Practitioners advising on succession duty (and analogous estate/inheritance taxes) must recognise that where a settlement creates an imperative trust for distribution of income arising on the settlor's death, with a discretionary power of selection among specified persons, each distribution constitutes a succession liable to duty, as the exercise of the power is read into the settlement.
Later decisions that cite Queensland Trustees Ltd v Commissioner of Stamp Duties
QUEENSLAND TRUSTEES LTD. v. COMMISSIONER OF STAMP DUTIES [1952] HCA 52; (1952) 88 CLR 54
Succession Duty (Q.)
High Court of Australia
Dixon C.J.(1), McTiernan(1), Webb(1) and Kitto(1) JJ.
CATCHWORDS
Succession Duty (Q.) - "Succession" - Settlement - Trust during lifetime of settlor to apply income at trustees' discretion in favour of any of specified persons - After death of settlor imperative trust to apply income in favour of any of specified persons - Payments of income made after settlor's death - Liability to duty - The Succession and Probate Duties Acts, 1892 to 1948 (Q.) (56 Vict. No. 13 - 12 Geo. 6 No. 23), ss. 4, 12, 20, 37.
HEARING
Brisbane, 1952, June 17;DECISION
October 13.2. The assessments were made upon the footing that successions were conferred, within the meaning of the Acts, by two settlements made by one Margaret Hart Martin on 27th September 1932 and 24th April 1944 respectively. In each case, duty was assessed upon a series of payments of income made to a beneficiary since 12th October 1948, which was the date on which the settlor died; and a note was added intimating that further succession duty would become payable on income from the settled fund when it should be paid to the beneficiary. (at p60)
3. The first of the settlements was made in favour of the settlor's niece, one Margaret Hart Martin the younger, and others. Its beneficial limitations commenced with a provision conferring upon the trustees a power, from time to time if and when and at such times and in such manner as they should in their absolute discretion think fit but not otherwise, to pay or apply the income as they might from time to time think advisable in or towards the maintenance or support of the niece, any husband whom she might marry, any children or child of hers, any issue of any such child living at her death, or any of her next of kin as if she had died intestate and unmarried. The discretion extended to paying the rent or other expenses of a home or residence for the niece or other persons or any of them or otherwise applying the income for the maintenance and personal support or benefit of all or any one or more to the exclusion of the other or others or make any other like application of such income. This discretionary power, which was restricted to the lifetime of the niece, was made subject to a proviso that from and after the death of the settlor the trustees should pay or apply the whole of the income in manner aforesaid half-yearly at least in every year. There was a trust for accumulation of surplus income for the maximum period allowed by law or until the death of the niece, whichever event should first be reached or happen. The income not applied in pursuance of the discretionary power during the life of the niece and prior to the death of the settlor was directed to fall into the trust fund, and a charitable destination was prescribed for the application of such income in the event of the trustees being unable lawfully to comply with this direction. After the death of the niece a discretionary power was created, during the minority of any child or the other issue of the niece living at her death, in favour of all or any such children or such other issue, but so that after the death of the settlor the whole of the income should be paid or applied in each year as aforesaid. Upon the death of the niece, the fund and all accumulations were given over. (at p60)
4. At the death of the settlor, the niece was still unmarried and her next-of-kin was her brother. She married on 5th September 1950, but has had no issue. Her brother died on 8th June 1951. (at p60)
5. The second settlement was made in favour of a second cousin of the settlor, one Josephine Margaret Martin (now Callaghan) and others. Its terms, so far as material, were identical with those of the niece's settlement except that no provision was made for any husband the second cousin might marry. She in fact married on 4th January 1945, and has had issue two children, a son born on 25th February 1946 and a daughter born on 4th January 1949. (at p61)
6. The controversy raised by the appeals depends upon the true construction and application of certain sections of The Succession and Probate Duties Acts 1892 to 1948 (Q.), which was based upon, but is not in all respects identical with, The Succession Duty Act 1853 (16 & 17 Vict. c. 51) (Imp.). The Queensland Act (by s. 12) imposes a duty at specified rates in respect of every succession; and (by s. 20) it makes the duty payable when the successor, or any person in his right or on his behalf, becomes entitled in possession to his succession or to the receipt of the income and profits thereof, subject to certain exceptions not relevant to these appeals. This section "only defers the time for payment, in cases where the successor is not entitled to immediate possession, until the right to possession matures, and the duty is none the less imposed and charged at the moment when the succession is conferred": Lord Advocate v. Macalister (1924) AC 586, at p 591 . Special provision is made by s. 37 for the case where a successor has not obtained the whole of his succession at the time of the duty becoming payable. In that case the successor is chargeable only with duty on the value of the property or benefit from time to time obtained by him. (at p61)
