295 N.Y. 184 | NY | 1946
Additional New York State income taxes were assessed against Mathilda A. Stier, appellant's testatrix, because, according to the State, Mrs. Stier omitted certain taxable income from her returns for 1937, 1938 and 1939. After a hearing, the State Tax Commission confirmed the assessments and the commission's determination was, on appeal, unanimously confirmed by the Appellate Division. We granted leave to appeal to this court.
This is an income tax case but the answer to its problem is found in the law of trusts. The income in question came from the estate of Mrs. Stier's father, who died in 1902. The investments of the estate are in both real and personal property. Read as of the date of his death, the father's will left his residuary estate to his only children, Mrs. Stier and her sister, as trustees to pay the income thereof to themselves "during the terms of their respective lives". There was no specific provision to take care of a situation that was bound to arise — the death of one daughter before the other. There was in the will a further direction that after the death of the two daughters, the whole residuary estate was to go to another trustee who was to pay it over to the children of the daughters. Mrs. Stier never had children. Her sister, who died in 1935, had only one, Charles A. Fulton. In 1937 Mrs. Stier and her nephew Charles A. Fulton executed in France, and later filed in the New York County Surrogate's office, a document which recited the above facts and stated that Mrs. Stier was then seventy-seven years old, that she was independently wealthy and had no need of the income from her father's estate, and that she *188 wished to renounce that income in favor of her nephew. Mrs. Stier, in that document, then formally relinquished and renounced all right to the income, and her nephew released her, individually and as fiduciary. From the time of the execution of that paper, all the income of the estate was paid or credited to the nephew, and Mrs. Stier did not thereafter report it in her tax returns. The State says, and the Tax Commission and the Appellate Division have held, that the renunciation by Mrs. Stier was ineffective for any purpose because forbidden by section 15 of the Personal Property Law which says: "The right of the beneficiary to enforce the performance of a trust to receive the income of personal property, and to apply it to the use of any person, can not be transferred by assignment or otherwise." The position of appellant — and with it we agree — is that, on the death of Mrs. Stier's sister, Mrs. Stier, though the purported trustee of a trust to pay income to herself alone, was no longer a "beneficiary" entitled "to enforce the performance of a trust" but was the owner of a legal, and thus assignable, life estate in the fund.
A century ago dry or passive trusts, being "justly considered wholly unnecessary", were abrogated in this State through the addition to the Statute of Uses of "new and appropriate provisions which vested the title in the beneficiary" (Downing
v. Marshall,
The Appellate Division, while conceding that after her sister's death Mrs. Stier could not hold office as sole trustee for herself, held that this disability resulted in no more than a "vacancy" in the office of trustee. The Appellate Division's view was that the "vacancy" could have been, and should have been, filled by the Supreme Court and that Mrs. Stier's failure to ask for such an appointment should not be permitted to nullify the testator's intent. The difficulty is that the first daughter's death did much more than create a vacancy. It ended a trust relationship and substituted a life tenancy (see 1 Scott on Trusts, discussion of the New York rule at p. 529).
The order of the Appellate Division should be reversed, with costs in this court and in the Appellate Division, and the determination of the State Tax Commission annulled.
LOUGHRAN, Ch. J., LEWIS, CONWAY, THACHER, DYE and MEDALIE, JJ., concur.
Order reversed, etc. *190