DocketNumber: Docket Nos. 86394, 86395.
Citation Numbers: 42 B.T.A. 145, 1940 BTA LEXIS 1043
Judges: Kern
Filed Date: 6/19/1940
Status: Precedential
Modified Date: 10/19/2024
*1043 Decedent's father bequeathed to him certain property to be held in trust until decedent became 28 years old, at which time decedent would become the absolute owner, if alive. If decedent died intestate before attaining that age, leaving living issue, the trustee should hold the property in trust for such issue until the year in which decedent would have been 28 years old. If decedent died intestate without children before attaining that age, his interest was to go to his brother and sisters or to the trusts established for them. Decedent, by the will of his father, was given the power of testamentary disposition over such property. By the will and deed of his mother decedent became the beneficiary during his life of two trusts which provided that, if he died intestate leaving descendants, the trusts should cease and the trustees deliver the property to such descendants. Decedent was also given testamentary power by the instruments creating these trusts. Decedent died shortly before he became 21 years old. While still a minor and under guardianship he attempted to change his domicile from North Carolina to New York for the purpose of making a will which would have been invalid*1044 in North Carolina.
(1) Decedent was domiciled in North Carolina, the trust properties did not pass pursuant to the power of appointment granted him under the trust instruments, and no estate tax is due under section 302(f), Act of 1926.
(2) Decedent had no interest under the will of his father or the will and deed of his mother taxable under section 302(a) of said act.
(3) Decedent did not have a fee simple title to the trust properties under the rule in Shelley's case.
(4) The case of
*146 These proceedings come before us on the Commissioner's determination of a deficiency in estate tax of $8,520,820.55, less any credit for inheritance taxes paid to the State of North Carolina. They were consolidated for hearing, an identical deficiency notice having been sent to the Safe Deposit & Trust Co., of Baltimore, the testamentary trustee of R. J. Reynolds, deceased, and to Moses Shapiro, the administrator d.b.n. of Zachary*1045 Smith Reynolds, the decedent involved here.
The decedent died on July 6, 1932, still a minor, having attempted to exercise by an instrument purporting to be a will executed in New York, which he declared to be his domicile, a general power of appointment given him under the three several trusts created by his father and mother to dispose of the trust
*147 FINDINGS OF FACT.
The trust settlements involved include the trusts created by the will of Richard Joshua Reynolds, decedent's father, which was probated in 1918; the will of his mother, Katharine S. Johnston (her name by a later marriage), probated in 1924; and a deed of trust executed by Katharine Johnston on December 29, 1923, during her lifetime. These instruments are part of the printed record in certain proceedings hereinafter referred to in the Superior Court for Forsyth County, North Carolina, which were put in evidence in this case and are incorporated here by reference.
1.
ITEM FOURTH
All the rest, residue and remainder of my estate of every kind, character and description, real, personal and mixed, and wheresoever situated, I direct shall be*1048 divided by my executor, said Safe Deposit & Trust Company, between and among my wife, and children living at my death, or thereafter born, and the living issue of any deceased child, per stirpes; that is, one-third (1/3) thereof to my wife absolutely (except one-third (1/3) of my common capital stock in R. J. Reynolds Tobacco Company which is subject to the terms of trust later herein created) and two-thirds (2/3) thereof to my children and the living issue of any deceased child, per stirpes, to be equally divided among them, share and share alike (the living issue of any deceased child to take such child's part) But Subject to the Following Trust, * * *.
*148 There then follow certain specific provisions, of which the following is pertinent:
(7) Should any of my children die before he or she shall arrive at the age of twenty-eight (28) years, then the share of my estate which would have been payable to him or her, had he or she arrived at that age, shall be continued to be held by my said Trustees for the use and benefit of his or her devisees by Will until the time that such child would have arrived at the age of twenty-eight years, if he or she had lived, when the said*1049 trust shall cease and the estate shall then become payable to such devisees, the Trustees, however, paying in the meanwhile the income from said share to them; but should any of my children die before that time without having disposed of his or her share by Will but leaving issue him or her surviving, the share or said deceased child shall continue to be held by my said Trustee for the use and benefit of his or her children living at his or her death, paying unto them or applying so much of the net income of the share of my child so
2.
The Safe Deposit & Trust Company of Baltimore as Trustee hereunder shall hold the share of each child for such child during its life, and upon its death shall distribute, transfer and deliver the same to and among, or hold the same for such person or persons, objects or purposes, in trust and otherwise, as such child shall by its Last Will nominate and appoint to take the same, and in default of such appointment shall distribute, transfer and deliver the same to the descendants of such child living at its death, per stirpes and not per capita, and in default*1051 of such appointment and in default of descendants of such child the said Trustee shall at its death divide and distribute the same among such of said children and their descendants as are then living, per stirpes and not per capita, but the shares of such of her said children as are then living shall be held by said Trustee in trust for them and upon the same trusts that their original shares are then held.
3.
My said Trustee shall hold the share of each child for such child during its life, and upon its death shall distribute, transfer and deliver the same to and among or hold the same for such person or persons, objects or purposes, in trust or otherwise, as such child shall by its Last Will nominate and*1052 appoint to take the same, and in default of such appointment shall distribute, transfer and deliver the same to the descendants of such child living at its death, per stirpes and not per capita, and in default of such appointment and in default of descendants of such child my said Trustee shall at its death divide and distribute the same among such of my husband, children and descendants as are then living, per stirpes and not per capita, my said husband, if then living, shall take a share equal to that of a surviving child, but the shares of such of my children as are then living shall be held by said Trustee for them and upon the same trusts that their orginal shares of my estate are then held.
