Source: http://supreme.nolo.com/us/299/280/case.html
Timestamp: 2019-04-18 14:21:09+00:00

Document:
This appeal is from an order denying abatement of succession taxes assessed in respect of the estate of Hetty S. L. Cunningham, late a resident of Brookline, Massachusetts. Mrs. Cunningham died intestate in August, 1931, leaving as her sole heirs four children who, with the trustees and certain beneficiaries of three trusts wherein she had life estates, were the petitioners below and are the appellants here. She left a substantial estate of her own which descended to her four children. Their succession to this estate was taxed, the tax was paid, and its legality is not questioned. Pursuant to the terms of the three trusts, her four children succeeded, upon her death, to the ownership and possession of certain property whereof she had been life tenant with power of appointment of principal, and succeeded to the enjoyment as life beneficiaries of other property as to which she had preceded them as life tenant. The appellee held the succession to the trust property taxable, and added the value of the corpus of Mrs. Cunningham's own estate and that of the interests to which the appellants succeeded upon her death, with the result that the trust interests took a higher rate. The taxes assessed upon the three trust interests were paid, and a petition was filed in the probate court for abatement in the view that the exaction was forbidden by article 1, § 10, and the Fourteenth Amendment of the Federal Constitution. The probate court reserved the questions, the Supreme Judicial Court decided them adversely to appellants, [Footnote 1] and upon its rescript, the petition was denied.
In 1877, Mrs. Cunningham (then Hetty Sullivan Lawrence) conveyed property in trust reserving a life estate in the income but no power to revoke, alter or amend.
The income was to be paid for twenty years after her death "to and among such of" her children as "may be living at the time of payment," living issue of a deceased child to take by right of representation. If, at her death, or at any time during the twenty years thereafter, no child or issue of hers should be living, the trustees were to transfer the principal to the heirs of her father, if he were then dead; otherwise, to her own heirs. She married and had five children, one of whom, born in 1892, died in 1923 without issue. The others, born between 1885 and 1890, are appellants.
In 1862, Amos A. Lawrence, the intestate's father, paid a sum of money to an insurance company which agreed to pay the income to the intestate and, upon her death, to distribute the principal and any unpaid income to such persons as she might, by will, appoint, and in default of appointment, to her surviving children.
Sarah E. Lawrence, the intestate's mother, died May 27, 1891. Her will bequeathed property in trust to pay the income to each of her six children, two of whom still survive, and to the issue, per stirpes, of any deceased child so long as any of her children should live. For twenty years after the death of the last survivor of her children, the income was to be paid to her grandchildren and their issue, per stirpes, and at the expiration of that period, the principal was to be divided between the grandchildren, per capita, descendants of a deceased grandchild to divide his or her share per stirpes. Each child of Sarah E. Lawrence was empowered to "appoint the shares in which" the income given to his or her children and issue "shall be apportioned among such children and issue," and further to appoint the proportions in which the principal "shall be divided among such children and issue." Under this provision, the four children of Mrs. Cunningham, who are appellants, succeeded to equal life estates in their mother's share, she having failed to exercise her power.
The act of 1907 and its amendments were prospective in operation, and exempted estates of those who had died prior to its effective date. [Footnote 6] This exemption has extended to all interests which passed or accrued upon the death of Sarah E. Lawrence, the intestate's mother.
In 1909, provision was made for a succession tax upon the occasion of the exercise of, or nonexercise of, powers of appointment. [Footnote 7] This, in its present form, is § 2 of chapter 65 of the General Laws. [Footnote 8] The effective date of this provision was declared to be September 1, 1907, which was the effective date of the 1907 act, and was twenty-one months prior to the effective date of the 1909 act, in which the provision is embodied. It is conceded that there are no other statutes purporting to tax succession under nontestamentary gifts.
