*1013 The decedent in her will exercised a power of appointment conferred upon her by the will of her deceased husband as to a portion of the property belonging to his residuary estate and subject to the power of appointment. The appointees, who were the children of the decedent and their issue, took no greater interests in the property by virtue of the appointments than they would have taken under the will of the decedent's husband. Held, that under the laws of the State of New York the property over which the decedent exercised the power of appointment passed to the appointees under the will of the decedent's husband and not under the power of appointment, and that the value of such property is not includable in decedent's gross estate under section 302(f) of the Revenue Act of 1926.
*570 This proceeding is for the redetermination of a deficiency of $286,759.70 in the estate tax of the estate of Emily Pell Coster, deceased. The question in issue is whether certain property is includable in the decedent's gross estate*1014 as passing under a general power of appointment exercised by the decedent in her will.
FINDINGS OF FACT.
The petitioners are the executors of Emily Pell Coster, who died a resident of Orange County, New York, on August 2, 1933.
Emily Pell Coster, sometimes referred to as the decedent, left a will dated February 24, 1930, with a codicil dated January 23, 1933, which was admitted to probate in the Surrogate's Court of Orange County, New York, on September 5, 1933. On the same date, September 5, 1933, letters testamentary were issued to the petitioners, who are still acting as executors of the decedent's estate.
The executors duly filed with the collector of internal revenue at Albany, New York, a Federal estate tax return on behalf of the decedent's estate, which showed a gross estate of $2,217,905.01 and deductions of $78,391.24. The net taxable estate under the 1926 Act, with the specific exemption of $100,000, was shown as $2,039,513.77 and under the 1932 Act, with a specific exemption of $50,000, as $2,089,513.77. The return showed a tax due of $236,627.07, which was *571 duly paid. The deficiency herein results from a minor adjustment in the valuation of certain*1015 bonds and "the inclusion in the gross estate of property of a value of $2,316,367.69 as passing under a power of appointment." (Stipulation, par. 6.)
It is stipulated:
7. That there should be deducted from the value of the property included in the gross estate by the respondent as property passing under a power of appointment the sum of $18,997.30, being the total of items of accrued interest referred to in subdivision 2 of paragraph IV and subdivision 4 of Paragraph V of the petition herein.
8. That there should be added to the gross estate $1,570.73 as accrued interest under Item 1, Miscellaneous Property.
The property which the respondent has included in the decedent's gross estate as passing under a power of appointment was left to the decedent and her children in trust by her deceased husband, Charles Henry Coster, who died March 13, 1900. In his will Charles Henry Coster left a portion of the residue of his estate in trust, the income to be paid to his wife and their children or children's heirs during the lifetime of the wife and upon her death the principal "to go as she may provide by Will, or, if she leave no Will, to go as the law may provide." (Par. 7 of the*1016 will of Charles Henry Coster, Exhibit 5, annexed to stipulation.)
The decedent, Emily Pell Coster, left a will in which she exercised the power of appointment conferred upon her by her deceased husband's will over $2,297,370.38 of the trust funds belonging to his residuary estate, which included all of such trust funds except the real estate of a value of $200,000. For reasons hereinafter explained in the quoted provisions of the decedent's will, she refused to exercise her power of appointment as to the real estate. The decedent's will provided in material part as follows:
NINETEENTH: Under the terms of the Will of my late husband Charles Henry Coster, dated January 11, 1889 and the Codicils thereto, dated November 24, 1890 and July 17, 1896, it is provided that my said husband's residuary estate shall be held in trust during my lifetime and upon my death it shall go as I provide by Will, or, if I shall leave no Will, it shall go as the law may provide.
As part of my said husband's residuary estate the Trustees of his Will hold certain real estate situated at Tuxedo Park, in the County of Orange and State of New York, upon which there is erected a stable or garage, and they*1017 also hold the premises known as 37 East 37th Street, in the City, County and State of New York, in which I live. It is my will and intention to have these properties descend, upon my death, to my children in equal shares, in the same manner as my individual real estate will pass to them because of the devise thereof hereinabove set forth in Article Eighteenth of this my Will. If this purpose of mine shall be accomplished on my death without the exercise of the power of appointment given me under my husband's Will, I obviously should prefer not to exercise such power of appointment because by so doing I might subject my estate to unnecessary taxation. If however any *572 of my children shall predecease me, I have been advised that some question might arise with respect to this matter and in order to avoid any such question I make, public and declare the following provisions with respect to such property:
If on my death all of my four (4) children shall survive me, there is no question that in default of the exercise of my power of appointment under my husband's Will they will be entitled to receive, on my death, the property hereinabove mentioned in this Article of this*1018 my Will which is a part of his residuary estate. Therefore in such contingency it is my intention not to exercise such power of appointment and I therefore refrain from exercising it by this my Will. If however any of my children shall predecease me so that a question may arise as hereinabove set forth with regard to the devolution of such property, I do desire to exercise such power of appointment and in the exercise thereof, I give, devise, bequeath and appoint the property hereinabove mentioned in this Article of this my Will which is part of my said husband's residuary estate, to my children who shall survive me, their heirs, executors, administrators and assigns, in equal shares, absolutely and in fee simple.