The property held in trust under the trust settlements above mentioned, at the time of the death of decedent (including the two trust funds of $500,000 each, which had been set aside from property held under the trusts created by the will of R. J. Reynolds, as already mentioned) consisted of the property enumerated in the schedules accompanying the deficiency notices in the present case, and consisted only of personal estate, stocks, bonds, and securities, and cash.
The decedent, Zachary*1053 Smith Reynolds, the youngest of the four children of R. J. Reynolds and his wife, was born on November 5, 1911. He died on July 6, 1932, about four months before he would have attained the age of 21.
Both the father and mother of Zachary Smith Reynolds were domiciled in North Carolina, residing at Winston-Salem in Forsyth County in that state.
The family mansion on a large tract called "Reynolda," on the outskirts of Winston-Salem, which Mrs. Johnston, the mother of decedent, owned or controlled by stock ownership, was maintained as a residence for her family, including decedent, after her death, pursuant to the directions in her will to that effect. Decedent had his own room or quarters assigned to him in the house, where his clothing and most of his personal belongings were kept and remained up to the time of his death.
Mrs. Johnston, decedent's mother, by her will named and appointed her second husband, J. Edward Johnston, and William N. Reynolds, brother of R. J. Reynolds, as testamentary guardians of her four children by her first marriage (including decedent) until they should respectively reach the age of 21, and made provision for the appointment of a successor in*1054 case of the death, resignation, or incapacity of either guardian. These guardians duly qualified before the clerk of the Superior Court of Forsyth County, North Carolina, and acted as such. About three and a half years after the death of Mrs. Johnston, J. Edward Johnston resigned as guardian, and, pursuant to the provisions *150 in Mrs. Johnston's will to that effect, Robert E. Lasater was named his successor, whose appointment was confirmed by order passed by the clerk of the Superior Court of Forsyth County, North Carolina, on February 23, 1928. Reynolds and Lasater acted as guardians of decedent until his death. Lasater was related by marriage to R. J. Reynolds and on Mrs. Johnston's request he and his wife had resided at "Reynolda" for about two years after her death, in order to look after her minor surviving children then residing there.
No order was ever passed by the said Superior Court of Forsyth County or its clerk authorizing any change of domicile of the decedent up to the time of his death, nor did either of his guardians ever consent to any change of his domicile either from North Carolina to New York, or any other state.
Decedent, on November 16, 1929, married*1055 Anne Cannon and had issue of one child, Anne Cannon Reynolds II, born on August 23, 1930. After his marriage he resided for some months with his wife in an apartment in Winston-Salem. He and his wife separated about the time of the birth of this child, and he returned to reside at "Reynolda."
After their separation decedent was unwilling to provide for his wife and child upon any such scale as she demanded. About this time, on June 26, 1931, he wrote from Port Washington, New York, to his uncle and guardian, William N. Reynolds, a letter, incorporated here by reference, in which he stated that on the advice of counsel he thought the best solution would be to change his residence to a state where he might make a will, and to this end to have his guardians change their residence or to resign and allow others in another state to be appointed. Afterwards a compromise of his wife's claims on behalf of herself and her infant child was arrived at, which was embodied in the judgment of August 4, 1931, of the Forsyth County Superior Court, incorporated here by reference, under which two trust funds of $500,000 each were set aside, one to be held in trust for his wife for life and then*1056 for the child, and the other for the child. These two special trust funds were accordingly set aside, as shown by the report of the trustee. The judgment provided, among other things, that his wife and child should be thereby forever barred from making any further claims for financial support against him, and from any participation in the trusts not involved, as fully as if "Zachary Smith Reynolds and Anne Cannon Reynolds had never been married and Anne Cannon Reynolds II had never been born."
After this settlement had been reached, decedent's uncle, William N. Reynolds, had no further discussion or correspondence with him about changing his residence in order to make a will, and he knew nothing of his attempted New York will until after his death.
*151 On August 21, 1931, while temporarily staying at a small house at Port Washington on Long Island, New York, which he had rented for a few months during the summer of 1931, decedent executed, with three witnesses, an instrument purporting to be his last will and testament, in which he purported to exercise his powers under the trust settlements now in question by devising the properties held thereunder, after payment of*1057 sundry legacies charged in the event of the insufficiency of his personal estate to pay the same upon the property held in trust under the will of his mother, to his elder brother and to his two sisters in equal shares. This instrument is incorporated here by reference. By this instrument he declared that he had adopted and acquired, and intended to retain, the State of New York as his domicile and permanent home, and directed that the instrument be offered for original probate in that state, and that all questions arising thereunder, either in respect of the validity and construction thereof, or in respect to his testamentary capacity or otherwise, should be determined in accordance with the laws of said state.
On November 23, 1931, Anne Cannon Reynolds obtained a decree of divorce at Reno, Nevada, the proceedings being incorporated here by reference. On the same day the license for decedent's second marriage was issued in Michigan, and on November 29, 1931, six days later, he married Elizabeth Holman. In the license the residence of both is given as New York City. They gave this residence instead of Cincinnati (her residence) or Winston-Salem (his residence), and used the*1058 name of "Zachary Reynolds" and "Elizabeth Holman" (instead of Smith Reynolds and Libby Holman) to avoid unnecessary publicity.
