In Re the Transfer Tax Upon the Estate of Cole

On the 27th of February, 1920, Charles K. Cole, a resident of Dutchess county, N.Y., died, leaving a will and codicil thereto which were there probated and letters testamentary issued to the executors and trustees therein named. Prior to the making of the will the testator entered into a contract with his son Philip in and by which he gave to him, on stated conditions, the income from certain personal property during his life. The executors and trustees appeal from so much of the order of the Appellate Division as holds that certain remainders or reversions of the corpus of a trust fund created by the will for the benefit of the son Philip and the daughter Virginia are presently taxable, and the state tax department appeals from so much of the order as declares that the property held under the agreement between the testator and the son Philip is free from tax.

The will provided, among other things unnecessary to be here considered: (1) That $200,000 was given to testamentary trustees named, in trust, for the following purposes: "* * * to hold the same in trust and to receive the net income of said trust and to pay over the net income thereof to my said daughter, Virginia Garber Cole, for and during her natural life and upon the death of my said daughter Virginia Garber Cole to deliver and pay over the principal of said trust unto such persons and corporations and in such shares, interests and proportions as she shall in and by her last will and testament in that behalf appoint, and in case she shall leave no such valid appointment, then to her issue surviving her, according to their stocks, and in case no issue surviving her, then to her next of kin surviving her, according to their stocks." (2) All the rest, residue and remainder of the testator's property he gave to his testamentary trustees in trust to pay the net income "* * * to my son Philip Gillett Cole for and during his natural life and upon the death of my said son Philip Gillett Cole, to deliver and pay over the principal of said trust unto such persons and corporations, and in such shares, interests and proportions as he shall in and by his last will and testament in that behalf appoint, and in case he shall leave no such valid appointment, then to his issue surviving him, according to their stocks."

By a codicil he added to the last sentence in the bequest in trust to Philip, after the word "stocks" the following: "In case he shall leave no issue surviving him, then to his next of kin according to their stocks," making the ultimate disposition of the property given in trust for the benefit of the son precisely the same as that given for the benefit of the daughter.

Whether the remainders in these two trusts are presently taxable is one of the questions presented. Its solution necessarily turns upon the construction to be put upon section 220, subdivision 6, of the Tax Law, when the same is read in connection with section 230 of the same act, as amended by chapter 801, of the Laws of 1911. These two sections are, apparently, in hopeless conflict, but when read in the light of judicial constructions placed upon them, it seems to me that each can be given full force and effect, and in such a way as not to make them inconsistent. Undoubtedly, if section 220 be considered in and by itself without reference to section 230, Tax Law, Cons. Laws, ch. 60 (L. 1909, ch. 62), then these remainders are not presently taxable and a tax cannot be imposed until the power of appointment has been exercised. (Matter of Burgess, 204 N.Y. 265;Matter of Howe, 86 App. Div. 286; affd., 176 N.Y. 570.) But after these decisions were made, section 230 was amended (L. 1911, ch. 800; L. 1916, ch. 550) so as to seemingly change the law on that subject, so that section 230, after these changes were made, provided: "* * * when property is transferred in trust or otherwise, and the rights, interest 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, and the surrogate shall enter a temporary order determining the amount of said tax in accordance with this provision; provided, however, that on the happening of any contingency whereby the said property, or any part thereof, is transferred to a person or corporation exempt from taxation under the provisions of this article, or to any person taxable at a rate less than the rate imposed and paid, such person or corporation shall be entitled to a return of so much of the tax imposed and paid as is the difference between the amount paid and the amount which said person or corporation should pay under the provisions of this article. * * *"

When this statute was enacted the legislature must be presumed to have known what construction had theretofore been put upon the statutes by the courts; in other words, it was charged with knowledge of certain legal principles in framing the statute. The general rule, as I understand it, is that when the legislature amends or enacts anew a statute it will be assumed that it had full knowledge of all the judicial decisions theretofore made interpreting the statute as then existing, and that being so, the new enactment must be read in the light of such previous interpretation. (Orinoco Realty Co. v. Bandler, 233 N.Y. 24;Komada Co. v. United States, 215 U.S. 392; Caesar v.Bernard, 156 App. Div. 724; affd., 209 N.Y. 570.)

