29 A.2d 906 | Md. | 1943
In 1922 Ellen M. Tormey, of Baltimore, bequeathed one-fourth of the residue of her estate in trust for her son, Alfred J. Tormey, for life, and after his death to *354 his child or children living at the time of his death, but if he should die without leaving any surviving children, or if his children should all die before the age of twenty-one years, then to her daughters, Mary Helen Plummer, Mary Rosalie Power and Mary Elizabeth Devries. She made this bequest to her son on condition that he would make a deed of trust within six months after her death, providing for a similar devolution of all property which he might receive from the estate of his grandfather, Alfred Jenkins, of which she was the life tenant. She also bequeathed one-fourth of the residue of her estate in trust for her daughter, Mary Helen Plummer, and after her death to her child or children living at the time of her death, but if she should die without leaving any surviving children, or if her children should all die before the age of twenty-one years, then to her son and other two daughters. She imposed upon this bequest a condition similar to that which she exacted of her son.
Mrs. Tormey died on February 8, 1923. In May, 1923, her son and daughter each made a deed of trust in accordance with the terms of the will. In 1940 the son died without any surviving children. In 1941 the daughter died leaving three children. The Safe Deposit Trust Company of Baltimore, trustee, and the remaindermen petitioned the Circuit Court of Baltimore City to determine the amount of State inheritance tax, if any, payable on the succession to the remainder interests. The chancellor ruled that no inheritance tax is payable by the remaindermen (1) under the testamentary trust created for the benefit of the son, (2) under the testamentary trust created for the benefit of the daughter, and (3) under the daughter's deed of trust; but that an inheritance tax is payable by the remaindermen (4) under the son's deed of trust. John H. Bouse, Register of Wills for Baltimore City, appealed from the first three rulings. The trustee and remaindermen appealed from the fourth ruling.
The Maryland inheritance tax is not a tax upon property, but an excise tax upon the privilege accorded by *355
the State of receiving property on the death of its former owner.State v. Dalrymple,
While the State has the power to lay an excise tax upon succession to property occurring after the taxing statute takes effect, such a statute cannot be constitutionally applied to a succession taking effect before the enactment of the statute. Of course, the succession may not occur immediately on the death of the testator. It may occur after his death in accordance with the terms of his will. The criterion for the taxable occasion is not the time when the estate was transferred, but when the estate passed to and vested in the beneficiary. The vesting in interest constitutes the succession. So the words "intended to take effect in possession" in our statute (Code, 1939, Art. 81, § 111) actually mean intended to transfer ownership apart from any immediate occupancy or use. Downes v. Safe Deposit Trust Co.,
The Direct Inheritance Tax Act was enacted by the Legislature of this State in 1935. Acts of 1935, Chap. 90; Acts of 1936, Sp. Sess., Chap. 124; Code, 1939, Art. 81, § 109 et seq. Therefore, the question to be decided is whether the remainders under the testamentary trusts had so vested prior to the taking effect of the Direct Inheritance Tax Act that there was thereafter no occasion in respect to which the tax might constitutionally be imposed. The law is established in Maryland that where there is a request to a person for life, with remainders to his children, the remainders are contingent until one of such children is born; for a contingent remainder is one which is either limited to a person not in being or not certain or ascertained, or so limited to a certain person that his right to the estate depends upon some contingent event in the future. But when a child is born, and the remainderman is then ascertainable, the remainder immediately becomes vested, for a vested remainder is one which is limited to a person in being, whose right to the estate does not depend upon the happening or failure of any future event. So a bequest to a certain person for life, and at his death to any surviving child or children, but in the event he should die *357
without issue, his estate should go to a third person gives a vested remainder to any child of the life tenant immediately upon its birth. The defeasible nature of the remainders resulting from the defeat of the remainder interest upon the death of any child before the age of twenty-one years does not have the effect of making the remainders contingent. This possibility of such loss is a condition subsequent not a condition precedent. As the law prefers to treat a remainder as vested rather than contingent, remainders are often held to be vested even though they may be defeated before the termination of the precedent estate and consequently may never be enjoyed in possession. If the condition subsequent or contingency, which would cause a vested estate to be divested, if it occurred, does not occur, there is no divestiture, and the estate remains vested. Bishop v. Horney,
It is therefore our opinion that since Mrs. Plummer had children, the remainders passing under the testamentary trust for her benefit and under her deed of trust were vested remainders. These remainders are not subject to tax, for the Direct Inheritance Tax Act of 1935 cannot constitutionally be applied to interests vested in beneficiaries prior to the effective date of the Act. It is our decision that even though a remainder may have to be opened to let in after-born children, or may be divested as a result of the death of the remaindermen without issue, nevertheless if it is a vested remainder it is not subject to a subsequent inheritance tax statute, although enacted prior to the end of the life estate. Lacey v. State Treasurer,
The trustee and remaindermen relied on the statement in Reillyv. Mackenzie,
The distinction between vested and contingent remainders in determining the date of succession to property has been recognized by the United States Supreme Court. In Coolidge v.Long,
It was also argued that Mrs. Plummer did not reserve in her deed of trust any power of revocation or retain any reversion or other interest in the remainders, and hence no interest passed at the time of her death. The early statutes in this country taxing property passing by will or inheritance were followed by a resort to various means for avoiding liability to the tax. Among the methods commonly used were gifts in contemplation of death and transfers wherein the grantor reserved the income for life. For example, this court held in 1932 that the Legislature did not intend to impose an inheritance tax upon the transfer of an estate by deed of trust, by which the settlor completely parts with all interest in or control over the estate, and there is no passing of interest at death. The court decided that where a person makes a deed of trust giving himself the income for life, the gift is immediate and complete if he has no control over the ultimate devolution of the property, even though he reserves the power of revocation. Downes v. Safe Deposit Trust Co.,
The Maryland Act provides that whenever a life estate shall pass to a certain person and a contingent remainder shall pass to another person, the Orphans' Court shall determine the value of the life estate and assess the inheritance tax against it. When such life estate is valued, the remainderman may apply for the valuation of his remainder interest, and the tax so ascertained shall be paid within thirty days after its ascertainment. If, however, the remainderman shall fail to apply within a reasonable time after the valuation of the life estate, or shall fail to pay the tax so assessed within thirty days after the date of such determination, then he must pay a tax on the whole value of the property as of the date when it vests in possession. Code, 1939, Art. 81, Secs. 124, 125. It is undoubtedly true that, under this provision for advanced valuation and assessment, a contingent remainderman has the right to pay a tax on something which he may possibly never receive. But the court cannot hold that this privilege changes by implication the firmly established principle of law that the time of the vesting of a remainder is the taxable occasion for the imposition of an inheritance tax.
It is therefore our opinion that the chancellor should have ruled, not only that the contingent remainders under the son's deed of trust are subject to collateral inheritance tax, but also that the contingent remainders vesting under his mother's will at the time of his death are subject to direct inheritance tax, because these remainders did not vest after the Direct Inheritance Tax Act took effect.
Decree affirmed in part and reversed in part, and causeremanded for the passage of a decree in conformity with the viewsexpressed in this opinion, the costs to be paid out of theestate. *362