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Court Discusses Complex Tax Issue

 

The decedent a bachelor, died on November 9, 1918, at the age of 75. His only near relatives living at the time of his death were his sister, and her descendants. There were no other kinsmen of nearer relationship than second cousin one degree removed. The decedent stated in his will that his sister and her family had been amply provided for by the will of his father. By his will, dated May 23, 1917, he gave all of his residuary estate, amounting to nearly $1,000,000, to the Family Association, a corporation organized in January, 1910, under the laws of the state of New York, ‘to have and to hold to the said association, its successors and assigns forever.’

The corporation having duly accepted the bequest, an order of the surrogate of Nassau county was duly made and entered imposing a tax upon the transfer thus made [232 N.Y. 368]pursuant to article 10 of the Tax Law (Consol. Laws, c. 60). The Family Association, claiming that it was a charitable corporation, and entitled to an exemption under section 221 of the Tax Law, appealed to the Appellate Division, which sustained this claim, and reversed the order of the surrogate. It remains for us, therefore, to determine on this appeal which court has been correct, the Surrogate’s Court or the Appellate Division, the former holding that the association is not a charitable corporation and the latter that it is.

Section 221 of the Tax Law, in so far as applicable to this case, enacts that any property devised or bequeathed to any religious, educational, library, charitable, missionary, benevolent, hospital, or infirmary corporation, wherever incorporated, shall be exempt from and not subject to the transfer tax. The articles of incorporation alone must determine whether a corporation comes within the exemption. The Family Association was incorporated under the Membership Corporations Law (Consol. Laws, c. 35) by articles of incorporation dated the 20th day of September, 1909; the seven directors named therein being all members of the family. The principal objects for which the corporation was formed are stated in these articles to be as follows: ‘1. To pay the expense of preparatory, collegiate, and professional education or other suitable education for such members of the family as may be designated and approved by at least five directors of the corporation. ‘2. To furnish pecuniary aid, exclusive of loans, to such poor and needy members of the family as may be designated and approved by at least five directors of the corporation. ‘3. To receive and hold, collect and preserve family portraits and heirlooms of the family, and matter connected with the history of that family; and documents and books relating to the family, with power to add to and publish the same; and to designate and maintain a place of deposit for receiving, holding, collecting, preserving and exhibiting these portraits, heirlooms and matter connected with the history of the family, and documents and books as an undivided collection.

‘4. To care for and maintain, improve and embellish such burial lots or places in cemeteries, including the walks, fences, monuments, structures, and tombs thereon, in which are interred members of the family as shall be designated and approved by at least five directors of the corporation, provided that at least one such burial lot or place shall always be cared for, maintained, improved and embellished by the corporation. ‘5. To support, maintain and educate a person or persons other than a member or members of the family, and to contribute towards the maintenance of educational institutions otherwise than for the education of members of the family, and to contribute to charitable and benevolent uses and to religious purposes, as from time to time the board of directors shall deem proper and desirable; provided, however, that no such action as specified in this section 5 shall be taken unless expressly authorized by the by-laws of the corporation and then only by the concurring vote of all and at least seven directors.
‘Third. All lineal descendants of the decedent, who became, in 1647, a resident of New Amsterdam, now New York City, shall be eligible to membership in the corporation if approved by a concurring vote of not less than five directors. All such lineal descendants and the wives and widows of any of them shall be included in the term ‘the Family’ wherever used in this instrument.’ The test of a charitable gift or use and a charitable corporation is the same.
In determining whether or not a gift is for a charitable purpose the question is whether the trustee or the corporation is bound to apply it to charitable purposes only. Whether the inclusion of a non-charitable purpose would invalidate the trust depends upon the purpose which runs through, permeates, and colors the whole scheme of disposition. If one or more of the purposes for which the gift may be used is not charitable or benevolent, the corporation is not a charitable corporation, and the gift not a charitable gift.

A Brooklyn Family Lawyer said the principal of all these cases is, that the portion of the trust that might otherwise be construed as charitable cannot be sustained, because the trustees have an election to apply the fund to purposes not technically charitable, and as to the gifts to purposes not charitable, they are held void because too vague and indefinite to be administered by a court of equity.’

