255 N.W. 330 | Minn. | 1934
Lead Opinion
Guy O. Frank died May 22, 1931, a resident of North Dakota, and left surviving him May Frank, his wife, and Catherine Ann Frank, his adopted daughter, the appellants here. For 20 years prior to his death the three resided in and remained continuously in North Dakota. On December 8, 1928, Frank transferred, conveyed, and turned over to the Northwestern Trust Company of St. Paul, Minnesota (now First Trust Company) in trust, 20 promissory notes for $3,000 each, dated November 15, 1928, one of said notes being due November I of each year commencing with November, 1929. The notes bore interest at six per cent, were secured by a mortgage upon real estate in North Dakota, and were there payable. The notes were duly indorsed and the mortgage assigned to the trust company; the mortgage and assignment were properly recorded. At the same time Frank also gave to the trust company $15,000 in cash. The declaration of trust recited delivery of the property, and in it the trust company acknowledged receipt and undertook *153 and agreed to administer the same for the following uses and purposes:
"Said trustee shall take, hold, possess, care for and manage the said property and any additions thereto and any and all money and property which may come unto its hands as trustee hereunder, shall invest and reinvest all principal sums of money, including authorized accumulations of income, in good income-bearing securities authorized for the investment of trust funds in the hands of a trust company under the laws of the state of Minnesota, provided further that all such investments shall be made subject to the approval of the settlor during his lifetime. The said trustee shall collect and receive the income arising from the said investments and, after paying all such expenses and charges as may be reasonably incurred and lawfully imposed in the administration of said trust, shall dispose of and distribute the net annual income and principal as follows:"
The agreement then provided that the net annual income should be paid in monthly instalments to Frank during his life; after his death such income to be paid to May Frank during her life; and at her death to Catherine Ann Frank. At the death of Catherine the income from one-half of the trust fund was to be paid to her issue until the youngest of said issue should have attained the age of 21 years, at which time the trust should terminate and the balance of that half paid in equal parts to said issue; if Catherine left no issue, then that one-half was to go to the heirs at law of Guy O. Frank, as was also the other half at her death. Frank reserved to himself, and at his death to May Frank, the right to draw from the principal sufficient funds "to meet any needs or emergency"; after their death withdrawals from the principal for the needs of Catherine were placed in the "sole discretion" of the trustee. After reaching the age of 35 years Catherine had the power to draw from the principal the sum of $1,000 a year until reaching the age of 50 years, and thereafter during the remainder of her life she could draw $2,000 a year from the principal. The agreement further provided: *154
"The beneficiaries of the trust hereby created, shall be without power to alienate, assign or otherwise anticipate or encumber their interest therein and the same shall be enjoyed by them, free from the claims of creditors.
* * * * *
"The settlor reserves to himself the right to amend the terms of this trust and to withdraw a part or the whole thereof or to terminate the trust in toto without consent of the trustee at any time by instrument in writing duly executed and acknowledged and delivered to the trustee."
In December, 1929, and in April, 1931, Frank exercised the power reserved to him and amended the trust agreement. The context of those amendments does not appear, and they are stated to be unimportant to the issues here. He had never exercised his power of revocation. At the time of Frank's death the trust property had increased to $76,002.93. Such property, in addition to the mortgage originally deposited with the trust, which had been reduced to $54,000, included securities of various railway companies, electric power companies, a telephone company, United States Liberty bonds, and bonds of a Minnesota municipality. The trustee paid a moneys and credits tax to the state of Minnesota for the years 1929, 1930, and 1931.
It is conceded that the succession of the property covered by the trust agreement is subject to taxation. The only question is whether it is subject to such taxation by the state of Minnesota. It is contended that the imposition of the tax was in violation of the due process of law clause in the fourteenth amendment to the federal constitution. This question is one that is governed by decisions of the United States Supreme Court. That court by recent decisions has pronounced certain definite rules:
(1) The power to impose a death transfer tax upon tangible personal property having an actual situs in a particular state rests exclusively in that state, regardless of the domicil of the owner. Frick v. Pennsylvania,
(2) Certain specific kinds of intangibles, such as bonds, notes, and credits, are subject to the imposition of an inheritance tax only by the state in which the owner is domiciled, notwithstanding the bonds are registered in another state, and the notes secured upon lands located in another state, resort to whose laws may be necessary to secure payment. Farmers L. T. Co. v. Minnesota,
(3) Intangibles may acquire situs for taxation other than that of the owner's domicil if they have become integral parts of some local business. City of New Orleans v. Stempel,
The two latter cases, both of which involved an inheritance tax on intangibles, although definitely holding that intangibles can be subjected to such a tax only by the state in which the owner is domiciled, recognized that bonds, stocks, and credits may acquire a taxable situs elsewhere. In the latter opinion the Supreme Court stated [
"We do not overlook the possibility that shares of stock, as well as other intangibles, may be so used in a state other than that of the owner's domicil as to give them a situs analogous to the actual situs of tangible personal property. See Farmers Loan Company *156
case,
See In re Estate of Kennedy,
The Farmers L. T. Co. case,
