Source: https://supreme.justia.com/cases/federal/us/307/383/
Timestamp: 2019-04-25 16:03:40+00:00

Document:
Decedent, while domiciled in Colorado, transferred to a Colorado bank certain bonds to be held upon certain specified trusts with specified powers in the trustee to administer, invest, reinvest, etc. The trust indenture provided that the trustee should pay over the income to decedent's daughter for life and afterward to the daughter's children until each had reached the age of twenty-five years, when a proportionate share of the principal of the trust fund was to be paid over to such child. In default of such children, the principal was to revert to decedent and pass under her will. She reserved the right to remove the trustee, to change any beneficiary of the trust, and to revoke the trust and revest herself with the title to the property, the trustee in that event undertaking to assign and deliver to her all the securities then constituting the trust fund. After creating the trust, decedent became and remained a domiciled resident of New York, where she died without appointing new beneficiaries of the trust or revoking it. Meanwhile, the trustee continued to administer the trust and held possession of the bonds evidencing the intangible property of the fund. Following her death, the taxing authorities of Colorado assessed a tax on the transmission at death of the trust fund.
transfer tax upon the relinquishment at death of the power of revocation, measured by the value of the intangibles. Curry v. McCanless, ante, p. 307 U. S. 357. P. 307 U. S. 386.
274 N.Y. 10, 634, 8 N.E.2d 42. 10 N.E.2d 587, reversed.
Certiorari, 305 U.S. 667, to review a judgment, entered on remittitur from the Court of Appeals of New York, which reversed an order of the Surrogates' Court confirming a transfer tax assessment. 248 App.Div. 713, 153 Misc. 70.
We are asked to say whether the New York may constitutionally tax the relinquishment at death, by a domiciled resident of the state, of a power to revoke a trust of intangibles held by a Colorado trustee.
each had reached the age of twenty-five years, when a proportionate share of the principal of the trust fund was to be paid over to such child. In default of such children, the principal was to revert to decedent and pass under her will. She reserved the right to remove the trustee, to change any beneficiary of the trust, and to revoke the trust and revest herself with the title to the property, the trustee in that event undertaking to assign and deliver to her all the securities then constituting the trust fund.
After creating the trust, decedent became and remained a domiciled resident of New York, where she died in 1931 without appointing new beneficiaries of the trust or revoking it. Until her death, the trust was administered by the bank at its offices in Colorado, and the paper evidences of the intangibles -- corporate bonds -- comprising the trust fund remained in the possession of the trustee in Colorado.
Court of Appeals, In re Brown's Estate, 274 N.Y. 10, 8 N.E.2d 42, reversed the order of the Surrogate, holding that, so far as the provisions of the New York Tax Law purport to include the intangible trust property in the gross estate, they infringe due process by imposing a tax on property whose situs is outside the state. We granted certiorari November 14, 1938, the question involved being of public importance.
The essential elements of the question presented here are the same as those considered in Curry v. McCanless, ante, p. 307 U. S. 357. As is there pointed out, the power of disposition of property is the equivalent of ownership. It is a potential source of wealth, and its exercise in the case of intangibles is the appropriate subject of taxation at the place of the domicile of the owner of the power. The relinquishment at death, in consequence of the nonexercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation. Saltonstall v. Saltonstall, 276 U. S. 260; Reinecke v. Northern Trust Co., 278 U. S. 339; Helvering v. City Bank Farmers Trust Co., 296 U. S. 85; cf. Keeney v. New York, 222 U. S. 525; Bullen v. Wisconsin, 240 U. S. 625; Chase National Bank v. United States, 278 U. S. 327; Tyler v. United States, 281 U. S. 497; Guaranty Trust Co. v. Blodgett, 287 U. S. 509; Porter v. Commissioner, 288 U. S. 436.
dissociated from her person as to be beyond the taxing jurisdiction of the state of her domicile more than her other rights in intangibles. Her right to revoke the trust and to demand the transmission to her of the intangibles by the trustee and the delivery to her of their physical evidences was a potential source of wealth, having the attributes of property. As in the case of any other intangibles which she possessed, control over her person and estate at the place of her domicile and her duty to contribute to the support of government there afford adequate constitutional basis for imposition of a tax measured by the value of the intangibles transmitted or relinquished by her at death. Curry v. McCanless, supra, and cases cited.
* § 249-n imposes a tax at specified rates upon the net estate of every person dying a resident of the state. For the purpose of fixing the amount of the net estate, § 249-r includes in the value of the gross estate of the decedent the value of all property of the decedent "except real property situated and tangible personal property having an actual situs outside this state,"
"3. To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, including a transfer under which the transferor has retained for his life or any period not ending before his death (a) the possession or enjoyment of, or the income from, the property or (b) the right to designate the persons who shall possess or enjoy the property or the income therefrom. . . ."
"4. To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke. . . ."
I think that the decision in this case pushes the fiction of mobilia sequuntur personam to an unwarranted extreme, and thus unnecessarily produces an unjust result.
before and after the settlor's death. There was no revocation of the trust or change of beneficiary or trustee, or diversion of the income from the use of the daughter, and the beneficiaries were all living when the settlor died.