This view was clearly expressed by Judge MILLER, speaking for this court in Matter of Zborowski (213 N.Y. 109, 112, 116) where he said: "The legislature has unmistakably expressed the intention that all transfers shall be assessed for the purpose of taxation as of the date of the transfer, and however unjust that may be thought to be, it is not open to objection on constitutional grounds. * * * In one aspect it may be unjust to the life tenant to tax at once the transfer both of the life estate and of the remainder, though contingent, and it may seem unwise for the state to collect taxes which it may have to refund with interest, but those considerations are solely for the legislature, who are to judge whether they are more than offset by the greater certainty which the state thus has of receiving the tax ultimately its due under the statute. However unwise or unjust it may seem in a particular case like this for the state to collect the tax at the highest rate when in all probability the remainder will vest in a class taxable at the lowest rate, it is the duty of this court to give effect to the statute as it is written."

This authority was followed in Matter of Parker (226 N.Y. 260).

Each of these remainders, therefore, was properly assessed and at the rate stated, and the order appealed from, to this extent, is affirmed.

This brings us to a consideration of the appeal taken by the state, viz., as to whether the corpus of the trust created by the father for the benefit of his son during life, or the remainder therein specified, were assessable — the contention of the state being there was no adequate consideration for the agreement, and at most it was made in contemplation of death.

In this I am unable to agree. I think there was ample consideration for the agreement. Nor do I think there is any basis for the assertion that it was made in contemplation of death. The father, somewhat advanced in years, had large business enterprises. He was living alone, he and his wife having become estranged. His son had adopted the medical profession and was actively engaged in its practice in the state of Montana. Appreciating his loneliness, and the desirability of assistance in his business enterprises, he telegraphed his son to come at once to New York, which he did. On his arrival the father made him a proposition that if he would give up his profession and enter actively into the management of the father's affairs, he would give him an income from a certain amount of property, large indeed, which was to be put in trust during the time the son continued in such management — the father in the meantime having the right to cancel the agreement if he saw fit to do so. The son, in obedience to his father's request, gave up his profession and came to New York for the purpose of complying with it. In the meantime the World's War had broken out and the son thought it his duty, as did his father, to enter the service, which he did and remained abroad for some time, being seriously wounded in active service. After the cessation of hostilities he returned to the father and immediately entered upon the active duties called for by the agreement. Then, or shortly thereafter, the father changed the agreement to the extent of making the same irrevocable and provided for an income from the trust fund during the life of the son, the corpus to be held by trustees or successors to be named, as specified in the agreement. The son accepted the conditions of the agreement and has ever since performed all its terms. That this was an adequate consideration for the agreement does not seem to me to be debatable. It was a laudable arrangement on the part of both the father and son. It is a stretch of the imagination to say the agreement was made in contemplation of death for the purpose of avoiding a transfer tax.

It does not seem to me, therefore, there is any tax to be assessed upon the property thus transferred to the trustees, constituting the corpus of the trust agreement.

This, however, does not dispose of the entire question raised by the state. There is a remainder under this trust agreement which clearly, if the foregoing views in this opinion be correct, is presently taxable. What becomes of this remainder? Does it go to the next of kin of the creator of the trust, or does it pass under the residuary clause of his will? To these questions there seems to me to be but one answer. The father desired to dispose of his entire estate. The whole will so indicates. He gives to his daughter in trust $200,000. "All the rest, residue and remainder" goes to the son, indicating that whatever there was left, after the trust created for the daughter, was to pass for the benefit of the son. This remainder was a part of all the residue and remainder. It was something left which had not been disposed of, which the testator desired should ultimately pass to the son or for his benefit. This, therefore, brings it within the doctrine established "by the reported cases and by the text-books, that where the residuary bequest is not circumscribed by clear expressions in the instrument and the title of the residuary legatee is not narrowed by special words of unmistakable import, he will take whatever may fall into the residue, whether by lapse, invalid dispositions, or other accident." (Riker v.Cornwell, 113 N.Y. 115, 127. See, also, Lamb v. Lamb,131 N.Y. 227; Carter v. Board of Education, 144 N.Y. 621; Matterof Miner, 146 N.Y. 121.)

The case, therefore, should be remitted to the Surrogate's Court for the purpose of assessing a tax upon this remainder.

The order appealed from should, therefore, be modified by remitting to Surrogate's Court for assessment of further tax in accordance with opinion herein and otherwise order affirmed, without costs to either side against the other.

HISCOCK, Ch. J., HOGAN, CARDOZO, POUND, CRANE and ANDREWS, JJ., concur.

Ordered accordingly.