"Section 1. All property within the jurisdiction of the commonwealth, corporeal or incorporeal, and any interest therein, belonging to inhabitants of the commonwealth, . . . which shall pass by will, or by laws regulating intestate succession, or by deed, grant or gift, except in cases of a bona fide purchase for full consideration in money or money's worth, made in contemplation of the death of the grantor or donor or made or intended to take effect in possession or enjoyment after his death . . . to any person, absolutely or in trust . . . shall be subject to a tax at the percentage rates fixed by the following table:"
"[A table of graduated rates here appears.]"
"Provided, however, that no property or interest therein, which shall pass or accrue to or for the use of a person in Class A, except a grandchild of the deceased, unless its value exceeds ten thousand dollars, and no other property or interest therein, unless its value exceeds one thousand dollars, shall be subject to the tax imposed by this chapter, and no tax shall be exacted upon any property or interest so passing or accruing which shall reduce the value of such property or interest below said amounts."
"All property and interests therein which shall pass from a decedent to the same beneficiary by any one or more of the methods hereinbefore specified and all beneficial interests which shall accrue in the manner hereinbefore provided to such beneficiary on account of the death of such decedent shall be united and treated as a single interest for the purpose of determining the tax hereunder."
seven, such appointment when made shall be deemed a disposition of property by the person exercising such power, taxable under section one, in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power, and had been bequeathed or devised by the donee by will, and whenever any person possessing such a power of appointment so derived shall omit or fail to exercise the same within the time provided therefor, in whole or in part, a disposition of property taxable under section one shall be deemed to take place to the extent of such omission or failure in the same manner as though the persons thereby becoming entitled to the possession or enjoyment of the property to which such power related had succeeded thereto by a will of the donee of the power failing to exercise such power, taking effect at the time of such omission or failure."
"Section 36. This chapter shall apply only to property or interests therein passing or accruing upon the death of persons dying on or after May fourth, nineteen hundred and twenty, and as to all property and interests therein passing or accruing upon the death of persons who have died prior to said date the laws theretofore applicable shall remain in force; but so much of this chapter as relates to property or interests therein passing by deed, grant or gift completed inter vivos in contemplation of death shall apply only to such deeds, grants or gifts made on or after May twenty-seventh, nineteen hundred and twenty."
insist that the invalidity of § 1, supra, as applied to their succession is established by Coolidge v. Long, 282 U. S. 582, since to tax them would, under the doctrine of that case, impair the obligation of the intestate's contract, and deprive them of property without due process. The court below thought that case not controlling because there, the remainders were vested from the date of the gift, whereas here, the interests of appellants were executory or, at the best, contingent remainders which never vested until the intestate's death. In Coolidge v. Long, this Court concluded that the tax laid by the act of 1907 offended the contract and due process clauses of the federal Constitution because the interests of the remaindermen had vested at the date of the creation of the trust many years prior to the passage of the taxing act. It was held that the mere taking possession of that which had been vested in the beneficiaries for many years did not amount to a taxable occasion, and constitutionally could not be so designated by the Commonwealth in view of the complete vesting of the beneficiaries' estates in remainder at the date of the execution of the deed.
years prior to 1907, those who were to take in succession to the intestate were ascertained, subject only to the contingency that, as in Coolidge v. Long, some of them might fall out of the class by death. The contention was made and rejected in Coolidge v. Long. The fact that the remainders were vested from the date of the deed, and the interests of those who took in remainder were merely subject to be defeated by a condition subsequent, was the basis for the conclusion that the tax could not constitutionally be laid upon the occasion of their acquiring physical possession of what had, in the eye of the law, long been their property. Having relied on legal, rather than practical, considerations to invalidate the tax in Coolidge v. Long, it would be inconsistent here to rely on practical, rather than legal, considerations to invalidate the same tax. The Commonwealth was not prevented by the constitutional provisions which the appellants invoke from taxing the succession under the 1877 trust upon the occasion of the intestate's death, since the appellants' estates never vested until that event.