In that case one Lucius J. Kellam, domiciled and residing in Virginia, transferred and delivered to the Safe Deposit Trust Company of Baltimore, Maryland, stocks and bonds of corporations, in trust. The trust company was given the power to collect the income arising therefrom and to accumulate the net income and to pay one-half of such accumulated income and one-half of the principal to each of two sons when arriving at the age of 25 years; and, if either died without issue before reaching that age, the corpus of the estate together with the accumulated income was to be paid to the surviving son. Kellam reserved to himself the power of revocation *157
but died without exercising it. The trust company paid the taxes regularly to the state of Maryland. Kellam's personal representative and his two sons were all residents of Virginia. An assessment for taxation in Accomac county, Virginia, was sustained by the state supreme court. In reversing, the United States Supreme Court stated [
"Ordinarily this court recognizes that the fiction ofmobilia sequuntur personam may be applied in order to determine the situs of intangible personal property for taxation. Blodgett v. Silberman,
The pertinent facts in the instant case cannot be distinguished from those in the above case. As before stated, the only difference is that here the tax is one on the transfer of the property, while in that case it was a direct tax on the property. On principle we see no distinction; the situs of the property in either case must first be determined; the same rules apply in determining the situs whether the tax to be imposed be a direct tax on the property or upon the succession thereof; to impose a tax of either kind the state must have jurisdiction of the thing to be taxed or of the owner. Here the state does not have jurisdiction of the owner, but we do think it had jurisdiction of the property. The legal title of the corpus of the estate was in a trustee domiciled in this state; all the securities were present here; and the trustee had control thereof, with the right to make collections thereon and reinvest authorized income and moneys received in payment on the principal. The only person who had the right to remove the corpus of the estate from the state was the settlor. He is dead. The surviving beneficiaries have no such right; they were expressly prohibited from alienating, assigning, or otherwise encumbering their interest. Where the equitable owner cannot remove the property, manifestly the rule of mobilia sequunturpersonam does not apply; that rule, as stated in the above quotation, "must yield to established fact of legal ownership, actual presence and control elsewhere." The property here involved has a more permanent situs here than the ordinary tangible personal property, for such property can usually be moved from place to place at the will of the owner. That the income is to be paid to the beneficiary cannot affect the right of the state to tax the transfer of the corpus, which has an irrevocable situs within its borders.
The supreme court of the state of Virginia, in Commonwealth of Virginia v. Appalachian E. P. Co.
"Title, possession and control of the property, for all purposes, are beyond the territorial limits of Virginia and within the territorial limits of New York, which under the decisions heretofore cited gives the property in question a taxable situs in the latter state. The fact that interest has been and will be received by petitioner in Virginia, so long as it is not in default, does not affect the right of the state of New York to impose a tax upon this property. * * * The fact that the state of New York imposes no such tax on this class of property is immaterial. The controlling question is, has that state the right to tax the property? We think it has. If so, Virginia, under the decisions, has no such right."
The United States Supreme Court denied a petition for writ ofcertiorari.
The state cites the cases of DeGanay v. Lederer,
Appellant cites the case of Bullen v. Wisconsin,
Appellant advances the further argument that the notes at least cannot be taxed by Minnesota because of the fact that they are payable in North Dakota and secured by real estate in that state and therefore are properly taxable in that state. If North Dakota also has the right to impose a transfer tax upon the property, Which we doubt, such right must, under authority of Farmers L. T. Co. v. Minnesota,
We conclude that the property here involved has acquired a situs separate from that of the domicil of the beneficial owners and that for purposes of taxation its situs is in Minnesota and subject to a transfer tax by this state.
Affirmed.
DEVANEY, Chief Justice, took no part.
Dissenting Opinion
I concur with Mr. Justice Olson.
Dissenting Opinion
The present proceeding is not one to impose a tax upon property but upon a right of succession. It is my view that the conclusion here reached is in direct conflict with First Nat. Bank v. Maine,
Dissenting Opinion
For the reasons stated in the original opinion, I dissent.
Addendum
The reargument of this case has brought us to the conclusion that our first decision was wrong. It is unnecessary to repeat the facts, except to emphasize that all investments made by the Minnesota trustee were "subject to the approval" of Mr. Frank "during his lifetime." He reserved the income to himself during life and also, and this is especially important, he had the right to revoke the trust at any time. The operative thing, therefore, in transferring the property, under the trust or otherwise, was his death, while domiciled in North Dakota, without having exercised the power of revocation.
It is immaterial that the intangibles in question may have been subject, in the possession of the trustee, to the Minnesota moneys *162
and credits tax. It is not the property which Minnesota is now seeking to tax. It is rather and only the transfer of, or succession to, or both (see In re Estate of Rising,
Our original opinion, erroneously we now conclude, was put upon the conclusion that the property covered by the trust had acquired a situs in Minnesota "analogous to the actual situs of tangible personal property" (see First Nat. Bank v. Maine,
The involved trust property had not acquired, in Minnesota, "a situs analogous to the actual situs of tangible personal property" within the reservation of the Maine case. It was not part of any local business conducted by Mr. Frank. We repeat that the transfer thereof on his death took place under the laws of North Dakota. Hence the mere fact that the property, the title and enjoyment of which were the subject of the transfer, had a quasi situs here is just as unimportant as was the fact that, in Blodgett v. Silberman, *163
Order reversed.