Libby Holman Reynolds was a singer by profession and spent the summer of 1931 at Port Washington, New York. Decedent was also staying there after his separation from his first wife and at the time when he executed his attempted New York will. He rented quarters there for only a few months during that summer and gave them up afterwards. Libby Holman's professional engagements during the following fall took her successively to many cities, and decedent followed her on tour until their marriage. They had many discussions of their future plans both before and after marriage, and he always referred to "Reynolda" (Winston-Salem) as his residence and planned that they should live together there, intending ultimately to purchase the rights of other members of the family in the place.
At the time of their marriage Libby Holman Reynolds was still under contract necessitating her traveling from place to place until the following February, but decedent had planned to take a trip around the world by steamer and in his own aeroplane. They, therefore, separated*1059 with the agreement that as soon as she was free to do *152 so she would join him and he would return from his trip with her. He then started on his trip, proceeding eastwardly, and she joined him at Hong Kong and returned with him from there to the Pacific coast of the United States. He had intended to fly his own plane across the continent on their arrival on the Pacific coast, but his plane needed repairs, and she preceded him to New York by transport plane, he intending to follow in his own plane. Finding, however, that the repairs to his plane would take longer than he expected, they both flew by transport plane. When she arrived in New York she registered at a hotel under the name of "Mrs. Smith Reynolds of Winston-Salem", and this was what first made public the fact of their marriage. He arrived a few days later and registered at the hotel with her under the name of Smith Reynolds, giving his residence as Winston-Salem, North Carolina. At that time he had no other quarters of any kind in the State of New York. After a few days they proceeded to Winston-Salem and took up their residence in "Reynolda," arriving there on May 26, 1932. There they continued to live*1060 until his death on July 6, following. He left no property in New York except a watch given him by his wife and left for repairs with a New York jeweler.
Early in 1931 Zachary Smith Reynolds had gone to the Doctors Hospital in New York City for a mastoid operation, staying there for two weeks from January 14 and returning for subsequent treatment for three days on October 22, 1931. On both occasions he registered as of Winston-Salem, North Carolina.
Shortly before his death, Zachary Smith Reynolds determined to take a course in aeronautics at the New York University, a subject which he had discussed with his wife. For this purpose he leased an apartment in New York for a term of one year, with two additional months allowed free, beginning September 1, but he had not occupied the apartment or moved there prior to his death. The watch left for repairs with a New York jeweler, already mentioned, was the only asset which he owned in New York at the time of his death.
A posthumous child, Christopher Smith Reynolds, of his marriage with Libby Holman Reynolds, was born on January 10, 1933.
After decedent's death a number of questions arose as to the passage of title to the*1061 property held in trust of which he was a beneficiary. These questions, although discussed fully in the opinion in so far as pertinent, may be summarized here to present factually the state of litigation in which the decedent's property was involved. If the judgment of the North Carolina court excluding the child of his first marriage from all further participation in these estates was valid, then, of course, she was finally excluded. There were the following possibilities:
*153 1. If his divorce from his first wife was not valid, then his second child would be illegitimate, and if the judgment excluding the Cannon child stood, the property held under all three trusts would pass to decedent's surviving brother and sisters. Thus substantially the same result would have been brought about under the operation of the trust provisions alone, as he sought to accomplish by the New York will made before his second marriage. 2. If the divorce was invalid, and the New York will inoperative, and if the judgment excluding the Cannon child was set aside, the whole would pass in trust to the Cannon child. 3. If the divorce was valid, the New York will inoperative, and the judgment*1062 excluding the Cannon child stood, then all except the two $500,000 trusts created under the North Carolina court judgment would pass to the Holman child. 4. If the divorce were valid, and the New York will inoperative, but the North Carolina judgment were set aside, then the whole would pass one-half in trust for each child. 5. And if the New York will had any force and effect, this would operate to deprive the children of both marriages of any share in the estate, and would give the property, after payment of legacies, to his brother and sisters, the three elder children of R. J. Reynolds.
There were two guardians of Anne Cannon Reynolds II - her grandmother, Annie L. Cannon, and the Cabarrus Bank & Trust Co. The Cabarrus Bank & Trust Co. was of the opinion that proceedings should be brought to impeach the judgment of the Forsyth County Superior Court excluding Anne Cannon Reynolds II from further participation in the trust estate, while her grandmother and individual guardian thought that the judgment should not be attacked. This resulted in litigation between the two guardians in Cabarrus County, North Carolina, the entire record of this suit being contained in the proceedings*1063 in the Superior Court of Forsyth County, North Carolina, and incorporated here by reference. It appears from the pleadings and proceedings in this cause that a further settlement had been suggested, under which $2,000,000 would be set apart from the property held under these three trusts, to be held in trust for the posthumous (Holman) child, in full settlement of his rights in any of the trusts, and the additional sum of $1,500,000 added to the trusts already created for the benefit of the first or Cannon child. The Cabarrus County court sustained the view of the grandmother and held that the judgment should not be attacked, but on appeal the North Carolina Supreme Court reversed the decision of the lower court and directed that proceedings be brought to test the validity of the judgment excluding the Cannon child. (
New proceedings were accordingly instituted in the Superior Court for Forsyth County to invalidate and set aside its earlier judgment (which had barred Anne Cannon Reynolds II) and to determine the rights of the parties in these trust estates. The proceedings were further complicated by the intervention of the State of North Carolina, claiming inheritance taxes on the property in question.
