenty per cent, dependent upon the valúe of the interest to which the legatee is entitled. Unless the value of the interest is ascertainable it is impossible to determine the rate at which it is to be taxed. While the Legislature may prescribe the rate of tax which shall be imposed upon the transfer, it cannot arbitrarily determine the value of the transfer. It cannot say that the value of the interest transferred to Alice Talmidge Enthoven by the decedent was worth $100,000 at the date of decedent’s death. Therefore, in view of the changes effected in the Tax Law by chapter 706 of the Laws of 1910, it would appear that the decision in Matter of Vanderbilt, supra, which was rendered under the law as it existed prior to the amendment of 1910, is not controlling in the taxation of the estate of decedent, who died subsequently to the date of that amendment. The taxation of such interests would seem to be governed by section 222 of the Tax Law. This section provides: “ Taxes upon the transfer of any estate, property or interest therein limited, conditioned, dependent or determinable upon the happening of any contingency or future event, by reason of which the fair market value thereof cannot be ascertained at the time of the transfer, as herein provided, shall accrue and become due and payable when the persons or corporations beneficially entitled thereto shall come into actual possession or enjoyment thereof.” In accordance with the definition of the — 348 — word “ estate ” in chapter 706 of the Laws of 1910, the value of the respective estates of the remainder men under the will of the decedent cannot he ascertained until they vest in possession. Therefore, under the section just quoted the taxation of the remainder interests should be suspended until the remainder-men come into actual possession or enjoyment thereof. The order fixing tax will be modified by suspending taxation on the remainder after the temporary life estate of Louis Zborowski until such remainder vests in possession. Order modified.