such donee by will; and whenever any person or corporation 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 transfer taxable under the provisions of this act shall be deemed to take place to the extent of such omissions or failure, in the same manner as though the persons or corporations 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.

This provision first appeared in the Transfer Tax Law April 16, 1897 (chap. 284, Laws 1897, amending $220).

184. Object and Purpose of the Statute.

The object and purpose of this amendment was to make the transfer in possession arising from the exercise of the power the taxable transfer, and the rate of tax to depend upon the relationship of the donee of the power to the appointee under his will, the courts having previously held the transfer by the exercise of the power of appointment, where the power was created by a will which took effect before the enactment of any collateral inheritance or transfer tax law, was not taxable upon the exercise of such power, since the source of the title is the will creating the power, into which the names of the appointees must be read, and their rights to succession did not vest at the time of the execution of the power, but at the time the will creating the power went into effect. Matter of Harbeck, 161 N. Y. 211, revg. 43 App. Div. 188.

185. Powers Created by Will.

This amendment of 1897 first came up for construction in the Matter of Vanderbilt, 50 App. Div. 246, 63

N. Y. S. 1079; affd., 163 N. Y. 597, on the opiniou below:

The court held that the taxing of property transferred under a power of appointment pursuant to subdivision 5 of section 220 is constitutional, and property so transferred subsequent to the enactment of the statute is subject to a transfer tax as of the date of the transfer, although at the time of the creation of the power there was no law in force taxing such transfers. The execution of the power does not relate back to the will of the testator creating it so as to make every interest affected by its exercise subject to the law in force at the time of the death of such testator, but the act constituting the transfer is declared to be the exercise of the power of appointment. William H. Vanderbilt died in 1885, before the existence of any law taxing direct inheritances. By his will he established a trust fund in favor of his son Cornelius, with direction that upon the son's death the fund should go to the son's issue in such proportions as his said son might by his will direct, with a disposition over if the son failed to exercise the power. The son died in 1899, and by his will exercised the power. In transfer tax proceedings upon the son's estate it was contended that the exercise of the power by the son related back to the father's will, and that therefore the interest affected by the exercise of the power was to be considered as coming under the father's estate and should be controlled by the law in force at the father's death in 1885, and that, as no right of inheritance came into existence by the exercise of the power, there was nothing in respect to the fund in question upon which the amendment of 1897 could operate. It was also contended that the amendment impaired the obligations of a con

§ 220

Execution of the Power.

tract and interfered with vested rights. The Court of Appeals held that no contract relation was established by the Act of 1885; "that if the right of

succession to this fund was taxable, as we think it was, the Legislature had the power to declare that the tax should be imposed as of the time at which the right to possession of the amount appointed of the fund to each remainderman became fixed and determined by the exercise of the power of appointment. While the appointees take by relation back so as to derive their title under William H. Vanderbilt's will, they must take their specific shares in designated amounts from the time of the execution of the power, and we think that the authority of the State to impose a tax on the right of succession continued until the time at which the extent of that right was finally fixed by the exercise of the power of appointment."

186. The Execution of the Power Gives the Grantee the Property Passing under It.

A somewhat different question involving the construction of this section arose in the Matter of Dows, 167 N. Y. 227. David Dows, Sr., died in 1890, giving his son a power of appointment. David Dows, Jr., died in 1899, leaving a will in which he exercised this power in favor of his three sons. It was contended that the tax imposed under the amendment of 1897 was a property tax, and not a succession tax, and therefore so much of the fund disposed of by the power as was invested in incorporated companies liable to tax on their own capital, and in certain State and city bonds exempt from taxation by statute, was not subject to transfer tax. It was also contended that so much of the property as was real at the death of the donor of

the power, but was personal at the time the power was exercised (the trustees having power of sale under donor's will), was not subject to tax, as the form in which the property was at the time the power was created should govern.

The Court of Appeals held adversely to both these contentions, holding that it is the execution of the power, and not the creation of the power, that gives the grantee the property passing under it. This case went to the United States Supreme Court (Orr v. Gilman, 183 U. S. 278), and the decision was sustained by that court.

187. Powers Created by Deed.

The Vanderbilt and Dows decisions covered the question of the exercise of a power created by will.

It was not until 1903 that a construction of the amendment of 1897, taxing the exercise of powers created by deed executed and delivered before the existence of a transfer tax law, was had. Matter of Delano, 176 N. Y. 486.

In 1848 and 1849 William B. Astor executed two trust deeds in favor of his daughter, Laura Astor Delano, giving her power to dispose of the property covered by said deeds by her will.

The daughter died in 1902, exercising the power in favor of a nephew, who would have taken a certain interest under the trust deeds if she had failed to exercise the power. In proceedings to fix the tax on the daughter's estate it was contended that the surrogate had no jurisdiction over the property in question, as it had already passed under the deeds of 1848 and 1849, and therefore did not pass under the daughter's

$ 220

Powers Created by Deed.

The Appellate Division, without going into the question of jurisdiction, held that the case was similar to one of a remainder dependent on the termination of a life estate and liable to be divested only by the death of the remainderman, and that the provisions of the law of 1897 by which it was attempted to reach an es tate created by deeds, made before the existence of any inheritance tax law, and creating a vested estate, was unconstitutional. See Matter of Pell, 171 N. Y. 48. The court also distinguished this case from the Vanderbilt Case (supra), holding that in the Vanderbilt Case the power of appointment having been created by will, the tax upon the estate passing under such a power was a tax on succession, while a tax on the transfer by deed was one on the property, and declaring such property subject to tax would give a retroactive effect to the amendment of 1897, which would violate the Constitution.

The Court of Appeals reversed the Appellate Division, holding that subdivision 5 of section 220 is constitutional, and imposes a tax upon the exercise of a power of appointment by will, although such appointment is derived from a deed executed long before the passage of any act imposing a succession tax; that the statute applies alike to all powers of appointment without distinction on account of the method of creation or date of creation.*

• Footnote to first edition. The Delano Case (supra) arose upon a motion made to the surrogate of New York county to declare the transfer by will of Laura Astor Delano exempt. The estate of Laura Astor Delano has now been appraised and tax assessed upon the transfer of the property under the power of appointment under her will, and an appeal was taken from the order assessing the tax thereon, upon the grounds that chapter 284, Laws of 1897, does not apply, as the property was acquired under deeds executed in 1844, 1848, 1849, and 1865-that the act is unconstitutional under the following provisions of the State