TWENTIETH: All of the rest, residue and remainder of my estate, both real and personal, of whatsoever nature and wheresoever situated, of which I shall die seized or possessed and including all of the property over which I have any power of appointment whatsoever, except the property hereinabove mentioned or referred to in Article Nineteenth of this my Will (all of which property is referred to hereinafter as my residuary estate and which shall include all lapsed legacies), *1019 I direct my Executors to divide into four (4) equal shares or parts, one (1) share for each of my children, viz: EMILY COSTER MORRIS, HELEN COSTER TRAIN, MAUD SALM-HOOGSTRAETEN and CHARLES HENRY COSTER, and I give, devise, bequeath and appoint said four (4) equal shares or parts as follows:
A. As to the share so set apart and allotted to Emily Coster Morris, I give, devise, bequeath and appoint the same to her, her heirs, executors, administrators and assigns, absolutely and in fee simple.
B. As to the share so set apart and allotted to Helen Coster Train, I give, devise, bequeath and appoint the same to my Trustees, IN TRUST NEVERTHELESS, to hold, invest and reinvest the same for and during the natural life of the said Helen Coster Train, and to collect and receive the rents, income, issues and profits and after paying thereout all necessary and proper charges and expenses, to pay over the net income to my said daughter, Helen Coster Train, for and during the term of her natural life; and upon her death, I direct my Trustees to transfer, pay over and deliver and I give, devise, bequeath and appoint said share to the issue of the said Helen Coster Train who shall survive her, *1020 their heirs, executors, administrators and assigns, in equal shares, per stirpes however and not per capita, absolutely and in fee simple, and if she shall leave no issue who shall survive her, then and in that event, upon her death, I direct my Trustees to transfer, pay over and deliver, and I give, devise, bequeath and appoint the said share to my issue who shall survive the said Helen Coster Train, their heirs, executors, administrators and assigns, in equal shares, per stirpes however and not per capita, absolutely and in fee simple.
C. As to the share so set apart and allotted to Maud Salm-Hoogstraeten, I give, devise, bequeath and appoint the same to my Trustees, IN TRUST NEVERTHELESS, to hold, invest and reinvest the same for and during the natural life of the said Maud Salm-Hoogstraeten, and to collect and receive the rents, income, issues and profits and after paying thereout all necessary and proper *573 charges and expenses, to pay over the net invome to my said daughter Maud Salm-Hoogstraeten, for and during the term of her natural life, and upon her death, I direct my Trustees to transfer, pay over and deliver and I give, devise, bequeath and appoint said share*1021 to the issue of the said Maud Salm-Hoogstraeten who shall survive her, their heirs, executors, administrators and assigns, in equal shares, per stirpes however and not per capita, absolutely and in fee simple, and if she shall leave no issue who shall survive her then and in that event, upon her death, I direct my trustees to transfer, pay over and deliver, and I give, devise, bequeath and appoint the said share to my issue who shall survive the said Maud Salm-Hoogstraeten, their heirs, executors, administrators and assigns, in equal shares, per stirpes however and not per capita, absolutely and in fee simple.
D. As to the share so set apart and allotted to Charles Henry Coster, I give, devise, bequeath and appoint the same to him, his heirs, executors, administrators and assigns, absolutely and in fee simple.
* * *
The shares of my estate allotted to the benefit of my daughters Helen Coster Train and Maud Salm-Hoogstraeten, who have childredn have been put in trust solely for the benefit of their children and not because of any lack of confidence in them or their husbands.
In paragraph twenty-first of the will the executors and trustees were given broad powers, in carrying*1022 out the terms of the will, to sell, exchange, or lease, or to pledge as security for loand, any of the personal or real property belonging to the decedent's estate or over which she had any power of appointment, or to divide the estate in kind among the legatees or devisees, or to sell all such properties to a corporation in exchange for the stock, bonds, or other securities or obligations of such corporation.
The executors and trustees were further directed:
* * * to pay out of my residuary estate any and all inheritance or other transfer taxes or succession duties which may be levied or imposed upon or in connection with the transfer of any property disposed of by this my Will. If however there shall be any taxable transfer because of the exercise by me of any power of appointment in this my Will, I hereby direct that any such tax with respect to such appointed property shall be borne by and paid out of such appointed property.
