Inference as to Marshalling Assets. § 220 personal estate, until the decision in the Matter of McEwan, 51 Misc. Rep. 455. 234. Appraiser Could Not Assume that Executor Would Apply the Property in This State Pro Rata in Paying Legacies. In the Matter of McEwan, 51 Misc. Rep. 455, the decedent, a resident of New Jersey, left personal property in this State amounting to $2,000, and about an equal amount in New Jersey. She bequeathed $500 each to an aunt and a cousin and gave the remainder of her estate to her four brothers equally. In the proceedings before the appraiser the executor did not file an election showing the fund from which these two legacies of $500 would be paid, and the appraiser in his report deducted from the value of the property in this State a pro rata share of the debts and a pro rata share of the legacies to the aunt and cousin, and an order fixing tax at 5 per cent. on the balance of the two $500 legacies was entered. On appeal to the surrogate it was held that there was no warrant of law to justify the appraiser in assuming that the taxable legacies under the will would be paid pro rata out of property in this State. The natural inference was that the assets would be marshalled in such a way as to require the smallest payment of tax, and if the intent of the executor was material to produce a different resut, the burden of proving the fact rested upon the State, and the executor should have been questioned upon the subject by the appraiser before the report was made. 235. Foreign Administrators Cannot Elect to So Apply the Assets within This State as to Avoid a Transfer Tax. It was doubtless in view of the decisions in the James case and the McEwan case (supra) that the surrogate § 220 Administrators Cannot Apply Assets. of New York county and the Appellate Division of the First Department (119 App. Div. 890) held that the administrator of the foreign estate had the same right to apply the assets within this State in payment of exempt legacies or legacies taxable at the lower rate that an executor had. In the Matter of Ramsdill 190 N. Y. 492 (reversing the same case, 119 App. Div. 890), the Court of Appeals held that: "Where a non-resident of this State dies intestate leaving assets both in the place of his domicile and in this State and his next of kin consists of a brother and certain nephews and nieces, his administrator cannot, by electing to apply all of the portion of the estate within our jurisdiction to the payment of the brother's distributive share, avoid the payment of a transfer tax upon that part thereof to which the nephews and nieces would have been entitled. If a specific legatee of a foreign testator can obtain satisfaction of his legacy in a foreign jurisdiction the executor cannot be compelled to pay it out of the assets within our jurisdiction, but in a case of intestacy, where the distributee takes an undivided interest in the whole estate and he can only get his share of the assets within this State, under our laws and through our courts, the administrator cannot so apply that portion of the estate as to avoid the payment of a tax upon a transfer that is taxable under the statute." After the decision in the Ramsdill case (supra), section 220 of the Transfer Tax Law was amended by chapter 310, Laws 1908, in effect May 18, 1908, by including therein the following subdivision: "2a. Whenever the property of a resident decedent, or the property of a nonresident decedent within this State, transferred by will, is not specifically bequeathed or devised, such property shall, for the purposes of this act, be deemed to be transferred proportionately to, and divided pro rata among, all the general legatees and devisees named in said decedent's will, including all transfers under a residuary clause of such will." Debts Due Residents of This State. § 220 This provision is now subdivision 3 of section 220 of the Transfer Tax Law as enacted by chapter 62 of the Laws of 1909, being chapter 60 of the Consolidated Laws, and was intended to make the practice in this respect uniform in both testate and intestate estates of nonresident decedents. 236. Property of Nonresident Not Taxable When Exceeded by Debts Due Residents of This State. The general practice has been to allow a part of all the decedent's debts in the proportion that the New York estate bears to his total estate as a deduction from his personal property within this State, and the first innovation in this respect was the decision in the Matter of King, 71 App. Div. 581; affd., 172 N. Y. 616, which held that the interest of a nonresident decedent in partnership property within this State is not subject to a transfer tax if the liability of the firm to creditors residing in this State equals or exceeds its assets in this State, and following this decision Surrogate Thomas held in the Matter of Doane, N. Y. Law Journal, March 12, 1903, where the property and debts were those of the deceased nonresident individually, that debts owing to New York creditors must be deducted from the New York assets. This decision, however, was not followed generally in the appraisal of nonresident estates thereafter, and the question again came before the same surrogate in the Matter of Grosvenor, 124 App. Div. 331 (126 App. Div. 953; affd., 193 N. Y., mem., without opinion), the surrogate following his previous decision in the Doane case (supra). In the Grosvenor case it appeared that the decedent left an estate of over $1,000,000, $73,000 of which was § 220 Where Debts Due Residents Exceeds Property. personal property within this State. His only creditors were residents of this State to the amount of $111,000, and it appears that all these debts were paid by the executor from the proceeds of sale of stock of a foreign corporation not property in this State, prior to transfer tax proceedings in this State. The total general indebtedness and administration expenses were prorated by the appraiser in the proportion that the assets in this State bore to the total estate of the decedent, and a tax was imposed on the balance of the New York assets. The surrogate reversed the taxing order, holding that the indebtedness of the decedent should be deducted in toto because it was due creditors who were residents of this State. The opinion of the surrogate was affirmed by the higher courts, the only written opinion appearing in 124 App. Div. 331. That court held that the fact of the executors having procured the money and paid the debts, thereby releasing the securities here from the liabilities of his indebtedness, is the same as though the executors had purchased the securities here for the estate; that the property of a nonresident within this State is applicable to the payment of the decedent's debts, and that the surrogate is required to direct the persons to whom ancillary letters have been issued to pay out of the money or the assets of the property received by him the debts of the decedent due to creditors residing within this State (Code Civ. Proc., 2701); that the tax being on the transfer of the property of the decedent within this State and imposed when a person or corporation becomes beneficially entitled to the property, it is only the property to which a beneficiary becomes entitled upon which a tax is imposed, and it would seem to follow that when When Pledged Property Satisfies Debt. § 220 the debts of the decedent due to creditors residing in this State equal or exceed the decedent's property within this State there is no transfer of property upon which a tax is imposed. Under the foregoing decision it would seem that in every case the foreign executor could insist that all the debts due New York creditors should be deducted from the assets in this State, in which event it would hardly be presumed that they would also be entitled to a further deduction of a proportionate part of debts due creditors residing without this State. 237. When Pledged Property Not Taxable Satisfies Debts, Property Clearly Taxable Cannot Be Offset against Said Debts. In the Matter of Pullman, 46 App. Div. 574, it was held that where domestic creditors have in their hands the legal title and right to resort for the payment of their debts to securities belonging to a nonresident decedent, which are not taxable under the laws of this State, the indebtedness due such creditors is not to be offset against the value of property of such decedent, otherwise taxable under the Transfer Tax Law of this State. It was therefore accordingly held that where it appears that deceased upon the day of his death was indebted to brokers in this State for stocks and bonds purchased by them for him with their own money, and that said debt was secured by a pledge of taxable and nontaxable securities, and that the executrix on the day following his death directed the brokers to close out the account (1) by a sale of the taxable securities actually purchased by them for said account; (2) by a sale of taxable securities owned by deceased and pledged as additional collateral security |