Darnall v. Connor , 161 Md. 210 ( 1931 )

The question to be decided is whether the collateral inheritance tax, provided for by section 124 of article 81 of the Code (as amended by Acts 1927, ch. 242, sec. 1), is collectible upon legacies made under this arrangement. A woman owning real and personal property had during her lifetime placed it in trust by deed, giving the trustee the management of the property for her life, but reserving to herself the income and the power of testamentary disposition, with a limitation over to her heirs generally in default of such disposition; and she thereafter executed a will giving the legacies in question. By agreement of the parties, this question was submitted to the trial court without a jury, upon a case stated on the facts. Code art. 75, secs. 56 and 133. And, the decision having been that there was a liability for the tax, the defendant appeals. No question of parties or procedure is raised.

Sallie C. Brown, four years before her death in 1928, conveyed real and personal property to R. Bennett Darnall, in trust, "to collect the interest, income, rents and profits therefrom; to pay all taxes, repairs and charges of every kind, including the expenses of administering this trust, and a commission to the trustee equal to the commission allowed trustees for similar services by the Circuit Court of Baltimore City, and thereafter to pay the net income from time to time to or for the account of the party of the first part, in such installments as the party of the second part, or his successor, may deem expedient and wise." The grantor reserved to herself the right to dispose of the whole or any part of the estate granted, by her will, and provided that, should she fail to do so, the trustee should divide the property, pay it over, and transfer it to her heirs. And the trustee was given authority and power to change the investments, and sell, lease, mortgage, or convey any of the property, upon such terms as he might think proper and expedient. By will duly executed, the grantor subsequently gave the legacies to collaterals here considered, expressly stating that it was in exercise of the power of disposition which she had reserved.

The tax is laid in broad terms. It is upon legacies to collaterals of "estates, real, personal and mixed, money, public and private securities for money of every kind passing from any person who may die seized and possessed thereof, being in this State, or any part of such estate or estates, money or securities, or interest therein, transferred by deed, will, grant, bargain, gift or sale, made or intended to take effect in possession after the death of the grantor, bargainor, devisor or donor to any person or persons, bodies corporate, in trust or otherwise." Code, art. 81, secs. 124 (as amended Acts 1927, ch. 242). And the comprehensive purpose is obvious. In the preamble to the original enactment the tax was described comprehensively as a tax on "collateral inheritances, distributive shares and legacies, to aid in paying the debts of the state." Acts 1844, ch. 237. And this court has recently said that: "The intention of the Legislature in this case is plain that they proposed to exact from strangers or collateral heirs five per cent. of the value of what is distributed to them, as a premium for the privilege granted by the State of receiving it, and which they are to become entitled to after the death of the person through whose bounty they are to receive it. This being true, no device, whether intended for that purpose or not, should be sanctioned which would deprive the state of the tax which it exacts." Lilly v. State, 156 Md. 94, 100, 143 A. 661, 664. "The tax is imposed upon the clear value of all estates passing by will or otherwise, at the time it is transferred and received by the collateral beneficiary." Fisherv. State, 106 Md. 104, 121, 66 A. 661, 663. The tax is, however, only upon inheritances, or successions to property at death, and accordingly the statute describes the property as that of which the grantor dies seized and possessed, and the transfer of which is made or intended to take effect in possession at the death. And the question argued arises out of the use of these particular words of description.