7. Section 4 of the Act supplies the test for ascertaining whether a succession has been conferred. So far as material it provides: "Every . . . disposition of property, by reason of which any person . . . shall become beneficially entitled to any property or the income thereof upon the death of any person . . . either immediately or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation . . . shall be deemed . . . to confer on the person entitled by reason of such disposition . . . a 'succession'; and the term 'successor' shall denote the person so entitled . . ." (at p61)
8. Each of the settlements with which we are concerned was, of course, a disposition of property, and under its provisions the death of the settlor unquestionably made a difference in regard to the income of the settled property. The trust as to income which operated until that event was a trust for accumulation subject to a discretionary power to apply income for the benefit of any of the specified persons; but the trust taking effect upon the settlor's death was a trust which imperatively required the payment or application of the whole income at least half-yearly for the benefit of one or more of the specified persons, with a discretionary power limited to making a selection amongst them from time to time and deciding the manner in which the selected person or persons should be benefited. If the latter power had not been conferred it is clear that s. 4 would have been satisfied, and there would have been a succession conferred, for the specified persons would have become beneficially entitled to the income of property upon the death of a person (the settlor), immediately and certainly. This would have been true whether the specified persons had been in existence and ascertained at the date of the settlements or had become so after that date but before the death of the settlor; for "a succession under a disposition is not conferred until some person who can be named or identified becomes beneficially entitled to the property upon the death of some other person, whether he becomes so entitled immediately or subject to some intervening estate or interest": Lord Advocate v. Macalister (1924) AC 586, at p 593 . (at p62)
9. It was argued for the appellants that, although it is true that the death of the settlor put an end to the discretionary power as to income which had subsisted until then, and brought into operation the imperative trust as to income and the new power to decide the manner of distribution, it is nevertheless not true that upon that death any person or persons became beneficially entitled to the income either immediately or after an interval, either certainly or contingently, either originally or by way of substitutive limitation. They contend that in one respect, and that the vital one, the situation remained after the settlor's death exactly as it was before: no person had any right to receive any income except by an exercise of the discretionary power of the trustees in his or her favour. Therefore, they say, no person became beneficially entitled to any property or the income thereof upon the death of the settlor; and, that being so there was here no "successor" and no "succession". (at p62)
10. The proposition that no person had any right to receive any income except by an exercise of the power confided to the trustees, though true in relation to the period before the settlor's death, is not accurate in relation to the period thereafter. Before the death, none of the specified persons could be described as beneficially entitled to the income or any part of it, except as and when an exercise of the trustees' discretionary power might give it to him or her: Re Eddowes (1861) 1 Drew & Sm 395 (62 ER 430) ; In re Baron Vestey's Settlement; Lloyds Bank Ltd. v. O'Meara (1951) Ch 209, at p 224 . Upon the death, the persons amongst whom for the time being the income was required to be distributed in the manner determined by the trustees became beneficially entitled in equal shares to the income accruing during the lifetime of the niece in the one case and of the second cousin in the other case: Brown v. Higgs [1799] EngR 784; (1799) 4 Ves 708 (31 ER 366); (1800) 5 Ves 495 (31 ER 700); (1801) 8 Ves 561 (32 E.R. 473) ; Burrough v. Philcox (1840) 5 My & Cr 72 (41 ER 299) : In re Weekes' Settlement (1897) 1 Ch 289 ; Lambert v. Thwaites (1866) LR 2 Eq 151, at p 155 ; In re Arnold; Wainwright v. Howlett (1947) Ch 131 ; In re Scarisbrick; Cockshott v. Public Trustee (1951) Ch 622, at p 635 ; the interest of each of them being a vested interest, though liable to be divested wholly or in part by an exercise of the trustees power to select one or more of them to the exclusion of the other or others: In re Hughes; Hughes v. Footner (1921) 2 Ch 208, at p 214 ; In re Clarke; Bracey v. Royal National Lifeboat Institution (1923) 2 Ch 407, at p 419 . Consequently each of the persons in whose favour a trust to apply income during the lifetime of the principal beneficiary arose upon the death of the settlor, that is to say the niece and her brother in the one case, and the second cousin and her son in the other case, became beneficially entitled to that income upon that death, immediately, certainly and originally. The settlements therefore conferred successions upon those persons, and as they become entitled immediately in possession to their successions, they became liable to pay succession duty by reason of s. 20 of the Act, subject to the provisions of s. 37. By reason of the latter section they were chargeable only with duty on the value of any benefit they might from time to time obtain. During the period under consideration, they did not obtain any benefit, for their interests in each amount of income which became distributable in that period were defeated (and, as will be mentioned in a moment, were defeated in toto), by the exercise of the discretionary power of the trustees. Accordingly it was right not to make assessments against them. (at p63)
