In re the Appraisal, under the Transfer Tax Act, of the Estate of Vanderbilt

Prior to an amendment of 1899 the Transfer Tax Law (L. 1896, ch. 908, section 230, as amended L. 1897, ■eh. 284), provided that £‘ Estates in expectancy which are contingent or defeasible shall he appraised at their full, uudiminislied value when the persons entitled thereto shall come into the beneficial enjoyment or possession thereof * * Under this statute it has repeatedly been held that future contingent estates were not taxable until they vested in possession ■and the beneficial owner could be ascertained. The question now presented is as to whether this statute has been changed. The legislature, by chapter 76 of the Laws of 1899, amended section 230 of-the Tax Laws, known as chapter 908 of the Laws of 1896, by which the provision of the statute quoted is ■omitted and in place thereof we have the following: “ Whenever a transfer of property is made, upon which there is, or in any contingency there may be, a tax imposed, such property ■shall be appraised at its clear market value immediately upon such transfer, or- as soon thereafter as practicable.” Then follow provisions particularly specifying the manner in which the value of future or limited estates shall be determined. Then it is provided that “ 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, out of the property transferred.”

It seems to me clear that the legislature by this amendment intended to change the law upon the subject and to make the transfer tax, upon property transferred in trust payable forthwith. The tax is not required to be paid by the conditional transferee, for, by the provisions of the statute, it is to be paid “ out of the property transferred.” So that whoever may ultimately take the property takes that vdiich remains after the payment of the tax. This amendment makes provision for property transferred in trust. It, therefore, contemplates defeasible transfers as well as absolute transfers.

By the seventeenth clause of the will of the testator the residue and remainder of his estate was given in trust to his executors for the benefit of his son Alfred G. Vanderbilt, which trust is to continue until he becomes thirty years of age, at which time one-half of the trust estate is to be turned over to him, and, as to the balance, the trust is to continue until he becomes thirty-five, when the remainder is to become his absolutely. The will also contains a provision that in case he dies before becoming thirty or thirty-five the estate shall be given to other persons. The only contingency, therefore, that can happen to defeat his taking the estate in possession is his death before the period fixed for the transfer of the jtossession of the property to him. The estate created, therefore, is an estate in trust for the periods mentioned, with a remainder vested in Alfred G., subject to be defeated by his death before arriving at the age of thirty or thirty-five. (Matter of Seaman, 147 N. Y. 72Campbell v. Stokes, 142 N. Y. 23; Manice v. Manice, 43 N. Y. 370; Warner v. Durant, 76 N. Y. 133; 2 Washburn on Beal Property, 629.)

Under the view taken by me of this statute, the transfer-tax still remains a tax upon succession. Each trust estate created is to be separately appraised and the tax determined according to the percentage fixed by the statute for those who are contingently entitled to the estate; and when fixed, the tax is forthwith payable out of the trust estate.

The order of the Appellate .Division and that of the surrogate should be modified as indicated herein, and the proceedings remitted to assess the tax, with costs to the Comptroller.

Cullen, J.

I vote for the reversal of the order below. It is conceded that the statute on its face provides for the immediate taxation of the whole corpus of the trust estate, regardless of the fact that the persons who may ultimately receive either the whole or part of such corpus cannot now be ascertained, and for the payment of the tax out of the fund. I concede that if the statutory scheme creates a ■ property tax it cannot be sustained. I think that such is the doctrine of the Pell Case (171 N. Y. 48) in which I fully concurred. But in my opinion the tax now sought to be imposed is not a property tax and the Pell case is not an authority for such a claim. In that case the interests of the devisees and legatees attempted to be taxed were given by the will of the testator who had died long prior to'the enactment of any inheritance tax. Technically they may have been, and probably were, vested subject to be divested by death before the demise of the life tenant, but in the ordinary sense of the term they were contingent, that is to say, it was impossible to determine who would actually enjoy the property until the death of the life tenant. Nevertheless the interests of the devisee accrued on the death of the testator, and at that instant, and were immune from legislative attack whether contingent-or vested. (Brevoort v. Grace, 53 N. Y. 245.) We, therefore, held that the legislature could not impose a tax on the transfer of property which had previously been made. This case presents a situation the reverse. True, it cannot now be told who will ultimately enjoy the copus of the estate till the life tenant dies or arrives at the prescribed age. But the legislature might have forbidden the suspension of the absolute ownership of the property for any period whatever as it has forbidden suspension for more than two lives in being. As said by the Supreme Court of the United States of the inheritance tax: “The right to take property by devise or descent is the creature of the law, and not a natural right — a privilege, and, therefore, the authority which confers it may impose conditions upon it. From these principles it is deduced that the states may tax the privilege.” (Magoun v. Trust Co., 170 U. S. 283; Matter of Dows, 167 N. Y. 227.) There, fore, the state can say a devise or bequest may be made where the interests are contingent or the ultimate beneficiaries unknown till after some period, but in such case there shall be exacted from the beneficiaries, whoever they may prove to be, a tax to be presently taken out of the property. This, in ■effect, it has said, for the provision of the Transfer Tax Law under consideration was in force at the time of the testator’s death. The fact that the tax is to be paid out of the property does not render it a tax on property. In both the federal and state inheritance tax laws are to be found provisions, in the ■case of personalty, requiring the executor to deduct the •amount of the tax before turning over the legacy to the legatee, and in the case of realty making the tax a lieu on the property; yet nobody has supposed that these provisions render the tax a property tax. If such was their effect, neither the federal -nor state statute could be upheld. A tax is a property tax when imposed by reason of the ownership of property; a transfer tax when imposed on the method of its acquisition.