In the course of these proceedings a proposed compromise was finally submitted for the approval of the court by the brother and sisters of decedent, under which 37 1/2 percent of the estates in question would be allotted to be held in trust for them (which they proposed to dedicate to the foundation of a charity, in memory of their brother), 37 1/2 percent in trust for the (Cannon) child by the first marriage, and 25 percent in trust for the (Holman) child by the second marriage. The two $500,000 trust funds set aside for Anne Cannon Reynolds and her child were to be returned to the trust under R. J. Reynolds's will, out of which they had been taken. A compromise with the State of North Carolina was also proposed under which it would receive $2,000,000 in settlement*1065 of its claim for inheritance taxes. The compromise also provided for a payment of $750,000 to the surviving brother and sisters, to be turned over by them to the second wife.
The proceedings finally terminated in a judgment of the Superior Court of Forsyth County, which is incorporated here by reference, confirming these compromises and directing that they be carried out. From this judgment appeals to the Supreme Court of North Carolina were prosecuted by Annie L. Cannon, the coguardian of Anne Cannon Reynolds II, by her mother, Anne Cannon Reynolds, and by the trustee; but the judgment was affirmed by the North Carolina Supreme Court,
After the death of decedent and birth of his posthumous child the Safe Deposit & Trust Co. of Baltimore, trustee of these three trusts, had instituted proceedings in an equity court in Baltimore City, Maryland, to have the court protect it in any distribution of property held under these three trusts in the complex situation which had arisen. The bill of complaint in this case and*1066 the final decree are incorporated herein by reference. The stipulation as to documentary evidence herein specifies that the decree was passed after all of the parties defendant to the bill of complaint had been duly *155 brought in, including among these parties the executor named in the alleged New York will and temporary administrator appointed there when the will of decedent was there filed, as hereinafter mentioned, and the legatees named in that will. That decree also affirmed the compromise which had been ratified by the North Carolina court and directed that it be carried out.
The Guaranty Trust Co., which was named as executor in the alleged New York will of decedent, filed the will in the Surrogate's Court there after his death. Transcripts of the will and of the proceedings on its filing are contained in full in the record of proceedings in the North Carolina court, and are incorporated herein by reference, as well as all subsequent proceedings therein. These proceedings show that after the judgment of the North Carolina court the executor or administrator was discharged from any duty to attempt further to probate the will, or to defend it in the pending proceedings*1067 in the Maryland court.
After entry and affirmance of the final judgment of the Forsyth County, North Carolina, court, letters of administration on the intestate individual estate of decedent were issued to Moses Shapiro, who had before that been acting as collector under a temporary appointment by the same court.
An estate tax return had been made, as required by law of all administrators, by Moses Shapiro as collector or temporary administrator, and a return was also made by the Guaranty Trust Co. as temporary administrator appointed in New York.
The notices of proposed deficiency, as already stated, were sent to Shapiro as administrator after he had duly qualified as such, and to the Safe Deposit & Trust Co. of Baltimore, trustee, as the holder of the funds in question.
OPINION.
KERN: Respondent has determined the deficiency on the theory that the interest of the decedent, Smith Reynolds, in the
*1069 1.
To sustain respondent's contention, it must appear that the power of appointment was general, that it was exercised, and that the property passed under it. It does not seem to be disputed that the power conferred by the three instruments was general. Under "item fourth" of his will, R. J. Reynolds left the residue of his estate to his wife and his children on trust, the latter to receive a two-thirds share*1070 of the whole, and, after providing for the distribution in part and accumulation of the rest of the income of each child until he should reach the age of 28, directed that at that time "each of them shall become entitled to and shall respectively receive from said trustee his * * * share of the corpus of the estate"; with the provision added, which is important here, that "should any of my children die before he * * * shall arrive at the age of twenty-eight (28) years, then the share * * * which would have been payable to him * * *, had he * * * arrived at that age, shall be continued to be held by my said Trustee for the use and benefit of his * * * devisees by Will until the time that such child would have arrived at the age of twenty-eight years * * * when the said trust shall cease and the estate shall then become payable to such devisees, the Trustees however, paying in the meanwhile the income from said share to them * * *."
There can be no doubt that the power here was general.
*157 The power conferred by the trust deed of 1923, executed by decedent's mother, provided that the trustee should hold the shares of the several children for the life of each "and upon its*1071 death shall distribute, transfer and deliver the same to and among or hold the same for such person or persons, objects or purposes, in trust and otherwise, as such child shall by its Last Will nominate and appoint to take the same * * *."
There is no doubt that this power was likewise general.
Finally, under decedent's mother's will, made in 1924 and probated the same year, the trustee is directed to hold the share of each child for life, and upon its death to distribute it to "such person or persons, objects or purposes, in trust or otherwise, as such child shall by its Last Will nominate and appoint to take the same * * *." Here, again, the power was general.
The decedent at least attempted to "exercise" the power given him by the three instruments within the meaning of the Federal act. He did so in August 1931 by a purported will executed in New York, the effect of which we shall examine under the next head. Unless "exercise" is to be interpreted as an effective exercise, we do not think petitioner would deny that decedent exercised the power of appointment; and the effectiveness of the exercise we can best consider under the third requisite.
