It is not often that estates are held jointly, but when they are, the law is that the survivor takes the whole property. This is the peculiar feature that distinguishes joint tenancy. It often happens, though, that a bank account or an interest in stocks is held jointly by husband and wife in order that on his death she may have immediate funds. In those states where the transfer tax applies to joint bank accounts, this object cannot now be attained, for neither may draw from the joint account upon the death of the other, and the account would be tied up until the state authorities had acted in the matter. Unless specifically mentioned in the transfer tax law of the state, such survivorship is not taxable. In several of the states it has been sought to tax the interest going to the survivor. In New York it was sought to tax the whole value. Accordingly, the value of such property required to be returned for tax in New York is the value of the entire property, unless it can be shown that part or all of it originally belonged to the other joint owner and never belonged to the decedent. In New York and California the statutes now prescribe that the survivor of parties interested in a joint account or in joint property shall take the whole and pay a transfer tax on the value of the whole. In California, the court decided that the statute did not apply to a joint tenancy created before the statute was passed in 1917.13 The decision would have been different if the joint tenancy had been created after the act had been passed. In New York the court held that when the joint interest. existed before the statute, the survivor could be taxed on onehalf,14 but in a later case it was held that the whole of a joint bank account created after the statute went into effect was subject to the tax.15 In another late case the court stated that if the survivor were shown to have given value for his interest, 13 Gurney's Estate, 177 Cal. 211. 14 Matter of McKelevy, 221 N. Y. 15. 15 Matter of Dolbear, 226 N. Y. 623. 16 the question of tax in such case would be open.1 The estate might show that the survivor really owned the fund, in which case no tax would be due, or the state authorities might show that the decedent owned the entire fund, in which case the tax would be on the whole. A tenancy in or by the entirety is that special form of joint tenancy which exists when a third party deeds real estate to husband and wife jointly: they take as tenants by the entirety and neither can convey the property without the consent of the other; and the survivor succeeds to the whole. Such succession is not taxable under the usual transfer tax laws. In 1916 the New York legislature passed a law taxing such estates, but it was repealed the next year. § 251. Transfers by Decedent in His Lifetime It is not uncommon for men of advanced years to act as their own executors, giving all or part of their property to those to whom they would otherwise leave it by will. This is in many cases an admirable thing to do, but the state considers that such transfers as are made to take effect at death, or are made in contemplation of death, are subject to the transfer tax. The law on this subject varies in the different states, and the decisions of the courts are not harmonious. A gift to take effect at death is taxable under all of the statutes, but a transfer to take effect at death upon adequate consideration would not be taxed.17 A gift of property in which the donor retains a life interest is a gift to take effect at death and is taxable. Where the arrangement involves no life interest, but the donor reserves. a power to revoke, it is held to be a gift to take effect at death and is taxable. 16 Matter of Buchanan, 184 App. Div. (N. Y.) 237. 17 Estate of Reynolds, 169 Cal. 600. In a recent case a donor during life gave a fund of $1,000,000 to a trust company in Illinois, the income to be paid to himself, his wife, and four sons. On his death the fund was to be turned over to the other beneficiaries. He also reserved a right to revoke and to control the investment. He then moved to Wisconsin and became a resident. When he died, both states imposed inheritance taxes on his estate. His family fought the Wisconsin tax and it was carried to the Supreme Court of the United States, which sustained the right of both states to tax the transfer of the fund.18 Every case to which these provisions might apply must be considered separately, and the separate provisions of the law (and possibly of the Constitution itself) weighed against the facts in the particular case. § 252. Property Passed Under Power of Appointment It is common for property to be left to a son, daughter, or other relative for life and thereafter to such person as the son or other relative shall appoint. In such case the original testator would be called the "donor"; the life tenant would be called the "donee," and the person whom the donee appointed, the "grantee." The question of what, if any, inheritance tax should be paid upon the exercise of a power of appointment is complicated by conflicting laws and court decisions. To state positively in any particular case what would be the tax liability would require the judgment of a careful lawyer who had looked up the legislation and the court decisions in the state where the tax was to be paid. In the earlier cases, if the will giving a power of appointment was executed before the transfer tax became a law, and the donee appointed those who would have inherited under the will if no appointment had been made. the appointees might elect to take as under the original will. "Bullen v. Wisconsin, 240 U. S. 625. In some states, if the will was executed before the transfer tax was imposed, no transfer tax would be payable. For example, A executed his will before a transfer tax law was passed, leaving his property to his son B, and to such sons of B as B should appoint. If B appointed his only son C, to whom the property would have gone had B not exercised his power of appointment, B's son might elect to take under the original will, and in New York no transfer tax would have been paid.19 In Massachusetts, however, the same provisions of statutory law were construed otherwise and the tax could not be avoided by any such election.20 In New York, if the donee made the appointment of part to pay creditors, the tax would have been laid on the part so appointed, but if the balance had gone to beneficiaries who would have taken under the original will, no tax would have been imposed on that part.21 The tax is not on the property passed but on the privilege of acting on the authority given by the power of appointment, and if the donee is in the jurisdiction of the state and the property is transferred by the laws of this state, the fact that the property is situated outside of the state does not af fect the state's right to tax. The question in each case is: Does the execution of the power give the grantee the property conveyed? 22 The present New York Statute is as follows: Whenever any person or corporation shall exercise a power of appointment derived from any disposition of property made either before or after the passage of this chapter, such appointment when made shall be deemed a transfer taxable under the provisions of this chapter, in the same manner as though the property to which such appointment relates 19 Matter of Lansing, 182 N. Y. 138. 20 Minot v. Treasurer, 207 Mass. 588. 21 Matter of Slosson, 216 N. Y. 79. 22 Matter of Hull, 111 App. Div. (Ń. Y.) 322. belonged absolutely to the donee of such powers and had That is, if in 1870, before the transfer tax law was passed, A left property to his son B for life and at B's death to whomever he might appoint by will or deed, and fifty years later B wills or deeds it to C, a tax shall be paid the state as if the property had belonged to B and had been left by B's will to C. It was naturally argued that if B deeded the property to C instead of leaving it by will, a transfer by deed was not taxable, but the courts held that under the statute as it now stands the law was otherwise. The court of appeals said: The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever except such as rest in the discretion of the authority which exercises it." REVIEW QUESTIONS 1. Are inheritance taxes taxes on property? Why? How comprehensive are they? Is there any way to evade or avoid them? 2. What is the general rule as to the situs of property for inheritance taxation? What are the exceptions to the rule? What causes the confusion as to the tax on personal property? 3. Where is real estate taxed? What is the peculiar rule in Pennsylvania? What is done if the real estate is mortgaged? Where is the mortgage taxed? Where are shares in trust associations taxable? What is the rule as to leases? 4. What is tangible property? What is not tangible property? What rule have the states adopted in taxing personal property of both kinds? How does this result in double taxation? At what time is personal property valued for taxation? 23 Laws of 1919, Art. 10, 220, subdiv. 6, as amended by Chapter 626. 24 Matter of Wendel, 223 N. Y. 433. |