Downes v. Safe Deposit & Trust Co.

Offutt, J., delivered the opinion of the Court. This is the latest in a line of cases in which this court has been called upon to construe and interpret this language, occurring in Code, art. 81, sec. 24: “All estates * * * passing from any person who may die seized and possessed thereof, * * * intended to take effect in possession after the death of the grantor * * * shall be subject to a tax of five per centum in every hundred dollars of the clear value of such estate, -* * *)> anc[ £0 determine upon varying facts whether interests ³² retained by the grantors and donors in the instruments under consideration in those several cases were of such a nature as to exclude the operation of that statute. The facts of the present case out of which that question arises are not disputed, and may be thus stated: On February 10th, 1909, Miss Eliza L. Jenkins by her deed of that date transferred and assigned to her brother Michael Jenkins securities having an approximate value of $50,550, in trust to hold the same, collect the income therefrom, and dispose of it and the principal trust fund, as follows: To pay a designated portion of the net income to each of five named beneficiaries during their respective lives, the surplus to accumulate until the death of the longest liver of such annuitants, and then to distribute the original fund and accumulations to certain religious and charitable organizations (nevertheless reserving to the grantor an absolute power of revocation). As a result of accumulations, the value of that estate at the death of the last surviving annuitant August 4th, 1931, had increased to $78,777.81, and at the death of Miss Jenkins, on March 29th, 1916, it was valued at $52,-998.37.

Miss Jenkins died without ever having exercised her power of revocation, although she did by two supplemental deeds provide out of the income for the payment of the funeral expenses of one annuitant to the extent of $150, and for the division among the survivors of the annuity payable to one of the five annuitants who died in 1910. At her death Miss Jenkins left an estate valued at $239,-415.01, excluding the estate granted to Michael Jenkins, upon which all assessable taxes have been paid. Michael Jenkins, the trustee, died on September 7th, 1915, and the Safe Deposit <& Trust Company succeeded him as trustee. In addition to the taxes which have been paid by her estate, the register of wills of Baltimore City on behalf of the State claimed inheritance tax upon the corpus of the trust estate and upon accumulated income prior to June 1st, 1927.

The trustee denied and disputed that claim, whereupon the question was submitted by a case stated to the Superior Court ³³ of Baltimore City and, the verdict and judgment being for the trustee, the plaintiff in that case has appealed. Upon these facts, whether the estate is taxable depends solely upon the effect to be given a single fact, that the grantor retained or reserved a power of revocation. But for that power there could be no possible doubt that she had completely divested herself of any interest in the property granted, and that it passed upon the execution of the deed. The question in the case then is whether a mere naked power of revocation, contained in a deed under which property is granted as in this case to a trustee for certain uses beyond the control of the grantor, prevents the deed from operating as an immediate and complete transfer of the property.

In that precise form the question is new in this court, and the decisions elsewhere are conflicting, but the chancellor, after an exhaustive and very able review and analysis of the decisions in other states, and those of this court relating to the question, decided that upon the facts stated the estate is not subject to,the collateral inheritance tax, and in that conclusion we are disposed to concur. By its express and literal terms the statute only applies to estates of which the grantor “may die seized and possessed,” and which he has transferred by deed or other instrument intended to “take effect-in possession after the death of the grantor,” etc. The obvious purpose and intent of the statute was to strike at evasions of the collateral inheritance tax statute by imposing the tax upon all gifts or grants inter vivos by instruments of a quasi testamentary character, intended to1 take effect in possession at the death of the settlor but leaving to the settlor the beneficial enjoyment and/or control of the same during his life. It was not intended to impose the tax upon estates transferred inter vivos by deed or other instrument by which the grantor completely parted with all interest in or control over1 the estate, for the language employed is inconsistent with any such intention. Nor did the Legislature intend that the mere isolated power of revocation should be conclusive of either the fact that the grantor died seized and ³⁴ possessed of the property, or of an intention that the grant should take effect in possession at his death.

Eor, if it had intended that, it may be inferred that it would have added to the words, “intended to take effect in possession after the death of the grantor * * donor,” the words, “whether revocable or not.” Since it used no such language, it may rationally be inferred that its purpose was that the circumstance of revocability should not be conclusive but a fact to be considered, in determining the effect of a given instrument transferring an estate inter vivos, and in ascertaining whether it was intended to take effect in possession after the death of the grantor. That is the construction which has been by the weight of authority elsewhere given to like words in similar statutes, and that construction seems to be compelled by previous decisions of this court dealing with this particular statute. The facts in none of those cases were precisely similar to those involved here, but in each of them the court had occasion to construe and interpret the phrases “died seized and possessed,” and “intended to take effect in possession after the death of the grantor, * * *” which are controlling in this case. In Smith v. State, 134 Md. 473 , 107 A. 255 , an estate was conveyed to a trustee in trust to hold and manage, and (1) to pay the net income to the grantor for his life, and (2) to distribute the corpus at his death to such persons as he might by his last will appoint, the grantor retaining the right of revocation.

Upon those facts it was held that the grant was not intended to take effect until after the death of the grantor. In Lilly v. State, 156 Md. 95 , 143 A. 661 , Lilly conveyed an estate to' one Cummings, who reconveyed it to Lilly upon the following trusts, that is to' say: (1) To> hold and manage the same for the use of Lilly’s wife during her life, and, if he survived her, to his. own use;* and (2) upon the death of the survivor the property to go to- such persons as Lilly by) his last will might appoint. Lilly was given full power to sell or mortgage the property, and the grant was subject to the right of Lilly and his wife to terminate it at any time. ³⁵ It was held that Cummings was a mere conduit of title, and that the effect of the conveyance was to create potential interests which were not intended to take effect until after Lilly’s death, and that his legatees took subject to the tax. In Downes v. Safe Dep. & Tr.

Co., 157 Md. 87 , 145 A. 350, 352 , Mrs. Bridget Curran conveyed property to a trusrtee to manage the same and pay the net income to her during her life, and at her death to convey the corpus to her son and her daughter-in-law as tenants by the entireties, reserving to herself the right to withdraw from the trust estate not more than $5,000 in any one year, but reserving no other interest in the estate. Upon those facts it was held that the grantor was not “seized and possessed” of the property at the time of her death, and that for that reason the interest of the daughter-in-law was not taxable. In Darnall v. Connor, 161 Md. 210 , 155 A. 894, 898 , Sallie O. Brown conveyed real and personal property to a trustee for the use of the grantor for her life, and at her death to such persons as she might by will appoint, or, failing such appointment, to her heirs. She bequeathed by her will the corpus of the estate to collaterals, and the State claimed that it was subject to the collateral inheritance tax, and this court so held.

These four cases have therefore established the principle that in grants of property inter vivos, where the grantor retains “the benefit of ownership during the life, and the right of disposition beyond” (Darnall v. Connor, supra), and, failing such disposition, the property goes to his or her heirs, the grantor is so far seised and possessed of the property that the grant over cannot take effect in possession until death, and is therefore taxable under the statute (Code, art. 81, sec. 124), but, in cases where by the terms of the grant the grantor, while retaining the benefits of ownership during life, has no control over the ultimate devolution of the property, the gift is immediate and complete, even though such grantor reserves what is equivalent to a power of revocation. Downes v. Safe Dep. & Tr. Co., supra. ³⁶ In the Downes case, supra, in dealing with, that provision of the deed which permitted the grantor to withdraw from the trust not exceeding $5,000