The decedent left surviving her four children, Emily Coster Morris, age 46, Helen Coster Train, age 45, Maud Salm-Hoogstraeten, age 38, and Charles Henry Coster, age 36. Helen Coster Train at that time had four living children of the ages of 19, *1023 17, 13, and 5 years, respectively, and Maud Salm-Hoogstraeten had two living children of the respective ages of 16 and 14 years.
It is stipulated in paragraphs 13 to 19, inclusive, of the written stipulation, as follows:
13. That the value of the life interest of Helen Coster Train, in said trust for her benefit, on the date of death of Emily Pell Coster was the sum of $328,196.56 and the value of the remainder interest of said trust on said date was $246,146.03 and that the value of the life interest of Maud Salm-Hoogstraeten *574 in said trust for her benefit on the date of death of Emily Pell Coster was the sum of $365,241.68 and the value of the remainder interest of said trust on said date was $209,100.91.
14. That the life expectancies of the above mentioned descendants of Emily Pell Coster were on the date of her death as follows:
| Emily Coster Morris | age 46 23.80 years |
| Helen Coster Train | age 45 24.54 years |
| Maud Salm-Hoogstraeten | age 38 29.62 years |
| Charles Henry Coster | age 36 31.07 years |
| Child of Helen Coster Train | age 19 42.87 years |
| Child of Helen Coster Train | age 17 |
| 44.19 years | |
| Child of Helen Coster Train | age 13 |
| 46.82 years | |
| Child of Helen Coster Train | age 5 50.00 years |
| Child of Maud Salm-Hoogstraeten | age 16 44.85 years |
| Child of Maud Salm-Hoogstraeten | age 14 46.16 years |
*1024 15. That the residuary estate of Charles Henry Coster, deceased, consisted on the date of death of Emily Pell Coster of the real estate referred to in Article Nineteenth of the Will of Emily Pell Coster of a value of at least $200,000. on said date and of the property over which the power of appointment was exercised of a value on said date of $2,297,370.38, making a total of $2,497,370.38.
16. That the said residuary estate of Charles Henry Coster, deceased, would have been divided as follows upon the death of Emily Pell Coster if she had died intestate:
| (a) Emily Coster Morris, one-quarter thereof or | $624,342.60 |
| (b) Helen Coster Train, one-quarter thereof or | $624,342.59 |
| (c) Maud Salm-Hoogstraeten, one-quarter thereof or | $624,342.60 |
| (d) Charles Henry Coster, one-quarter thereof or | $624,342.60 |
17. That proof of credit for estate tax paid to the State of New York has been filed in the amount of $110,900.13 and that petitioners may file claim as provided by law for any additional credit allowable under the law.
18. That the petitioners filed a claim for refund herein in the amount of $182,476.96 on March 5th, 1936 with the Collector of Internal Revenue*1025 at Albany, New York, a copy of which is hereto attached and made a part hereof and marked Exhibit 6.
19. That upon the decision of the United States Board of Tax Appeals in this proceeding the overpayment, if any, shall be calculated upon the basis of the amount of tax paid by the petitioners, less interest, namely $420,861.69 less $125.90.
No "election" was ever made by any of the appointees under the decedent's will with respect to the acceptance or nonacceptance of the interests in the residuary estate of Charles Henry Coster conferred upon them under the decedent's will.
OPINION.
SMITH: The question for our determination is whether the property belonging to the residuary estate of Charles Henry Coster over which the decedent exercised the power of appointment in her will is includable in her gross estate.
*575 It is provided in section 302 of the Revenue Act of 1926, as amended by section 803(b) of the Revenue Act of 1932, that:
SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
* * *
(f) To the extent*1026 of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of or intended to take effect in possession or enjoyment at or after his death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth; * * *
Whether property is includable in the gross estate under this provision of the statute depends upon whether under the laws of the state having jurisdiction thereof it actually passed to the appointees by reason of the exercise of the appointive power. ; *1027 .
The respondent has determined that the property in dispute, of an agreed value at the time of decedent's death of $2,297,370.38, passed under the general power of appointment exercised by the decedent in her will and is therefore includable in her gross estate under the above quoted provisions of the statute. Petitioners contend that under the laws of the State of New York the only property subject to the power of appointment which passed under the exercise of the power by the decedent in her will, and therefore the only property which is includable in the gross estate under section 302(f) of the Revenue Act of 1926, are the remainder interests of the issue of Helen Coster Train and Maud Salm-Hoogstraeten.