It is true that the Constitution of the United States contains no specific provision against double taxation, but the Constitution does impose limitations upon the taxing power of a State which I think are applicable, and should prevent a double exaction in this case.
"The old rule, expressed in the maxim mobilia sequuntur personam, by which personal property was regarded as subject to the law of the owner's domicil, grew up in the Middle Ages, when movable property consisted chiefly of gold and jewels, which could be easily carried by the owner from place to place, or secreted in spots known only to himself. In modern times, since the great increase in amount and variety of personal property not immediately connected with the person of the owner, that rule has yielded more and more to the lex situs -- the law of the place where the property is kept and used."
The rule thus established that the the owner's domicile cannot tax tangible personal property which has an actual situs in another State was applied by this Court to an inheritance or transfer tax in the case of Frick v. Pennsylvania, 268 U. S. 473. There, the Court held, without division, that to tax the transfer of tangible personal property having an actual situs in another State "contravenes the due process . . . clause of the Fourteenth Amendment." The importance of this limitation of state power is obvious in view of the interrelation of the States under the bond of the Constitution, and of the opportunities for oppressive taxation if States attempt to tax property or transfers of property not properly attributable to their own domain. "The limits of state power are defined in view of the relation of the states to each other in the Federal Union." Burnet v. Brooks, 288 U. S. 378, 288 U. S. 401.
keep the securities in another State. Blodgett v. Silberman, 277 U. S. 1, 277 U. S. 9, 277 U. S. 14, 277 U. S. 16. This general rule proceeds in the view that intangibles, as such, are incapable of an actual physical location, and that to attribute to them a "situs" is to indulge in a metaphor. Still, in certain circumstances, the use of the metaphor is appropriate. New York ex rel. Whitney v. Graves, 299 U. S. 366, 299 U. S. 372.
The fact that this rule of convenience may generally be applied does not justify the conclusion that intangibles can never be so effectively localized in another State as to withdraw them from the taxing power of the domiciliary State. The proper use of a legal fiction is to prevent injustice, and it should not be unnecessarily extended so as to work an injury. Union Refrigerator Transit Co. v. Kentucky, supra, p. 199 U. S. 208.
"must yield to established fact of legal ownership, actual presence and control elsewhere, and ought not to be applied if so to do would result in inescapable and patent injustice whether through double taxation, or otherwise."
In that case, a resident of Virginia had transferred certain securities to the Safe Deposit & Trust Company of Baltimore in trust for his minor sons. The donor reserved to himself a power of revocation. He died without having exercised it. Virginia undertook to impose an ad valorem tax upon the entire corpus of the trust estate, and this Court held that, as the securities were subject to taxation in Maryland, where they were in the actual possession of the trustee, the holder of the legal title, they had no legal situs for taxation in Virginia "unless the legal fiction mobilia sequuntur personam was [is] applicable and controlling." The Virginia court had held that the two beneficiaries, in conjunction with the administrator of the father's estate, really owned the trust fund, and that, by reason of the fiction, its taxable situs followed them.
That was a case of an ad valorem property tax. But the power to impose an inheritance or transfer tax, as well as the power to impose an ad valorem property tax, depends upon the property's being attributable to the domain of the taxing State. Frick v. Pennsylvania, supra, p. 268 U. S. 492.
In the instant case, the legal title to the property in question is in the Colorado trustee, the trust was created under the Colorado law, and its administration is subject to the control of Colorado. To say that these securities are not as effectively localized in Colorado as were the furniture, pictures, and other art treasures of Mr. Frick in New York and Massachusetts, where alone their transfer could be taxed, would be to ignore realities and to make important rights turn upon a verbal distinction.
any time he could have removed his furniture and art treasures from New York and Massachusetts to his domicile in Pennsylvania. But that obvious control, while unexercised, did not detract from the taxing power of the States where the property was, or permit taxation by the domiciliary State.
It is said that the power of disposition is equivalent to ownership, and that its relinquishment at death is an appropriate subject of taxation. The case of federal taxation is not analogous, as there are no state boundaries to be considered when the federal tax is laid. Nor are state cases relevant when there is no attempted extraterritorial application of a state statute, and it is not necessary again to review the authorities cited in the dissenting opinion in Curry v. McCanless, ante, p. 307 U. S. 357. For the present purpose, it is sufficient to note that, under the principle established in Frick v. Pennsylvania, supra, it is not enough to say that a power of disposition is equivalent to ownership, for ownership by a resident of a State gives that State no authority to tax property not attributable to its domain. Mr. Frick owned his property in New York and Massachusetts, but still his own Pennsylvania could not tax its transfer.
we have an effective localization of securities through a trust created in a State other than that of the settlor's domicile at the time of death, and where, in that other State, the trustee holds title and possession, and has been and is administering the trust subject to its laws.
MR. JUSTICE McREYNOLDS, MR. JUSTICE BUTLER, and MR. JUSTICE ROBERTS concur in this opinion.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 249
 § 249
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.