Graves v. Schmidlapp

Background

A man who lived in New York received, under his Massachusetts father’s will, the lifetime use of a trust share and a general power to dispose of that share "by will." The trust property — mostly receivables, stocks, and bonds — was held by trustees in Massachusetts. When the New York resident died and appointed his share to his widow, New York sought to include those appointed intangibles in his taxable estate. New York courts excluded the appointed property from the estate tax, and the issue reached this Court.

Reasoning

The central question was whether New York, as the decedent’s state of residence, could tax the exercise of a testamentary power over intangible trust property located in another state. The Court said yes. It explained that a general power to dispose of property at death is, for taxation purposes, equivalent to ownership and is an enjoyment of wealth the state may tax at the place of the owner’s domicile. The Court relied on earlier decisions that treated intangibles as taxable at the owner’s domicile and concluded a contrary earlier case had been wrongly decided and must be overruled.

Real world impact

As a result, states can include appointed intangibles in the taxable estate of residents who exercise powers of appointment, even when the underlying trust is administered elsewhere. The decision sustains New York’s estate tax claim here, but it does not resolve separate questions about whether the will complied with Massachusetts law — those issues are left to the state courts.

Dissents or concurrances

One Justice joined the Court’s judgment only for narrow reasons, saying he felt bound by prior decisions and otherwise would have ruled differently.