37 N.Y.2d 81 | NY | 1975
Lead Opinion
The question is whether, on the death of an incompetent veteran domiciled in New York who dies intestate and without heirs, the State of New York is entitled to an estate tax where all the assets of the decedent’s estate were derived from benefits paid by the Veterans’ Administration. The answer turns on the proper interpretation to be placed on subdivision (e) of section 3202 of title 38 of the United States Code which provides: "(e) Any funds in the hands of a guardian, curator, conservator, or person legally vested with the care of the beneficiary or his estate, derived from benefits payable under laws administered by the Veterans’ Administration, which under the law of the State wherein the beneficiary had his last legal residence would escheat to the State, shall escheat to the United States and shall be returned by such guardian, curator, conservator, or person legally vested with the care of the beneficiary or his estate, or by the personal representative of the deceased beneficiary, less legal expenses of any administration necessary to determine that an escheat is in order, to the Veterans’ Administration, and shall be deposited to the credit of the applicable revolving fund, trust fund, or appropriation.”
Initially we note that we do not doubt that the Federal Government has authority to provide that all funds of a decedent’s estate which were derived from benefits paid under laws administered by the Veterans’ Administration shall revert to the United States, without diminution by State estate taxes, where the decedent dies intestate leaving no distribu
The decedent here, an incompetent veteran, was admitted to Matteawan State Hospital for the Insane in 1929. He remained there until 1966 when he was transferred to Pilgrim State Hospital where he died on January 16, 1967, intestate and without known heirs. The Public Administrator was appointed. Assets of the estate were collected, debts and administration expenses were paid, and on December 17, 1968 a payment was made by the administrator to the New York State Tax Commission in the amount of $867.47 on account of New York State estate taxes, with statutory interest thereon in the additional amount of $171.90 paid on February 6, 1969. In March, 1970 the administrator petitioned for judicial settlement of his accounts, and a citation was served on the Veterans’ Administration. The United States of America then presented its claim for the entire net assets of the decedent’s estate after deduction of debts and administration expenses other than the amount of $1,039.37 paid on account of New York State estate taxes. On order of the Surrogate a supplemental citation was served on the State Tax Commission. Thereafter based on his written decision, the Surrogate entered an order judicially settling the administrator’s account in which payment of estate tax and interest to the State of New York was approved and the administrator was directed to pay the balance of estate assets to the Veterans’ Administration. On appeal by the United States the Appellate Division affirmed and then granted leave to appeal to our court.
We conclude that the proper interpretation of the present statute is that "funds in the hands of a guardian * * * derived from benefits payable under laws administered by the Veterans’ Administration, which under the law of the State [of New York] would escheat to the State, shall escheat to the United States”. The reference to State law of "escheat” defines not only the occasion on which the Veterans’ Administration becomes entitled but as well the amount to which it is entitled.
Preliminarily we observe that in origin the word "escheat” was a term of art applicable only to real property — descriptive of the forfeiture to the lord of the manor in certain contingencies of lands held in feudal tenure. Passing through intermedi
It is clear that the present provisions of the Abandoned Property Law and associated statutes operate as to the property of a deceased person only after the prior deduction of both Federal and State estate taxes. Thus, under SCPA 2222 (subd 1) and section 600 (subd 1, par [b]) and subdivision 2 of section 602 of the Abandoned Property Law, it is the "distributive share” which is payable to the State Comptroller, and a distributive share is described by statute as the amount available for distribution after the payment of State estate taxes (EPTL 4-1.1). The New York tax on property passing at death is an "estate tax”, taxable "on the transfer of the New York taxable estate”, not an "inheritance tax” imposed on or computed with reference to the receipt of property by estate beneficiaries. Nor in the computation of the New York taxable estate is any deduction allowed for "escheat” (as distinguished from "bequests, legacies, devises or transfers”) either to the State or to the United States (Tax Law, §§953, 955; cf. Internal Revenue Code, § 2055, subd [a], par [1], US Code, tit 26, § 2055, subd [a], par [1]; Senft v United States, 319 F2d 642). Thus under subdivision (e) of section 3202 the Veterans’ Administration is entitled only to such funds as would pass
That apparently contrary conclusions may have been reached under the applicable statutes in other States is not controlling. The issue is not one of the scope of the authority of the Federal Government, rather it is as to the extent such authority has been exercised in the adoption of the present provisions of subdivision (e) of section 3202, interpreted as they must be in the light of the "escheat” provisions of New York State law.
Nor, we note, does the prohibition imposed by the Congress in subdivision (a) of section 3101 of title 38 of the US Code against taxation of veterans’ benefits extend to estate taxes (cf. United States Trust Co. v Helvering, 307 US 57; Matter of Sabin, 224 App Div 702; Matter of Schaeffer, 130 Misc 436; Matter of Dean, 131 Misc 125). Indeed counsel for the Federal Government concede that a State estate tax could have been imposed and collected if this veteran had left heirs.
The issue is simply that under present subdivision (e) of section 3202 there shall pass to the Veterans’ Administration that portion of this deceased veteran’s estate which would have gone to the State of New York under our own Abandoned Property Law. The determinations of the courts below effect such transfer.
Accordingly, the order of the Appellate Division should be. affirmed.
Dissenting Opinion
(dissenting). I dissent and vote to reverse the order of the Appellate Division.
The clear and unmistakable congressional intent of subdivision (e) of section 3202 of title 38 of the US Code is that "[a]ny funds * * * derived from benefits payable under laws administered by the Veterans’ Administration” and granted to an individual who thereafter dies intestate and without heirs, automatically revert to the United States. Courts of other jurisdictions, when faced with similar situations, have held that the entirety of the funds is returnable, without being diminished by State imposed taxation, under the theory that the United States has retained a reversionary interest (e.g., Matter of Plich, 141 Col 425; Coakley v Attorney General, 318
The statutory provisions, relied upon by the majority, are not persuasive. In each instance, the statute presupposes the existence of an heir or distributee, a situation not present here. The Supplementary Practice Commentary by Allan R. Lipman (McKinney’s Cons Laws of NY, Book 58A, 1974-1975 Supp, SCPA 2222) aptly notes the importance of this distinction: "This section does not apply to personal property owned by a veteran who at the time of his death is a patient in a Veterans’ Administration Hospital. Under 38 U.S.C.A. § 5220 (a), whenever a veteran dies while a patient in a veterans’ hospital and leaves no survivors or heirs entitled to the personal property as to which he dies intestate, all such property immediately vests in and becomes the property of the United States as trustee.”
Although the language of subdivision (a) of section 5220 of title 38 of the US Code is different from that of subdivision (e)
In the instant case when the decedent passed away, without heirs, the money reverted to the United States pursuant to subdivision (e) of section 3202 of the US Code leaving nothing that was transferable by him. This being the case, no basis exists for the imposition of an estate tax predicated upon a "transfer” (Tax Law, § 952).
Chief Judge Breitel and Judges Jasen and Gabrielli concur with Judge Jones; Judge Cooke dissents and votes to reverse in a separate opinion in which Judges Wachtler and Fuchsberg concur.
Order affirmed, without costs.