As Mrs. Cunningham's death was the occasion for a tax upon the succession of those who take in remainder after her life estate, we can conceive of no constitutional objection to the statutory provisions for uniting the interest thus derived with that which the appellants acquired in Mrs. Cunningham's own property at her death, and calculating the rate on the total according to a sliding scale.
person coming into ownership and enjoyment of property does so by virtue of the direct gift of the former owner or by virtue of the exercise or nonexercise of a power of appointment vested by the former owner in a third party. Thus, the future policy of the Commonwealth is declared to be that those who benefit by a testamentary gift are to be taxed, while those who benefit, either immediately or remotely, from a complete and irrevocable gift inter vivos are not to be taxed. On the other hand, the statutes declare that one who benefits remotely through the exercise or nonexercise of a power under an absolute gift long since completed is to bear the burden of the exaction. This is not the declaration of a new policy effective after the promulgation of the legislation. On the contrary, the statutes declare the policy to be the exemption for the future of a well known type of succession, while at the same time imposing a tax on the identical type if resulting from a past gift.
"The legislative intent possibly was to tax succession under St.1907, c. 563, not as from the donee, but from the donor of the power. Whatever the reason, the classification cannot be pronounced arbitrary or unreasonable. The tax operates equally and uniformly as to all within this class. It may fairly have been deemed by the General Court to be founded in the 'purposes and policy of taxation.'"
upon each class, and this falls short of meeting the question for decision.
As we have noted, the only basis for the classification is the time when the estate was created. This Court has said that a tax on gifts inter vivos, so laid as to hit those made within a given period prior to the donor's death and exempting all others, would be wholly arbitrary. Schlesinger v. Wisconsin, 270 U. S. 230. And we have also said that a discrimination in the taxation of loans based solely upon the time when the loan was made would clearly be arbitrary and capricious. Colgate v. Harvey, 296 U. S. 404, 296 U. S. 425.
beneficiary taking through a power under an inter vivos nontestamentary trust, created after September 1, 1907, would not have to aggregate the interest so derived with property inherited from the donee of the power, whereas one taking, as do the appellants, under a power in a deed executed in 1862, is compelled, by aggregation of the interests, to pay at a much higher rate on the property derived through the power.
In their operation upon the trust created in 1891 by the will of Sarah E. Lawrence, the statutes discriminate between the appellants and others similarly situated. The discrimination differs in kind from that exhibited in the case of the 1862 trust, but is equally hostile and arbitrary.
makes the takers of Mrs. Lawrence's property in succession to the intestate liable for a tax as if the property had descended from the intestate. As directed by § 1, the appellee aggregated the interest falling to the appellants under their grandmother's will with that coming to them from their mother under the intestate law. Thus, the interest derived under the 1891 trust is taxed in the higher brackets at four percent, whereas had it been created by a will effective after September 1, 1907, the tax would be computed as upon a succession to Mrs. Lawrence's estate alone, and at a rate of one percent.
The same considerations which have been stated in respect of the 1862 trust are controlling as to this one. We think it an arbitrary and unreasonable discrimination that the beneficiary of a power must aggregate the interest so derived with that enjoyed by inheritance of property owned in fee by the donee of the power if the instrument creating the power antedates 1907, but need not so aggregate the interests for the purpose of taxation if the creation of the power be subsequent to 1907. The consequence that the one must pay at a higher rate on the interest falling in at the death of the donee of the power than the other who takes by reason of an exactly similar event denies the equal protection of the law to the former.
therefore, successfully be contended that the act of 1909 was adopted with a view to earlier or more certain collection of the tax.
leaving wholly exempt or taxing on a different basis and at a different rate remaindermen taking under instruments effective subsequent to September 1, 1907. To suggest that this was an attempt to bring about equality which failed through inadvertence is to be blind to the obvious purpose and intent of the legislature. Action could not have been more deliberate.
Mass.Adv.Sheets, 1936, p. 153; 199 N.E. 528.