About the second part of the description, and the question whether the transfer to the legatees was made or intended to take effect in possession upon the death, there is little difficulty in the case. The transfer was made by will, taking effect, and giving possession, only upon death. The legatees have nothing except under the will. The rule that the exercise of a power of disposition relates back and dates from a previous deed creating the power does not affect the time of taking here. Never a rule for all purposes, it is commonly denied application under inheritance tax statutes. Fisher v. State, 106 Md. 104, 121,66 A. 661; Chanler v. Kelsey, 205 U.S. 466, 473, 474, 27 S.Ct. 550, 51 L.Ed. 882; 2 Sugden, Powers (3d Ed.), 18; Saltonstallv. Saltonstall, 276 U.S. 271, 48 S.Ct. 225, 72 L.Ed. 565;Bullen v. Wisconsin, 240 U.S. 625, 36 S.Ct. 473, 60 L.Ed. 830;Crocker v. Shaw, 174 Mass. 266, 54 N.E. 549; Gleason Otis,Inheritance Taxation (3d Ed), 172. But see Prince de Bearn v.Winans, 111 Md. 434, 74 A. 626. And, in the second place, the power of testamentary disposition here was not created by the previous deed; it was reserved from that deed. The grantor in the deed and the subsequent testator were one and the same person. There was no donation of the power, no donor and no donee; and, in disposing of the property beyond her life, by her will, she was exercising her own original power as owner, with which she had never parted, and which, therefore, did not derive from the deed. The language used is that of a power reserved and given, but in strict common-law terminology what is here called a reservation is an exception from the grant. "The expressions ``reserve' and ``reservation' have been applied in a somewhat untechnical sense, in connection with a clause in a conveyance by which the grantor retains a power of disposition over the land conveyed, * * * and perhaps in other cases of stipulations in behalf of the grantor. Such cases evidently do not fall within the common-law definitions of a reservation, but the use of the expression in these connections is highly convenient, and appears, in the ordinary case, to be free from objection." 2 Tiffany, Real Property, sec. 436. SeeDawson v. Western Maryland R. Co., 107 Md. 70, 92, 68 A. 301. The grantor made by her will her only disposition of title after her death, and the legatees take possession under the will only after the death; and we see no escape from the conclusion that the transfer was made or intended to take effect in possession after the death, in the language of the statute.

The chief ground of contention in the case, then, is the effect of the use of the words "dies seized and possessed," in describing the property subject of the transfer taxed. What is the effect of those words in the statute when the original owner, and present testatrix, had previously conveyed the property in trust for management during her life and distribution at the end of her life? The defendant urges that the rule of strict construction applies to tax statutes (Downes v. Safe Dep. Tr.Co., 157 Md. 87, 96, 145 A. 350; Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53, 62 L.Ed. 211; United States v. Merriam,263 U.S. 179, 187, 44 S.Ct. 69, 68 L.Ed. 240; May v. Heiner,281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826); and contends that, after the execution of the trust deed, the trustee named in it was, upon strict construction of the words, the only one answering the description of seized and possessed of the property. Exactly that contention was made and rejected in Smith v. State,134 Md. 473, 478, 107 A. 255. The words "seized and possessed" are, in modern law, used with such varied meanings that perhaps it might be questioned whether any could with certainty be declared the single, correct meanings for strict construction. Seisin has been used frequently to describe the holding of a cestui quetrust under a deed. 2 Tiffany, Real Property, sec. 392; 1Leake, Property in Land, 126; 12 Law Quarterly Review, 239, 247. The trustee under such a deed is, on the other hand, said not to have seisin for the purposes of dower. McCauley v.Grimes, 2 G. J. 318; Cowman v. Hall, 3 G. J. 398. And see the use of the word in Reid v. Gordon, 35 Md. 174, 184, andMatthews v. Ward, 10 G. J. 443, 453. And as to possession the Supreme Court of the United States has remarked that "both in common speech and in legal terminology, there is no word more ambiguous in its meaning than possession." Nat. Safe Deposit Co.v. Stead, 232 U.S. 58, 67, 34 S.Ct. 209, 212, 58 L.Ed. 504;Pollock Wright, Possession, 6, 47, 50. But passing that as a possible difficulty, it is to be borne in mind, as this court and others have frequently pointed out, that the rule of strict construction is a rule for construction of a whole statute rather than of a few words, that it is not a complete, all-sufficient rule for ascertaining a legislative intention, and that commonly statutes subject to the rule, even penal statutes, are found to have intentions at variance with some of the words used. "We are not unmindful," said the Supreme Court, "that penal laws are to be construed strictly. It is said that this rule is almost as old as construction itself. But whenever invoked it comes attended with qualifications and other rules no less important. It is by the light which each contributes that the judgment of the court is to be made up." United States v. Hartwell, 6 Wall. 385, 395, 18 L.Ed. 830; Maxwell, Interpretation of Statutes (7th Ed.), ch. 10; Endlich, Interpretation of Statutes, secs. 329 and 337;Gleason Otis, Inheritance Taxation (3d Ed.), 51. And so this court has said, quoting, among several other authorities, the statement of 1 Kent, Commentaries (6th Ed.), 467, that, "though penal statutes are said to be construed strictly, yet the courts are bound to give effect to their plain and obvious meaning, and not narrow the construction. They must search out and follow the true intent of the lawgiver."Parkinson v. State, 14 Md. 184, 195. And as to tax statutes, too, the Supreme Court has repeated what has often been said by other courts, that "it may be conceded that no tax can be levied without express authority of law, but the statutes are to receive a reasonable construction with a view to carrying out their purpose and intent." Scottish Union Ins. Co. v. Bowland,196 U.S. 611, 629, 25 S.Ct. 345, 351, 49 L.Ed. 619; In re Detroit Windsor Ferry Co., 227 Mich. 143, 146, 198 N.W. 725; Curtis v.Corbin, 93 Conn. 648, 107 A. 506;; State v. Bazille, 97 Minn. 11, 14, 106 N.W. 93; In re Fulham's Estate, 96 Vt. 308, 314, 119 A. 433; Crescent Co. v. South Carolina Tax Commission,129 S.C. 480, 492, 124 S.E. 761. And in Maryland, as elsewhere, in earlier cases, considerations such as a known general purpose of a statute have led the court to find and give effect to legislative intentions in tax or penal statutes, not entirely conforming to words used. Baltimore v. Balto. O.R. Co., 6 Gill. 288, 297; Buchanan v. Commrs. of Talbot County,47 Md. 286; Roland Park Co. v. State, 80 Md. 448, 31 A. 298; State v.Archer, 73 Md. 44, 20 A. 172; House v. House, 5 H. J. 125. The whole rule for ascertaining the effect of a statute is still that the plain intention of the Legislature must prevail, however that plain intention is made to appear.