*1072 We pass then to the final question, whether the property "passed" under the will in question. The Supreme Court, in
Professor Beale states that the "power to appoint personal property by will may be exercised either (a) by a will valid by the proper law or (b) by an instrument which would be a will by the law of the donor's domicile." Conflict of Laws, § 287.1, p. 1010. See also American Law Institute,
Petitioner's counsel points out that the
We turn now to the North Carolina law. The laws of the state, by section 4128, provide that "No person shall be capable of disposing of real of personal estate by will until he shall have attained the age of twenty-one years." Code, Annotated (1935). The North Carolina laws further provide, by section 4132:
No appointment, made by will in exercise of any power, shall be valid unless the same be executed in the manner by law required for the execution of wills; and every will, executed in such manner, shall, so far as respects the execution and attestation thereof, be a valid execution of a power of appointment by will, notwithstanding it shall have been expressly required that a will made in exercise of such power should be executed with some additional or other form of execution*1077 or solemnity.
The decedent here had not attained the age of 21 at the time when he executed the New York will in August 1931, nor, for that matter, at the time of his death on July 6, 1932. Since he was born on November 5, 1911, in August 1931 he was nearing the end of his twentieth year.
The language of the three instruments granting to decedent a power of appointment does not indicate any intention on the donor's part, in any instance, that the power shall be exercised by a will made in accordance with the law of a particular state. Nor does it limit or qualify in any way the exercise of the power given. R. J. Reynolds's will, executed in 1917 and probated the next year, provides merely that, should any of his children die before he or she shall arrive at the age of 28, when the corpus was to be distributed, then such child's share would continue to be held by the trustee for the benefit of his "devisees by will", with remainders over in case of intestacy. While elaborate provisions are made for the payment of the income to the children until they should reach the age of 21, or thereafter and until they should reach the age of 28, and although special provision is made*1078 for the event of his wife's death in either the first or the second of these periods, nothing is said specifically of any disposing power which *160 could be exercised by the children by will or otherwise in either of these periods. There is nothing to indicate, in other words, that the donor of the power intended that it could be exercised before the child was 21. The
The Supreme Court of North Carolina has construed the language of these settlements in a case which was brought in the Superior Court of Cabarrus County by one of the guardians (a trust company) of Anne Cannon Reynolds, decedent's daughter, against the other guardian, the child's grandmother, to impeach the judgment excluding that child from further participation in the trust estates of decedent in accordance with the forced trust settlement made on the child and decedent's first wife by decedent during his lifetime. This suit was brought after decedent's death and after the birth*1079 of his posthumous son by his second wife. The lower court sustained the consent judgment of the Forsyth County Court upholding the earlier trust settlement, but the Supreme Court of North Carolina reversed and directed that proceedings be brought to test the validity of the Forsyth County judgment,
The alleged will of Zachary Smith Reynolds appears to be inoperative and void. When the alleged will was executed in New York, he was under the age of 21 years. C.S. § 4128, is as follows: *1081 "No person shall be capable of disposing of real or personal estate by will until he shall have attained the age of twenty-one years." General laws of state, in force at time of execution and performance of contract, become part thereof.
The wills of R. J. Reynolds and Katherine S. Johnston appear to indicate an intention that Zachary Smith Reynolds could only exercise the power of appointment after he became 21 years of age, and on that account the New York will would appear to be inoperative and void. It appears that his domicile was in North Carolina. In the complaint filed in the Forsyth county proceedings on August 4, 1931, just seventeen days before the alleged execution of the New York will, it was alleged: "That the defendant, Zachary Smith Reynolds, is a citizen and resident of the State of North Carolina, and has been such since his birth, and that the defendants, W. N. Reynolds and R. E. Lasater, are the duly, legally and regularly constituted general guardians of and for the said Zachary Smith Reynolds." In the answer filed on his behalf by his guardian this allegation is admitted.
In
After quoting with approval from Goodrich on the Conflict of Laws (1927) to the effect that the domicile of a legitimate minor child is that of the father, if the latter is living; that the domicile of origin is that of the father; and that the minor by his own act, while under the disability of infancy, can not establish a separate domicile for himself; the court continued:
* * * We think it unnecessary to consider the threat of Zachary Smith Reynolds' purpose in going to New York to acquire a domicile to make a will *162 and its illegality in this jurisdiction. It must be borne in mind also that Zachary*1084 Smith Reynolds' guardians under the will of his father were domiciled in Forsyth County.
We are of the opinion that the New York will was invalid as a will under North Carolina law because of the disability of the testator's minority. The respondent insists, however, that even if it was not valid as a will, it was still a proper exercise of the power of appointment under North Carolina law, citing
If the decedent could not exercise the power under North Carolina law, did he acquire a new domicile in New York, and, if so, did he have the capacity as a minor to make a valid will under the law of that State? Respondent's counsel at the hearing referred to the New York doctrine of emancipation of a minor by marriage, but has not discussed the question on brief. Obviously, decedent was not emancipated by marriage for the purpose here concerned by the law of North Carolina. We think it unnecessary, *1085 however, to go farther than to inquire whether decedent acquired a New York domicile, for if he did not, the other questions become immaterial.