Wright v. Blakeslee, 101 U. S. 174, 101 U. S. 177.
if made after that date, from the donor of the power. Acts 1909, c. 527, § 8; G.L.(Tercentenary Ed.) c. 65, § 2. Is the result of that amendment an unlawful discrimination when applied to the deed of 1862 and the exercise or nonexercise of the power there created?
If succession must be treated as derived from the donor, irrespective of the date when the power was created, many interests will go free that in fairness should contribute their quota to the fisc.
"Whatever be the technical source of title of a grantee under a power of appointment, it cannot be denied that, in reality and substance, it is the execution of the power that gives to the grantee the property passing under it."
future, but quite inadequate as to instruments executed in the past. There was need for a distinction based on difference in time.
One may take for illustration a will made in 1914, seven years after the act of 1907, and another made in 1900, seven years before. Each, let it be assumed, provides for a life estate, with power to the life tenant to appoint the remainder, and with a gift over to children in default of an appointment. The life tenants die in 1921. If an assessment is made upon the right of succession under the will of later date, there will be no difficulty in collecting the tax, economically and swiftly, out of the estate of the donor. The power having been created after 1907, the executors will be under a duty to retain so much of the estate as may be necessary to pay the tax in full. But, in respect of the 1900 will, the situation is very different. The probability is that, before the adoption of the statute, the executors under that instrument will have been given their discharge. In that event, the probate court will no longer have control of the estate, and the Commonwealth will be left to a precarious remedy against remaindermen deriving their possession through the nonexercise of the power, if perchance the failure to exercise it becomes known at all. Estates of subsequent donors will thus be made to bear the burden while those of earlier donors are left substantially immune. The amendment of 1909 corrects that inequality. Has it substituted another to be condemned as more offensive?
particular kind of business, and exempt some other kind of business closely akin thereto. Quong Wing v. Kirkendall, 223 U. S. 59, 223 U. S. 62; American Sugar Refining Co. v. Louisiana, 179 U. S. 89, 179 U. S. 94; Armour Packing Co. v. Lacy, 200 U. S. 226, 200 U. S. 235; Brown Forman Co. v. Kentucky, 217 U. S. 563, 217 U. S. 573; Heisler v. Thomas Colliery Co., 260 U. S. 245, 260 U. S. 255; State Board of Tax Comm'rs v. Jackson, 283 U. S. 527, 283 U. S. 537-538. What is true of division into classes according to subject matter must be true of division into classes dependent upon time. The temporal arrangement must have its origin, to be sure, in something more than whim or fantasy -- a tyrannical exhibition of arbitrary power. If that reproach has been avoided, the classification does not fail because the burdens before and after are not always and everywhere in perfect equilibrium.
to take effect in possession or enjoyment through the exercise or nonexercise of a power of appointment after the death of the donor (Guaranty Trust Co. v. Blodgett, supra) will gain nothing from the fact that a nontestamentary conveyance brought the power into being. The only reason why this particular interest would be exempt if the deed of 1862 had been made after August, 1907, is because the remainder was so limited that the power might be exercised while the donor was yet alive. Such untoward accidents do not take a method of division out of the domain of the rational into the land of whim and fantasy. Eccentricities of incidence are common, and perhaps inevitable, in every system of taxation. The future would have to be scanned with miscroscopical powers of vision to foresee and forestall every possible diversity. For present purposes, it is enough that the order of events removes the stigma of caprice from a system of classification whereby donees of a power before the passage of the act are treated as grantors, the tax to be laid upon that basis, whereas donors of a power are recognized as the source of the succession in respect of transfers afterwards. Emmons v. Shaw, supra.
Maxwell v. Bugbee, 250 U. S. 525, 250 U. S. 543. Cf. Metropolis Theater Co. v. Chicago, 228 U. S. 61, 228 U. S. 69-70; Salomon v. State Tax Commission, 278 U. S. 484, 278 U. S. 491.
For these reasons, I dissent from the modification of the decree, and vote to affirm it.

References: § 10
 § 2
 § 1
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 1
 v. 
 § 8
 § 2
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.