To repeat, this court has already determined that "the intention of the Legislature in this case is plain that they proposed to exact from strangers or collateral heirs five per cent. of the value of what is distributed to them, as a premium for the privilege granted by the State of receiving it, and which they are to become entitled to after the death of the person through whose bounty they are to receive it." Lilly v. State,156 Md. 94, 100, 143 A. 661, 664. And in Maryland, as elsewhere, the inquiry whether a particular gift or legacy is within those affected by the statute has not stopped with the mere words "seized and possessed" by the decedent at death. On the contrary, the problem has usually been to determine whether, notwithstanding a grant inter vivos of an intervening title, as here, giving another seisin and possession of record during the life of the grantor, there has been such a continuation of ownership in the grantor as to render the transfer at death one from him when seized and possessed within the meaning of the statute. Such were the questions in the three recent Maryland cases of Smith v. State, 134 Md. 473,107 A. 255, 257; Lilly v. State, 156 Md. 94, 143 A. 661; and Downesv. Safe Dep. Tr. Co., 157 Md. 87, 145 A. 350; as well as in the earlier one of Fisher v. State, 106 Md. 104, 66 A. 661. In all those cases, as also in this case, there had been conveyances of a legal title inter vivos to trustees, and in the three earlier cases reservations of powers of further disposition; and the question determined in each was, nevertheless, whether it should be held that the grantor was within the intent of the statute still seized and possessed of the property at the time of death. In the first three cases it was held that the grantor was so seized and possessed, and in the last case it was determined that the grantor was not. From incidents of the arrangement in each case it was determined whether the statute did or did not apply.

In Smith v. State, 134 Md. 473, 478, 107 A. 255, 257, the court said: "It is urged that inasmuch as Mrs. Dickson was not seized and possessed of the property at the time of her death, but had conveyed it in 1915, the section of the Code does not apply. To give effect to this contention would be to point out an easy way of evading the intent and plain provision of the statute and would ignore entirely the words in the statute: ``transferred by deed, will, grant, bargain, gift or sale, made or intended to take effect, in possession after the death of the grantor, bargainor, devisor or donor.' * * * Upon careful consideration of all these authorities and the examination of a number of others, this court deems it clear that the purpose of Mrs. Dickson was to retain a beneficial interest in herself throughout her life, disposing of it after her life by means of the reserved power of disposition, and that so far as the beneficiaries, other than herself, were concerned, it was not intended to take effect until after her death, and it therefore falls directly within the provisions of the Code, art. 81, sec. 120."