We are of the opinion that the decedent could not and did not in the circumstances acquire a New York domicile, and the brief relation of a few facts we think sufficient to support this conclusion. His guardians appointed by his mother's will were her second husband, J. Edward Johnston, and his father's brother, W. N. Reynolds, with provision for succession. Robert E. Lasater succeeded Johnston. Appointment of guardians by the father, or if he be dead, by the mother, is fully provided for in the North Carolina law. Code (1935), § 2151. We assume, as petitioner contends, that these guardians were, pursuant to the statute, appointed to take "custody and tuition" of decedent's person, and not merely of his estate. Their consent would have been necessary for him, while a minor, to change his domicile, and their testimony that such consent was never given is uncontradicted. Decedent, having taken advice of counsel, was himself aware of what would be necessary for him to make a will, and suggested in his letter to his uncle, W. N. Reynolds, *1086 on June 26, 1931, that his guardians change their residence or allow new guardians to be appointed. There the matter dropped.
Even if we assume in respondent's favor, however, that decedent could have changed his domicile, we can not find that he had any bona fide intent to do so. It is elementary that the acquisition of a domicile of choice involves actual physical presence at a dwelling place in another *163 state, coupled with the concurrent intent to make it a home. Intention involves the idea of fixity, of some degree of permanence in the new abode, and must be more than the mere intention to acquire a new domicile.
The decedent knew, on the advice of his lawyers, that his attempt to obtain a new domicile in New York would be futile, as his letter to his uncle in June 1931, already referred to, indicates. His widow testified that he had told her as much. He leased quarters in New York for a few months only in the summer of that year, and did not retain them after Elizabeth Holman, a professional singer whom he later married, left New York to go on tour. He apparently had no belongings in New York beyond his personal clothings. He wanted to acquire a new domicile for a special purpose - that is clear; but he did not want to acquire a new home, and the special intent to obtain the benefit of certain legal results which would flow from a change of domicile can not, as we have said, be considered as evidence of a general intent to change his permanent place of abode. We do not think that decedent had a bona fide intent to establish a new home in New York.
Even if this point could be conceded, however, the law governing the validity of the New York will over movables would be that of his domicile at death. See 2 Beale, op. cit. § 306.1, *1088 p. 1934; and cases there cited, which include many New York decisions. And New York was clearly not his domicile when he died in 1932. Decedent left New York in the fall of 1931 and never returned except for temporary purposes. His registration at a New York City hotel and at a New York City hospital where he went for treatment afterwards, gave Winston-Salem, North Carolina, as his residence; and he actually returned to Winston-Salem in May 1932 to live. That summer he contemplated taking a course in aviation in the fall at a New York college, but such an intent does not ordinarily work a change of domicile, and this appears to be the law of New York. 1 Beale, op. cit. § 22.8, p. 176. And in any event, decedent would not have acquired a New York domicile by going to a New York college until he entered that jurisdiction. Here he had leased an apartment in New York City for a term beginning in the fall of the year in which he died. When he died the only personalty which he had in New York was a watch left by his second wife for mending at a jeweler's there. Throughout the whole period before the making *164 of the will until his death he had rooms in the paternal house*1089 in North Carolina and practically all his belongings were in those rooms.
We do not enter here on all the secondary facts pertinent to discover decedent's intention, such as his frequent references to "Reynolda", the family farm in North Carolina, as home, for we think the facts already stated clearly establish that the decedent died domiciled in North Carolina, his domicile of origin, and that he never acquired a domicile elsewhere. It follows, therefore, that, since his capacity to exercise the power of appointment is dependent on the law of North Carolina, and since as a minor under that law he did not have the requisite capacity, no property passed by the exercise of the power of appointment within the meaning of the revenue act.
Since under North Carolina law, which we have held is the proper law to be applied under the accepted doctrine of conflict of laws, no property "passed" by the exercise of the power, we need not concern ourselves with any limitation on the disposition which the law of Maryland, as the
We hold that under the Federal taxing statutes no property passed by decedent's exercise of his power of appointment.
We leave on one side until we shall have considered the second principal question raised - respondent's alternative contention based *165 on the doctrine of
2. Respondent contends that the decedent's interest in the three trusts is includable under subsection 302(a) of the Revenue Act of 1926, which provides that:
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
(a) To the extent of the interest therein of the decedent at the time of his death.
The resolution of this question depends first upon whether the provision was intended to include in the decedent's gross estate all and sundry property interests of the decedent existing at the moment of death not included under the several specific subsections which follow subsection (a); or for that matter, all interests of the decedent of every character, whether included or not under the following subsections. In the second place, assuming that subsection (a) is such a "catch-all" clause and intended by Congress to cover all interests in property at death bearing any cognate relation to the preceding phrase "gross estate", and that it does not merely subsume the subsections which follow, we must then determine whether decedent's*1093 interest in the several trusts at the time of his death was vested and not contingent or a mere expectancy, so as to constitute it part of his estate at death. Since the word "interest" connotes property rights which Congress has not otherwise defined except in the specific subsections which follow, we assume that it is to be construed in terms of local law.