The only persons to be benefited by this corporation are the members of the family. To me it seems apparent that a corporation formed for the purpose of educating the members of the testator’s family or aiding his poor descendants or ancestors is not a charitable corporation. My associates, however, think it is unnecessary for us to decide this question at this time.

One of the purposes for which the funds of the corporation may be used is: To care for and maintain, improve and embellish such burial lots or places in cemeteries, including the walks, fences, monuments, structures and tombs thereon, in which are interred members of the family as shall be designated and approved by at least five directors of the corporation, provided that at least one such burial lot or place shall always be cared for, maintained, improved and embellished by the corporation.’

Such a purpose is not a charity, and a corporation formed with this as one of its objects ceases to be a charitable corporation. The articles of incorporation provide that at least one burial lot or place shall always be cared for, but within the discretion of five directors any number of such lots or places may be cared for, embellished, or maintained. The amount of corporate funds which may be expended for such purposes is unlimited. Such discretion, as well as such a purpose, destroys all elements which might otherwise make the Family Association a charitable corporation.

A motion has been made for a re-argument of this case on the ground that this court overlooked sections 114-a of the Real Property Law (Consol. Laws, c. 50) and 13-a of the Personal Property Law (Consol. Laws, c. 41), referring to trusts for cemetery purposes. It is true that these provisions were not referred to in our opinion; neither were they referred to by counsel in the briefs or upon the argument. We were dealing with the Tax Law (Consol. Laws, c. 60), and what we said was with reference to the tax on transfers to a corporation created for the purpose, among other things, of maintaining and embellishing cemeteries of the family. We held that it was not a charitable corporation which exempted it from the provisions of the Tax Law relating to such taxable transfers. We have re-examined the question in the light of the sections above referred to, and see no reason for changing our opinion. Section 114-a of the Real Property Law and section 13-a of the Personal Property Law provide that gifts, grants, and bequests of real or personal property in trust for the purpose of the perpetual care and maintenance, improvement, or embellishment of private burial lots, in or outside of cemeteries, shall be deemed to be for charitable and benevolent uses. Strictly speaking, the will in question creates no trust for any such purpose. All the residue and remainder of the estate of whatever nature is given to the Family Association, a corporation organized in January, 1910. This is not a trust, but a devise or bequest to an existing and active corporation. The will places no limitation whatever upon the use of this gift. The limitation, if any, comes solely by reason of the articles of incorporation under which the Family Association lives and acts. It is in the charter of the corporation that we find that the gift may be devoted to cemetery purposes. This was not, therefore, a trust.

But, waiving this point as being a narrow construction of the statute, we must not forget that we are here dealing with a taxing statute (section 221 of the Tax Law), and find therein the exemption which the law intends to make of cemetery properties.

‘There shall also be exempted,’ reads the section, ‘from and not subject to the provisions of this article personal property other than money or securities bequeathed to a corporation or association wherever incorporated or located, organized exclusively for the moral or mental improvement of men or women or for scientific, literary, patriotic, cemetery or historical purposes or for two or more of such purposes and used exclusively for carrying out one or more of such purposes.’

It must be assumed that, as this section makes a specific exemption, stating the nature of the property bequeathed to a cemetery corporation which is to be free from the tax upon transfers, all other property devised or bequeathed to such a corporation is subject to the tax. The property here in question passing by the decedent’s will to the Family Association consisted of real estate, money, and securities. Such property was not exempted, but made subject to the tax. Neither can we say that this corporation was created exclusively for scientific, literary, patriotic, cemetery, or historical purposes. Whether or not, therefore, the corporation be a charitable corporation for other purposes, it is not such a charitable corporation as brings it within this exemption of section 221 of the Tax Law.

But the Family Association for reasons intimated by me heretofore is not a charitable corporation, and I desire to state further my reasons for this conclusion. The facts are fully set forth in the previous opinion in this case. The persons who may be benefited by this corporation are the members of the family. To me it seems apparent that a corporation formed for the purpose of educating the members of a testator’s family or aiding his poor descendants or ancestors is not a charitable corporation. The order of the Appellate Division must therefore be reversed, and that of the Surrogate’s Court affirmed, with costs in this court and in the Appellate Division.

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