In the Matter of the Appraisal of the Estate of Frederick Cook, Deceased, under the Act in Relation to the Taxable Transfers of Property; Barbara Cook and Others, Appellants; The Comptroller of the State of New York, Respondent

In the Matter of the Appraisal of the Estate of Frederick Cook, Deceased, under the Act in Relation to the Taxable Transfers of Property. Barbara Cook and Others, Appellants; The Comptroller of the State of New York, Respondent. Fourth Department, July 12, 1906. Tax—when legacies assigned to avoid contest of will should be taxed as if originally made to assignee — taxation of legacy to child of adopted child. A transfer tax is not imposed upon the legacy nor upon the property hut upon the succession to the property. Thus when legatees entitled to specific bequests and to the residuary estate, and who would take nothing if the will were not probated, compromise a contest of the will made by the widow on the ground of lack of testamentary capacity by assigning the residuary estate to her on her collateral agreement to withdraw the contest and pay back a proportion oE the residuary estate to those assigning it, which compromise was made in good faith to avoid the danger of losing the specific bequests if the contest were sustained, a transfer tax upon the residuary of the estate should be made at one per cent and not at five per cent. A legacy to the son of an adopted child of a testator should be taxed at five per cent, as he is not a lineal descendant of the testator. Kruse and Spring; JJ., dissented, with opinion. Appeal by Barbara Cook and others from a decree of the Surrogate's Court of Monroe county, entered in said Surrogate’s Court on the 11th day of May, 1906, affirming an order theretofore entered in said Surrogate’s Court upon the report of an appraiser assessing a tax upon the property of Frederick Cook, deceased. The following facts were found by the appraiser: “ I find that when the will of Frederick Cook ivas offered for probate his widow, Barbara Cook, and his daughter, Fredericka Louise MacDonell, his sole next of kin and heir at law, filed objections to the probate thereof, the principal ground of which objections was that the testator did not possess testamentary capacity. That while the said contestants were engaged in preparation for the trial of the contest some of the residuary legatees mentioned in the thirty-eighth paragraph of the will of Frederick Cook, who reside in this country, suggested that a compromise might be arranged which would permit of the probate of the will. The compromise suggested was that the residuary legatees, who were also general legatees under the will, assign their interest as such residuary legatees to Barbara Cook, and that the- will then be admitted to probate; that they would then receive their general legacies, and that Mrs. Cook would receive the residue of the estate; that the residuary legatees were given under the will general legacies amounting in all to $185,000; that this suggestion of compromise was received with favor by Mrs. Cook, who thereafter got into communication with all of the residuary legatees, with the result that all of the interest of the residuary legatees under the will passed to Mrs. Cook by instruments in writing similar to Exhibit — in evidence, such assignments being given upon the condition that Mrs. Cook and her daughter withdrew the objections which they had filed to the probate of the will; that Mrs. Cook agreed, in addition to the general legacies of these residuary legatees, to pay certain of them sums of money amounting in all to $97.000; that upon the execution of the releases of the residuary legatees of their interests in the residuary estate and the assignment of their interests therein to Mrs. Cook, she and her daughter withdrew their objections to the probate of the will, and the will was probated and letters testamentary issued; that as a result of this compromise of the litigation over the will all excess of the residuary of the estate over the sum of $97,000 will pass to Mrs. Cook upon the final distribution of the estate; that this $97,000 has been paid by Mrs. Cook to these residuary legatees, the executors having advanced this amount to her from the assets of the estate for the purpose of making these payments; that Mrs. Cook has acted in good faith and not for the purpose of avoiding the inheritance tax in acquiring these residuary interests, and that these assignments were- made solely to avoid a contest of the will and to compromise the litigation; that the result of the litigation, if the contestants had succeeded, would have been that the whole estate of the testator would have passed to Mrs. Cook and her daughter, and the other legatees would have received nothing.” Charles Van Voorhis, for the appellants. William T. Plumb and Merton E. Lewis, for the respondent. [MAJORITY — Mash, J.:] Mash, J.: In the case of Matter of Wolfe (89 App. Div. 349 ; affd., 179 N. Y. 599) the executors, to whom the testator made a bequest of $20,000, taxable to them at five per cent, in good faith, voluntarily renounced and released the bequest, so that the money bequeathed to them fell into the