The answer need not detain us long. We must suppose that Congress intended to exert its power to the full in enacting subsection (a), and to include in the gross estate any and every interest of the decedent at the time of his death. The other subsections do not limit, but enlarge, this definition by extending the act to other interests of the decedent which at common law or under the usual statutory law of the several states might not be included in the estate. The legislative history of these provisions from the first enactment of the tax in 1916 bears this out, and is so familiar that it need not be reviewed here. Nor can the legislative removal in the 1926 Revenue Act of the limiting definition originally imposed on this subsection, to which petitioner calls attention, be taken to limit in any way the subsection as*1094 it now stands or to constitute it a new enactment wider in scope than that *166 originally laid down, or make it retroactive in application. The courts' construction of the earlier section that the limiting definitions should be read conjunctively, see
(a) Respondent contends that the interest of decedent in his father's*1095 trust was vested. The lower court in the second North Carolina case (Superior Court of Forsyth County, North Carolina), in considering the intervening complaint of the State of North Carolina which set forth a claim for inheritance and estate taxes, found as a fact that the will of R. J. Reynolds and the will and deed of Katharine S. Johnston did not bequeath, devise, or confer to or upon decedent any vested interest in the various trust estates, but only gave him the right to receive payments from the income thereof. However, the court in the same proceeding authorized and directed the settlement of this claim of the state for the sum of $2,000,000. The only party to appeal from this part of the order of the lower court was the trustee, and its appeal did not allege error based upon the finding that decedent did not have a vested interest in the various trust properties. The Supreme Court of North Carolina affirmed the compromise of the tax claims of North Carolina, but did not consider the question of whether decedent received any vested interest in the various trust properties. The lower court in its order expressly pointed out: "This judgment is based upon and entered in conformity*1096 with the offer of settlement filed in this cause by Richard J. Reynolds, Mary Reynolds Babcock and Nancy Reynolds Bagley, and is entire and indivisible."
Petitioner asserts that the determination of the state court on this question is binding upon us and determinative of the issue, relying on
After a close study of the will of R. J. Reynolds, we are inclined to agree with respondent's contention that the interest of decedent vested in the trust created thereunder. But we do not agree with respondent's contention that decedent had a vested fee simple estate in one-third of the property included in the trusts created by the will of R. J. Reynolds. Respondent ignores the trust established for this property which is to continue until the year when decedent should attain the age of 28 years, characterizing it as an "administrative trust", and dismisses the limitation over in the event decedent died before such year intestate and without surviving issue by saying: "Where there is a clear gift of a fee, a limitation over is void for repugnancy, and therefore, cannot cut down a fee into a lesser estate." This latter statement and the cases cited by respondent in support of it rest on the common law rule with regard to conveyances. The rules*1098 interpreting wills, even at common law, gave effect to executory devises to carry out the testator's intent, even to the extent of allowing a limitation on a fee. Cro. Jac. 590;
Construing the will of R. J. Reynolds in this way, we are of the opinion that decedent was not granted an estate in fee simple, but held, at most, an equitable estate for years, with a remainder in fee of the legal estate free from any trust. Upon his death prior to the vesting of the remainder and without having exercised the power of appointment, there were limitations over by executory devises contained in the will which made complete disposition of the*1099 property. The executory devise to his issue was on condition subsequent subject to another executory devise.
Under these circumstances, petitioner contends that, whether decedent's interest in his father's trust was vested or not, it was *168 defeasible at death, an "interest * * * which * * * was obliterated by that event",
We are of the opinion, therefore, that decedent's interest in the trust estate of his father, R. J. Reynolds, was defeasible in the event of his death; that the remainder*1102 thereafter passed by limitations in the original testator's will; and that, consequently, decedent had no interest therein at death properly includable in his gross estate for Federal estate tax purposes. As we shall point out later, our conclusion on this question is not affected by a consideration of the application of the rule in Shelley's case.
When we turn to the will of decedent's mother, Katharine S. Johnston, and the
The Safe Deposit & Trust Company of Baltimore as Trustee hereunder shall hold the share of each child for such child during its life, and upon its death shall distribute, transfer and deliver the same to and among, or hold the same for such person or persons, objects or purposes, in trust and otherwise, as such child shall by its Last Will nominate and appoint to take the same, and in default of such appointment shall distribute, transfer and deliver the same to the descendants of such child living*1103 at its death, per stirpes and not per capita, and in default of such appointment and in default of descendants of such child the said Trustee shall at its death divide and distribute the same among such of said children and their descendants as are then living, per stirpes and not per capita, but the shares of such of her said children as are than living shall be held by said Trustee in trust for them and upon the same trusts that their original shares are then held.
In the testamentary trust the second husband of the testator was included with her children and other descendants as a continuing remainderman. Otherwise there was no difference.
We have here a simple equitable estate for life in decedent, coupled with a complete power of testamentary disposition, with a fee simple in decedent's descendants living at his death, and a limitation over, in the contingency of no appointment and no issue surviving, to decedent's brother and sisters. On the birth of issue to decedent, the remainder would vest in his child subject only to be divested by its not surviving the decedent, or, in other words, a vested remainder in fee defeasible on condition subsequent.
*1104 Petitioner contends that in these circumstances the claim made by respondent that the decedent had an interest of calculable value, includable in his gross estate at his death, has "no possible application", since the decedent "had only an interest expressly limited to his life." If this last proposition, that decedent had only a life interest, is true, obviously that interest would be obliterated at his death, any remainder would pass directly from the settlor (or testator), *170 nothing would descend from decedent, and there would be no "interest" includable in gross estate. Cf.
The rule in Shelley's case as at common law, still obtains in North Carolina and has never been abolished.
