Norris v. Oklahoma Tax Commission

EDWIN W. DUDLEY, Special Justice.

This appeal is by the executor of the estate of Josephine Norris, deceased, from an order of the Oklahoma Tax Commission determining certain properties to be subject to estate taxes as a part of the assets of said estate.

P. A. Norris died November 26, 1942, testate. He bequeathed certain of his properties to a designated trustee, to be held in trust for twenty years from date of his *248death. Upon expiration of said period the properties of said trust were to be delivered to certain persons in proportionate shares as designated in his will. It was provided in the will that Josephine Norris, his wife, receive one-third interest in the properties in trust should she be living at the expiration of trust period, and that she be given the right and privilege, if she so desired, to dispose of her above interest, by will to her children and their heirs, and to such other beneficiaries as she may deem best. All estate taxes assessed against the estate of P. A. Norris were paid.

On February 17, 1953, Josephine Norris died, testate, bequeathing that which she would have received under the P. A. Norris trust to her children.

It is argued by the Commission that the will of Josephine Norris transferred economic benefits upon her death that were not created under and did not pass under the will of P. A. Norris, and therefore the properties in trust are subject to estate tax under provisions of section 989e (A) (1) 68 O.S.A. which provides:

“(A) The value of the gross estate, used as a basis for a determination of the value of the net estate, shall be determined by including:
“(1) The value at the time of the death of the decedent of all property, real, personal, or mixed, whether tangible or intangible, of which the decedent died seized or possessed, within the jurisdiction of this State, and any interest therein, or income therefrom, including the homestead, in excess of Five Thousand ($5,000.00) Dollars, which shall pass to any person or persons, associations or corporations, in trust or otherwise, by testamentary disposition or by the laws of inheritance or succession of this or any other state or country; provided that, in determining the value of the gross estate of a non-resident of this State, there shall be excluded all intangible property.”

It appears that the determining question is whether Josephine Norris died “seized or possessed” of said property, or clothed with a mere power of appointment as created by the will of P. A. Norris.

Therefore, we must look to the will of P. A. Norris to determine in whom the property was seized. Since under said will the property in controversy was bequeathed to the trustee for a period of twenty years from date of death, and since Josephine Norris died prior to the expiration of the twenty year period, she was not seized of the trust property. She could only become seized of the property upon her living until the expiration of the trust period. Prior to the end of the trust she had no power over the property whatsoever, except she could “will it to her children and to their heirs, and to such other beneficiaries as she deemed best.” By the terms of the P. A. Norris will she was prohibited from having any other control over said properties. Her will naturally did not pass or transfer any of her interest unless she died prior to the expiration of the trust, and no economic benefits passed to her beneficiaries immediately upon her death. It was then necessary for these beneficiaries to be living themselves at the expiration of the trust period, and until said date these beneficiaries had no control over the properties. Therefore, we must conclude that she was not seized with the property. In re Dillingham’s Estate, 196 Cal. 525, 238 P. 367.

Since our Act provides “seized or possessed” the words are used disjunctively and not conjunctively, therefore the transfer would be liable for taxation if Josephine Norris died “possessed” of the property, regardless of whether or not she died “seized” of said property. It is also to be noted that the Act provides that the transfer which is subject to the tax is not only the transfer of the property, but also “any interest therein.” “Possessed” is a variable term, and has different meanings as it is used in different circumstances. The word possessed is the past tense of the word possess which is defined in Webster’s International Dictionary, Second Edition, as “To Occupy; inhabit; to be lo*249cated or situated at. To have and hold as property; to have a just right to; to he master of; to own, as to possess lands, money, a horse, a watch.” It was in this sense we think, that the word “possessed” was used by the Legislature in this Act, with the intent to indicate a character of ownership falling short of seizin.

The question involved herein is of first impression so far as this court is concerned, therefore we may look to decisions of courts of other jurisdictions in arriving at our conclusion. In re Bowditch’s Estate, 189 Cal. 377, 208 P. 282, 23 A.L.R. 735, the Supreme Court of California had upon appeal, the question of whether a statute providing for tax on power of appointment could be assessed against personal property in the hands of a Trustee, a resident of and holding property in the State of Massachusetts, wherein the donee of the power exercised the power by will, and at the time of her death was a resident of California. This case is not exactly in point as to residents and as to statutory authority, however, it is of great benefit in determining whether the provisions in the will of P. A. Norris created a “power of appointment” in Josephine Norris, or caused her to be “seized or possessed” of a property interest.