From the opinion of the court in the case of Downes v. SafeDep. Tr. Co., supra, the appellant concludes that a grantor in a deed of trust is never seized and possessed of the property within the meaning of the statute, unless there is a right of revocation reserved in the deed. The court in that case emphasized the lack of a power of revocation as one of the incidents distinguishing the case from the previous ones, and found this incident, where it existed, an important one, tending to render the grantor still in the position of one seized and possessed of the property within the statute. And a conveyance which may be revoked seems clearly something less than a complete parting with property. But it was not held that this was the one decisive incident in such inquiries. In Smith v. State, supra, it was not regarded as decisive. In other jurisdictions the reservation of a right of revocation is viewed differently, but in none, so far as we have found, has the existence of such a reservation been viewed as the single determining incident. See cases reviewed in notes, 49 A.L.R. 867, 874, 875, 878, and 880, 67 A.L.R. 1248. On the contrary, so far as single incidents have been cited as decisive, reservations until death of the beneficial ownership and the right to give title beyond death have been the features so regarded. Bullen v. Wisconsin,240 U.S. 625, 36 S.Ct. 473, 60 L.Ed. 830; Saltonstall v.Saltonstall, 276 U.S. 260, 271, 48 S.Ct. 225, 72 L.Ed. 565;Reish v. Commonwealth, 106 Pa. 521; People v. Moir, 207 Ill. 180, 69 N.E. 905; Crocker v. Shaw, 174 Mass. 266, 54 N.E. 549;Coolidge v. Commissioner, 268 Mass. 443, 167 N.E. 757. A power of revocation, so long as it continues unexercised, has no more effect than any other power has to diminish or limit the legal quantity or character of the trustee's holding. Other powers to be exercised before the expiration of the estate granted, and equally destructive of it, such as powers to sell, do not operate as limitations on the estates conveyed, and are without effect on the legal seisin and possession. Guyer v. Maynard, 6 G. J. 420, 423; Armstrong v. Kerns, 61 Md. 364, 368. And, as is pointed out by the authorities on the subject, every such power is a power of revocation and new appointment. 1 Tiffany, Real Property, sec. 316; 4 Kent, Commentaries, 315;Sugden, Powers (8th Ed.), ch. 9, sec. 4.

In the present case, then, the original grantor in the deed, the beneficiary under it, and the testatrix giving ownership beyond, were only one and the same person. She continued, after the deed as before it, to retain the benefits of ownership during life, and the right of disposition beyond, with a provision that, in default of such further disposition by will, the property should pass to her heirs, just as it would pass in case of intestacy irrespective of the deed. Code, art. 46, sec. 1. The true situation is that by the deed the grantor merely split off and made a record title of one of many incidents of ownership, retaining the greater number, including that of the right to devise and bequeath. The property was still hers to give at death. What she had conveyed to the trustee by the recorded deed was little more than the right or burden of management for her during life, for which he was to be paid a commission. The legatees took from her at death; and took from her that part of ownership with which she had not previously parted. We have pointed out that they did not take under the deed she had made, for the deed did not give power over transmission of title beyond life. The decedent transferred by her will what was then hers to transfer; and we agree that the ownership which she had in fact retained was that which the statute intended to include in its description of the property subject to tax upon transfer at death.

This conclusion is not at variance with the decisions in the cases of Prince de Bearn v. Winans, 111 Md. 434, 74 A. 626, andDownes v. Safe Dep. Tr. Co., 157 Md. 87, 145 A. 350. In the former of those cases the grantor in the deed parted at once, upon conveyance, with all incidents of ownership whatever, retaining neither benefits for his life nor power of disposition beyond. The benefits for life were given another, and the power to make further disposition was also parted with, and left to be completed by that other. There is no conflict in the decision on those facts with the present holding that the original grantor, having reserved to herself the power to dispose by will, was at death, for the first time, exercising one of the rights of original ownership not included in the conveyance, and not affected by it. In the case of Downes v.Safe Dep. Tr. Co., supra, too, the grantor, at the time of making the deed inter vivos, parted with the right of disposition beyond, having fixed that disposition then irrevocably. The case was one in which an owner, during her life, had parted with all ownership except that she reserved the income for life. As for the transfer of ownership after her death, with which the statute is concerned, she had made it by her deed during life, having created then a remainder vesting in interest; and thereafter up to the time of her death she had nothing to pass. It is agreed, in the majority of cases, we believe, that such a transfer is not subject to an inheritance tax, because it lacks the essentials of inheritance or transfer at death.

There was raised in the lower court a question whether money paid or released by the legatees to settle a threatened contest of the will was money received by them, subject to the tax. On appeal the point was not pressed, and it will be held for argument in another case, if and when one shall arise.

Judgment affirmed, with costs to the appellee.