It remains to inquire whether the rule in Shelley's case is properly applicable to the facts here and, if so, the consequence which would flow therefrom. The rule was set out in *1107
* * * When an ancestor, by any gift or conveyance, taketh an estate of freehold, and in the same gift or conveyance an estate is limited, either mediately or immediately, to his heirs in fee or in tail, the word "heirs" is a word marking out the bounds or describing the extent or quality of the estate conveyed to the ancestor, and not a word designating the persons who are to take the estate, other than by descent and as the beginners of a new inheritance.
*171 The requirements for the application of the rule were stated in the same case as follows:
In the first instance, an estate of freehold in the ancestor or the first taker.
The ancestor must acquire the prior estate by, through or in consequence of the same instrument which contains the limitation to his heirs.
The word "heirs" or "heirs of the body" must be used in their technical sense, as importing a class of persons to take indefinitely in succession, from generation to generation, in the course marked out by the canons of descent.
The interest acquired by the ancestor and that limited to his heirs must be of the*1108 same character or quality; that is to say, both must be legal, or both must be equitable, else the two would not coalesce.
The limitation to the heirs must be of an inheritance, in fee or in tail, and this must be made by way of remainder.
See also Tiffany on Real Property (3d ed.), vol. a, sec. 346.
Turning our attention to the fourth requirement as stated above, there immediately presents itself the question of whether the interest acquired by decedent and that limited to his descendants under the will of Katharine S. Johnston were of the same character or quality. It is obvious that the interest acquired by the decedent was equitable. It seems clear that the interest limited to his descendants must be considered as legal. The only duty of the trustee as to them was to "distribute, transfer and deliver" to them the property held in trust. Immediately upon the death of decedent the trustees would hold the property subject to this obligation, and upon a dry or passive trust. By virtue of the Statute of Uses the descendants of the decedent would obtain the legal title to the property held upon such a use. *1109
Since it is clear that this condition of the application of the rule has not been met, it is unnecessary to consider whether the other requirements for its application have been complied with.
We conclude that decedent had no interest at death*1110 in the trust estates created by his mother's will or deed properly includable in his gross estate for Federal estate tax purposes.
With regard to the interests created by the will of R. J. Reynolds, it is even more clear that the rule in Shelley's case has no application. *172 Decedent, at the time of his death, could only be considered, as we have shown, to have an equitable estate for years. The pertinent remainder created was to decedent's children surviving him. This remainder was a contingent legal interest and followed an equitable term for years. It is obvious that the words "issue then living" and "children" were not used by the testator in the sense of heirs generally.
We now consider respondent's argument that the case of
In view of the foregoing, the varied and conflicting claims and contentions of the parties in interest, and the ultimate composition entered into between the parties, it is also submitted that this case is controlled by*1111 the decision of the Supreme Court in
On page 14 appears the following:
* * * What has been stated as to the effect of the compromise settlement between the parties in interest as heirs at law, being controlled by the decision of the Supreme Court in
The case of
It would seem necessary only to outline the nature of that case and the decision therein to make clear its irrelevancy to the situation we have for consideration in the present proceedings. This case involves the Federal estate tax, and, specifically, section 302(a) and (f) of the Revenue Act of 1926. The questions before us, as stated by respondent in his brief, are whether the interest of the decedent in the
A compromise settlement was made by certain individuals whereby the trust properties subject to the equitable interests of decedent were divided. The claims of these individuals to this property had as possible bases the provisions present in the will of decedent's father *173 and the will and deed of his mother. It is true that the brother and sisters of decedent also had as a basis for their claims the purported will of decedent. However, *1113 the North Carolina court held, as we have held, that this will was invalid and that there was no valid exercise by decedent of any power of testamentary disposition. If the question before us involved the income tax liability of decedent's brother and sisters, then
Reviewed by the Board.
1. SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
(a) To the extent of the interest therein of the decedent at the time of his death;
* * *
(f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. ↩
Ryan v. . Reynolds , 190 N.C. 563 ( 1925 )
Dawson v. . Quinnerly , 118 N.C. 188 ( 1896 )
Crooks v. Harrelson , 51 S. Ct. 49 ( 1930 )
Morgan v. Commissioner , 60 S. Ct. 424 ( 1940 )
Karr v. Robinson , 167 Md. 375 ( 1934 )
Freuler v. Helvering , 54 S. Ct. 308 ( 1934 )
Helvering v. Grinnell , 55 S. Ct. 354 ( 1935 )
May v. Heiner , 50 S. Ct. 286 ( 1930 )
Monger v. . Lutterloh , 195 N.C. 274 ( 1928 )
Blair v. Commissioner , 57 S. Ct. 330 ( 1937 )
Bank v. . Sternberger , 207 N.C. 811 ( 1935 )
Vogt v. Graff , 32 S. Ct. 134 ( 1912 )
TEXAS v. FLORIDA Et Al. , 59 S. Ct. 563 ( 1939 )
Ithaca Trust Co. v. United States , 49 S. Ct. 291 ( 1929 )
Nichols v. . Gladden , 117 N.C. 497 ( 1895 )
Thayer v. . Thayer , 187 N.C. 573 ( 1924 )
Steele v. Metropolitan Life Insurance Co. , 196 N.C. 408 ( 1928 )
Reynolds Ex Rel. Cannon v. Reynolds , 208 N.C. 578 ( 1935 )
Lyeth v. Hoey , 59 S. Ct. 155 ( 1938 )
State Ex Rel. Wilkinson v. Dellinger , 126 N.C. 462 ( 1900 )