The rule for determining whether property "passes" under the exercise of a power of appointment and is therefore subject to the New York estate tax was stated by the Court of Appeals for the State of New York in ; *1028 , as follows:
* * * the true rule to be applied can be reached only by an entire disregard of any intention to elect or of what has been termed an election, and may be stated to be that where a person named under the exercise of the power takes the same or less than he would have taken under the original will, if the power of appointment had not been exercised, his interest is taxable in the estate of the donor and not in the estate of the donee. * * *
See also ; , cited with approval in
*576 Did the appointees under the decedent's will by such appointment take the same, or less, of the residuary estate of Charles Henry Coster as they would have taken had the decedent not exercised the power? The will of Charles Henry Coster provides for the residuary estate to be held in trust for the life of his wife, the decedent, "and after the death of my said wife the same to go as she may provide by Will, or, if she leave no Will, to go as the law may provide." As to this provision of the donor's will the respondent makes the*1029 argument that:
* * * The estates [in remainder after the life estate of the wife] were contingent both as to the takers, who could not be ascertained before the happening of a future event which might not happen, and as to the condition upon the fulfillment of which the estate became vested.
The appointees by virtue of the exercise of the power took vested estates; in default of such exercise they could have taken at most contingent estates "under the original will."
We think it is clear that the testator's intention was that upon the wife's death the remainder of his residuary estate should be distributed in accordance with the laws of the State of New York relating to descent and distribution, unless otherwise disposed of by the wife in the exercise of her power of appointment by her will.
It is not material to our present inquiry whether the remainder interests, after the wife's death, vested upon the death of Charles Henry Coster or upon the death of his wife. (For discussion of vested future interests under the laws of the State of New York see *1030 , and cases therein cited. See also ; .) In either event, under the laws of the State of New York, such interests passed under the will of the prior decedent and not by the exercise of the power of appointment, if the appointees took no more under the exercise of the power than they would have taken otherwise.
The Surrogate's Court of Orange County, New York, held in a New York estate tax proceeding, , thay the remainder interests in the residuary estate of Charles Henry Coster over which the power of appointment was exercised by the decedent in her will were not taxable in the decedent's gross estate. The decision of the court there was based primarily on the fact that a binding compromise agreement had been entered into in a prior year by which the remainder interests in question were taxed in the estate of Charles Henry Coster. The court in its opinion said, however, that:
*1031 Obviously, there could ultimately be but one vesting of this remainder, either solely or severally, and it was this vesting that was indeterminable and the tax upon which was thus compromised, for the property passed under the will *577 of the donor of the power and not under that of the donee. ; ; ; ; .
The fourth paragraph of the court's syllabus reads as follows:
4. Taxation.
The passing of remainder interest in property by testamentary exercise of a power of appointment given by prior will resulted in only one vesting of the remainder, which occurred under prior will, and hence comprise settlement of estate tax due upon such remainder, in proceeding involving the prior will, precluded taxing of the remainder as part of donee's estate. Tax Law, § 249-r, subd. 7; Laws 1897, c. 284, § 6, amending Tax Law, § 230; Laws 1900, c. 379.
*1032 Charles Henry Coster was survived by his wife and their four children, all of whom survived the wife, and, with the children of two of them, became the appointees under the wife's will as shown above. It is stipulated in this proceeding (paragraph 16 of the written stipulation) that each of the four children upon the death of the wife would have received a one-fourth equal part of the residuary estate of Charles Henry Coster, amounting to approximately $624,342.60, if the wife had died intestate. This is likewise the interest that each would have received under the will of Charles Henry Coster and under the laws of the State of New York had the decedent, though leaving a will, failed to exercise the power of appointment. It is so alleged in paragraph seven, subparagraph 11, of the petition herein and admitted by the respondent in paragraph 7 of his answer.
By her will the decedent appointed to two of her children, Emily Coster Morris and Charles Henry Coster, a one-fourth interest each in all of the residuary estate of Charles Henry Coster subject to the power of appointment, except for the real estate, and to the other two children, Helen Coster Train and Maud Salm-Hoogstraeten, *1033 a one-fourth interest each in trust for life, with the remainder over to their issue. It is stipulated that the value of each of the appointed one-fourth interests was $574,342.60. This is the portion of the property over which the power of appointment was exercised that each would have received under the will of Charles Henry Coster had the decedent failed to exercise the power of appointment. Thus, no one of the decedent's four children received any more under the appointments than he or she would otherwise have received. Two of them, the two who received an outright one-fourth interest, took exactly the same proportionate parts that they would have taken under the will of Charles Henry Coster, that is, a one-fourth interest, and the other two, who received each a life interest only in a one-fourth share, took a lesser amount.
*578 Petitioner concedes that the remainder interests in the two one-fourth shares of the property which were appointed to the issue of Helen Coster Train and Maud Salm-Hoogstraeten passed under the power of appointment exercised by the decedent in her will and are therefore includable in her gross estate. It is stipulated that these remainder*1034 interests had an aggregate value at the time of decedent's death of $455,246.94.
We are of the opinion that the respondent erred in including in decedent's gross estate any greater amount than $455,246.94 as representing property passing under a general power of appointment exercised by the decedent in her will.
Judgment will be entered under Rule 50.