In the Bowditch’s Estate, supra, J. Ingersold Bowditch died leaving by will certain property which he bequeathed to trustees in trust, directing that net income derived therefrom be paid to Charlotte Bowditch during her life, and upon her death, to convey the corpus and remainder of said property “to such person or persons and in such way or manner as such child (Charlotte Bowditch) shall direct in and by * * * her last will, if any.” Upon her death trustee transferred the property to the persons named in her will. The court in determining this question said at page 283 of 208 P.:

“It is obvious that the exercise of the power of appointment in the will of Charlotte Bowditch is governed by and dependent upon the laws of California only in the event that the personal property which is the subject of the said power is within the jurisdiction of this state. As previously stated, the personal property here involved is not actually within the state of California. Neither is it constructively within this state, under the doctrine of mobilia sequuntur personam.
“ ‘That maxim (mobilia sequuntur personam), universally applied in the jurisdiction of all civilized nations, is that the personal estate of a decedent, wherever it may in fact be located, is, for the purposes of succession and distribution, deemed to have no other locality than the domicile of the decedent.’ In re Estate of Hodges, 170 Cal. 492, 150 P. 344, L.R.A.1916A, 837.
“But personal property which is the subject of a power of appointment does not acquire a constructive situs in the state of the domicile of the donee of the said power under this theory, for such property is no part of the estate of the donee.
“When a donor gives to another power of appointment over property the donee of the power does not thereby become the owner of the property. The donee has no title whatever to the property. ’The power is simply a delegation to the donee of authority to act for the donor in the disposition of the latter’s property. Shattuck v. Burrage, 229 Mass. 448, 118 N.E. 889; United States v. Fields, 255 U.S. 257, 41 S.Ct. 256, 65 L.Ed. 617; Walker v. Treasurer, 221 Mass. 600, 109 N.E. 647.”

In the case of Boston Safe Deposit & Trust Co. v. Johnson, 151 Me. 152, 116 A.2d 656, Edward K. Leighton died testate, leaving one-half of his estate in trust providing for the net income therefrom to be paid to his wife, and that she have full right and power to dispose of property in trust, upon her death, in any manner she chose, by making reference to that clause of the will. This is a power somewhat similar to that vested in Josephine Norris. In the above case the court held:. .

*250“Testamentary power of appointment of testator’s widow was not ‘property’ or any interest therein passing to her, within inheritance tax law, and therefore was not subject to inheritance tax.”

In Highfield v. Delaware Trust Co., 4 W.W.Harr., Del., 290, 152 A. 117, the court said:

“Trusts created subject to general power of appointment held within rule that property passing by appointment belongs to donor, not donee; hence, not liable for inheritance taxes as donee’s property.”

In the case of In re Fenner’s Estate, 2 Utah 2d 134, 270 P.2d 449, the Supreme Court of Utah construed their gross estate statute, which is practically identical to the Oklahoma statute, and at page 452 of 270 P.2d we find the following language:

“The historical concept that property passes from the donor of the power to the appointee, the donee of the power acting as a conduit lacking ownership of the appointive property, is responsible for the exclusion of the donee’s spouse and creditors in the appointive property they would normally have, in property owned outright by the donee. Further, in the absence of specific statutory treatment, appointive assets have generally not been included in the gross estate of the donee whether the tax is denominated an estate tax or an inheritance tax. United States v. Field, 255 U.S. 257, 41 S.Ct. 256, 65 L.Ed. 617; Emmons v. Shaw, 171 Mass. 410, 50 N.E. 1033; Commonwealth v. Duffield, 12 Pa. 277.”

The court further stated:

“ * * * Certainly a power of appointment — the right to designate a beneficiary, of a bequest of property— is an interest in the property. In whose property is it an interest ? Surely it is an interest in the property of the testator, of the person who created the power of appointment.”