residuary for the benefit of the testator’s children and grandchildren. It was held that the tax imposed should be at the same rate as if the legacy had been originally given to the residuary legatees. Here the widow and daughter in good faith filed objections to the probate of the will, the principal ground of which was that the tes. tato'r did not possess testamentary capacity. The parties agreed to a compromise by which the residuary of the estate over the sum of $97,000 should pass to Mrs. Cook upon the final distribution of the estate. In other words, the residuary legatees, for the purpose of securing probate of the will, by which they would receive the payment to them of general legacies bequeathed to them, amounting to $180,000, voluntarily renounced all of the residuary of the estate except the sum of $97,000. The transaction was not in any sense a sale and transfer of the residuary of the estate, as such, so that the assignee would stand in the shoes of the residuary legatees and, therefore, be liable to pay the tax; but a compromise, entered into in good faith to insure the receipt by the residuary legatees of their general legacies bequeathed to them by the will, and in addition $97,000 of the residuary of the estate. It cannot make any difference, so far as the amount of the transfer tax is concerned, whether the compromise is made effectual by an assignment and transfer or by a formal appearance and renunciation in Surrogate’s Court. In the latter case the right of succession would pass to Mrs. Cook and her daughter; by the formal assignment it passes upon final distribution to Mrs. Cook. As said in Matter of Wolfe, the tax is. not imposed upon the legacy nor upon the property but upon the succession to the property. In legal effect the compromise to the extent that it changed -the course of succession takes the place of probate, and becomes part of the decree on final distribution of the estate. I am unable to distinguish the case here in principle from that of Matter of Wolfe. That part of the order of the Surrogate’s Court which imposed a tax of five per cent upon the residuary of the estate should be reversed. The legacy to Frederick Cook MacDonell, son of the adopted daughter of Frederick Cook, is taxable at five per cent, for the reason that he cannot be regarded as a lineal descendant of the testator. The appraisal of the estate is supported by the evidence. In Matter of Curtice (111 App. Div. 230 ; 97 N. Y. Snpp. 444) the stock of the decedent was a minority holding.in a private corporation, controlled by the family to which decedent belonged, and no general public ownership of it, which is the distinguishing feature of that case from cases where the stock is held by the general public. That part of the order of the Surrogate’s Court fixing the taxable transfer tax upon the residuary of the estate at five per cent should be modified by fixing said tax upon the residuary at one per cent, and in all other respects the order should be affirmed, without costs to either party. Proceeding remitted to the Surrogate’s Court for disposition accordingly. All concurred, except Spring and Kruse, JJ., who dissented in an opinion by Kruse, J. [DISSENT — Kruse, J. (dissenting):] Kruse, J. (dissenting): 1 think the order appealed from is right and should be affirmed in its entirety. The case of Matter of Wolfe (89 App. Div. 349 ; affd., 179 N. Y. 599), relied on as authority for assessing the transfer tax upon the residuary estate at the rate of one per cent, instead of five per cent as was done in this case,- cannot be so regarded. In that case the, executors renounced and released a bequest made to them personally, so that the money bequeathed to them became a part, of the residuary estate distributable to the residuary legatees named in the will, and it was there held that the residuary legatees took directly from the testator. In this case the residuary legatees all transferred their interest in the residuum of the estate to the appellant widow. She was not named as a residuary legatee by the testator, and had no interest therein under the will, except what she acquired by this assignment. Granted that the tax is not imposed upon the legacy, nor upon the property, but upon the succession to the property, it is the transfer from the testator to his immediate legatee which is subject to taxation, and where the latter transfers-his interest to some one else the rate of taxation is to be fixed according to the class to which the original legatee belongs, and not his assignee, although the assignee may stand in a closer relation to the testator and belong to a class whose rate of taxation would be less than the original legatee. I think the residuum of this estate, acquired by the widow by this assignment from these remote relatives of the testator, was properly taxed at the rate of five per cent, and that the other questions were properly disposed of by the surrogate. The order appealed from should be affirmed, with dosts payable out of the estate. Spring, J., concurred. Order modified in accordance with the opinion of Mash, J., and as so modified affirmed, without costs of this appeal to any party.