Contingent Remainders Since 1899. § 230 was changed by chapter 76, Laws 1899, amending section 230 of the Act of 1896, in effect March 14th of that year, which provides in part as follows: When property is transferred in trust or otherwise, and the rights, interest or estates of the transferees are dependent upon contingencies or conditions whereby they may be wholly or in part created, defeated, extended or abridged, a tax shall be imposed upon said transfer at the highest rate which, on the happening of any of said contingencies or conditions, would be possible under the provisions of this article, and such tax so imposed shall be due and payable forthwith by the executors or trustees out of the property transferred; * This provision was first passed upon by the Court of Appeals, and declared constitutional in the Matter of Vanderbilt, 172 N. Y. 69, reversing same case, 68 App. Div. 27, 74 N. Y. S. 450, and overruling Matter of Plum, 37 Misc. Rep. 466, 75 N. Y. S. 940, and Matter of Howell, 34 Misc. Rep. 432, 69 N. Y. S. 1016. Judge Haight in his opinion says: "It seems to me clear that the legislature by this amendment intended to change the law upon the subject and to make the transfer tax upon property transferred in trust payable forthwith. The tax is not required to be paid by the conditional transferee, for, by the provisions of the statute, it is to be paid out of the property transferred, so that whoever may ultimately take the property takes that which remains after the payment of the tax." In the Matter of Brez, 172 N. Y. 609, the question involved in the Vanderbilt case (supra) was again before the court, and the court said: "Although the provisions of the Transfer Tax Act, as amended by chapter 76, Laws 1899, requiring the tax upon contingent remainders to be paid forthwith out of the corpus of the estate transferred, has been held to be constitu § 230 tional Tax on Remainders. it seems, bearing in mind the general character of the tax that, if it is desired to make tax on remainders payable immediately, it would be fairer to the life tenant to have the tax assessed at the lowest rate of any sucession provided for by the will, and that, in case the remainders eventually vesting should prove taxable at a higher rate, then such increased tax should be payable at the time of its enjoyment." Except in the appraisal of a few estates shortly after the Brez decision, the practice has been to tax all contingent remainders at the highest rate wherever there is any possibility of the remainders passing to persons taxable at that rate, in order to make the practice uniform in this respect. 552. The Provisions of the Amendments of 1899 (Section 230) Apply Equally to the Payment of Tax on Vested as Well as Contingent Remainders. The decision in the Matter of Vanderbilt, 172 N. Y. 69, dealt only with a contingent remainder, and it would seem that a strict reading of the provisions of the amendment of 1899 might refer only to the taxation of contingent remainders and the payment of the tax thereon forthwith, from the property transferred in trust. However, the practice has been, since the Vanderbilt decision, to appraise the value of all life estates, and remainders, whether contingent or vested, and for the executors to pay the tax thereon out of the property held in trust. The right to apply the provisions of this amendment to vested remainders was first passed upon by the Court of Appeals in the Matter of Tracy, 179 N. Y. 501, Id.; Payable from Property Transferred § 230 where, by the will of the decedent, the entire property, real and personal, was converted into trust estates for the benefit of life tenants and remaindermen, all of the latter being contingent, except the remainder to the Syracuse University, which takes its estate in remainder upon the death of a life tenant who was a daughter of decedent. Judge Bartlett, in writing for the court, after referring to the material portions of section 230, as amended by chapter 76, Laws 1899, and chapter 658, Laws 1900, says: "It thus appears that whenever a transfer of property is made, upon which there is, or by any contingency there may be, a tax imposed, the property is to be properly appraised at its clear market value, and the transfer tax is due and payable forthwith, out of the property transferred. The court then says, after referring to the Matter of Vanderbilt, and the portion of Judge Haight's opinion hereinbefore quoted, at page 465. "As our decision in the Matter of Vanderbilt (supra) dealt only with a contingent remainder, this case, technically speaking, is not strictly in point, but the principle announced therein is necessarily involved in life estates created by trusts." "In the case at bar it is the duty of the executors and trustees to ascertain the value of the respective life estates and estates in remainder in the manner pointed out by section 230; and having done this, they should compute the transfer tax and pay the same forthwith out of the property transferred. The result is that the life tenant loses, during the continuance of the estate, the interest upon the corpus of the trust so paid out, and eventually the remainderman receives his estate diminished by the amount of said payment. § 230 Where Beneficiary Can Use Principal. Whether this mode of taxation works out exact justice as between the life tenant and the remaindermen is a question with which the court is not concerned." * "As we read the statute, the legislative intent is clear that the transfer tax shall be paid out of the corpus of the trust estates, and not out of the income. Also that the transfer taxes imposed upon the estates for life and in remainder in the various trusts carved out of the residuary estates, are payable from the principal of said trusts respectively.” 553. When Contingent or Vested Remainder Not Presently Taxable. The courts have held, however, in two instances, that, even under the provisions of chapter 76, Laws 1899, it is not proper to immediately appraise and tax all contingent remainders. 554. a. Where Life Tenant Can Use a Part or All of the Principal. Where a life estate is created, and the executors or trustees are authorized and directed to use any part of the corpus of the estate for the benefit, support, and maintenance of the life tenant or beneficiary, or where the income is insufficient to provide for a certain annuity the executors or trustees are to make up the deficiency from the corpus of the fund applicable to that purpose, that the appraisal of the estates in remainders must be held in abeyance until the termination of the life estate, or other prior estate, and that the tax does not accrue upon such remainders until the happening of that event. In the Matter of Babcock, 37 Misc. Rep. 445, 75 N. Y. S. 926; unanimously affd., 81 App. Div. 645, 81 N. Y. Where Beneficiary Can Use Principal. * § 230 S. 1117, on the opinion below, the testatrix, after making certain specific bequests, provided as follows: Third. I give, devise and bequeath to my brother the use during his life of all the personal property of which I may die seized, and if the use thereof is not sufficient to suitably clothe, care for and maintain him, then he is to have and use as much of the principal thereof as is necessary. Fourth. After the decease of my brother * if there remains unused by him any of the personal property, I give, devise and bequeath the same as follows: naming certain nephews, nieces and strangers. The court says section 222 of the Taxable Transfer Law provides that "All taxes imposed by this article shall be due and payable at the time of the transfer; provided, however, that taxes upon the transfer of any estate, property, or interest therein limited, conditioned, dependent, or determinable upon the happening of any contingency or future event by reason of which the fair market value thereof cannot be ascertained at the time of the transfer, as herein provided, shall accrue and be due and payable when the persons or corporations beneficially entitled thereto shall come into actual possession or enjoyment thereof," and that there is nothing in the amendment of section 230 by chapter 76, Laws 1899, indicating an intention to repeal or limit section 222 respecting the appraisal of this class of conditional transfers, as the section as amended contains a clause indicating that the Legislature did not expect all taxable transfers could be appraised immediately upon the transfer, to wit: "Whenever a transfer of property is made, upon which there is, or in any contingency there may be a tax imposed, such property shall be appraised at its clear market value immediately upon such transfer, or as soon thereafter as practicable," and that this *This clause was omitted from the Transfer Tax Law by chapter 368 Laws 1905 in effect June 1 of that year and it is possible that the rule established by this decision may thereafter be changed. |