We also find this language which is controlling in-this case:

“ * * * and since our statutes do not provide for taxation of property passing under a power of appointment, Mrs. Fenner’s estate is not taxable for property not owned by her during her lifetime.”

See also In re Higgins’ Estate, 194 Iowa 369, 189 N.W. 752; Lederer v. Pearce, 3 Cir., 266 F. 497, 18 A.L.R. 1466.

Our legislature, in enacting the first succession tax statutes, by express provision, levied a tax on property subject to a power of appointment. Section 1 of House Bill 492, Session Laws 1907-1908, pages 733 and 734. The inheritance tax act has been amended from time to time by our legislature, and the legislature specifically repealed the section taxing powers of appointment by House Bill 572, Session Laws 1941, page 462.

It must be assumed that the clear legislative intent was that property passing by a power of appointment is not subject to inheritance tax under our present statutes.

Under the authorities above referred to we must conclude that Josephine Norris did not die “seized or possessed” of this property or any specific interest" in said property. That the will of P. A. Norris vested title and possession to this property in the trustee for a period of twenty years from the date of his death. Josephine Norris could never own an interest in that specific property except the same not be sold by the trustee during the trust period, and that she be living at the end of said trust period. In view of those contingencies it is little more than mere speculation to assume or anticipate that she would ever receive any part of the said property, or any specific interest therein. At best, then she could be classed only as a contingent remainderman. Adams v. Dugan, 196 Okl. 156, 163 P.2d 227. The provision that she could will to whom she may deem best was a power of appointment, *251since that was the fullest extent of her power over said property. Therefore the parties she appointed in her will to take said property would take from the donor, P. A. Norris, and not the donee Josephine Norris, and hence said property is not liable for inheritance tax as donee’s property in the absence of a statute authorizing a tax on “power of appointment.” Boston Safe Deposit & Trust Co. v. Johnson, supra, and Highfield v. Delaware Trust Co. et al, supra.

In the case of In re Jones’ Estate, 147 Okl. 123, 294 P. 792, we held:

“On an application to subject the transfer of property to taxation the burden is on the applicant to show authority therefor.”

And in the case of Pure Oil Co. v. Cornish, 174 Okl. 615, 52 P.2d 832, 835, we held:

“Statutes requiring or authorizing a levy of taxes are to be construed most strongly against the government and in favor of its citizens.”

The Commission contends, that Josephine Norris owned an interest in the property, but if she is said to be possessed with a power that it was a general, power of appointment coupled with,an interest. Newberry v. Walsh, 20 N.J. 484, 120 A.2d 242; Pennsylvania Company for Insurance on Lives and Granting Annuities v. Kelly, 134 N.J.Eq. 120, 34 A.2d 538, are cited as authority for this contention. In these cases the transfer of power was incomplete due to authority to change terms of trust, while in the case before us Josephine Norris had no authority to change the terms of the trust.

There are excerpts taken from several other cases and shown in the brief of the Commission, wherein it was held by courts that the general power of appointment there involved was regarded as equivalent to ownership, however, in- each such instance the party vested with the power of appointment was vested. with some type of control over the property - during his or her lifetime. While here in this instance Josephine Norris had no-power or control over the property other than a power of appointment by Will.

For the reasons hereinabove stated, we are of the opinion, and so hold, that the property in question did not pass from the donee, Josephine Norris upon her death, but passed from the donor, P. A. Norris, through her by power of appointment, and therefore is not subject to estate tax against the estate of Josephine Norris, since there is no statutory authority for assessment of tax upon a power of appointment.

Therefore, the order of the Oklahoma Tax Commission assessing additional estate tax based upon “Power of Appointment Property” entered on March 3, 1958, is hereby reversed, and said Commission is directed to refund to protestant the amount so paid by him under protest, with interest thereon at the rate of three per cent per annum from date of payment under protest, in accordance with the provisions of Section 1474, Title 68, O.S.A.

Reversed with directions.

WELCH, HALLEY, JOHNSON and JACKSON, JJ., concur. ' BLACKBIRD, J., concurs in result. WILLIAMS, V. C. J., and IRWIN, J., dissent. DAVISON, C. J., having certified his disqualification in this case, Honorable EDWIN W. DUDLEY, Madill, Oklahoma, was appointed Special Justice in his stead.