11. The assessments which have been made treat each of the persons to whom payments of income have been made by the trustees since the settlor's death as having become, on the date of each payment, entitled in possession to a succession consisting of the beneficial right to the amount paid on that date, and the commissioner has intimated that further duty will be payable on future income when paid. Upon the question whether the right to each amount of income paid in exercise of the power of the trustees to select a recipient from amongst the specified group is a succession, it must be borne in mind that the effect of each exercise of that power was to divest completely the interests which, by reason of the imperative trust for distribution, existed antecedently in the relevant amount of income, and to confer a new title to that amount upon the person in whose favour the power was exercised: Jackson v. Commissioner of Stamps (1903) AC 350, at p 354 ; In re Dickinson's Settlements; Bickersteth v. Dickinson (1939) Ch 27, at p 30 ; and other cases cited in Halsbury, Laws of England (2nd ed.), vol. 25, p. 564, par. 1006, note (k). For this reason, the appellants are able to take the first step in their argument by saying that it is no less true of income paid out by the trustees after the settlor's death than it was of income paid out before the settlor's death that the recipient's right to receive it arose upon the exercise of the trustees' power to decide the manner of distribution, and arose then as a new right. (at p64)
12. But it is essential not to lose sight of the fact that the power exercisable after the settlor's death is not the same power as was exercisable before the death. They are quite different powers, though it is true that the settlements confer them upon the same trustees in favour of the same category of persons and in respect of the income of the same property. The difference is that the power exercisable before the death was a power to defeat a trust for accumulation; the power exercisable after the death is a power to defeat a trust for the persons who are the objects of the power. They are therefore powers which not only arise at different periods but are exercisable upon different considerations. The power which arose upon the settlor's death must accordingly be considered, not as if it were a mere prolongation of the previously existing power, but as a new power brought into existence by the death. (at p64)
13. This brings us to the two crucial questions in the case, which are whether in the case of each settlement, each amount of income received by a beneficiary under an exercise of that power of the trustees which arose upon the settlor's death was property to which the recipient became beneficially entitled "by reason of" the settlement; and, if so, whether the recipient became beneficially entitled to that income "upon the death" of the settlor within the meaning of s. 4. Of course there were three links in the recipient's chain of title to each amount, the settlement, the death of the settlor and the decision of the trustees, and the amount passed to the recipient by their conjoint effect. But, as has often been held with respect to special powers of appointment, when property passes under an exercise of such a power, it is the creation of the power, and not the exercise of it, by reason of which the property is taken: Muir or Williams v. Muir (1943) AC 468, at pp 483, 486 ; In re Dowie's Will Trusts; Barlas v. Pennefather (1949) Ch 547, at pp 553-554 ; In re Batty; Public Trustee v. Bell (1952) Ch 280, at p 283 ; and accordingly it is the instrument conferring the power which is properly to be called the disposition: cf. In re Hoff; Carnley v. Hoff (1942) Ch 298 . In the present cases, each exercise of the trustees' power to apply income after the settlor's death takes effect, to adapt Lord Romer's language (1943) AC, at p 483 , as if the settlor had left a blank in the settlement which the trustees fill up for her; and the result of their filling it up in relation to a particular amount of income is the divesting of the antecedently existing interests in that amount and the substitution of an absolute interest therein in favour of the selected recipient. The important point is that the exercise of the trustees' power is, so to speak, to be read into the settlement, so that the income to which the exercise relates must be considered to pass as if the settlement had actually provided that after the settlor's death that sum of income should be paid or applied to or for the benefit of the chosen beneficiary. So considered, the recipient's beneficial title to that income arises "by reason of" the settlement, and arises upon the death of the settlor, not immediately but after an interval, not certainly but contingently, not originally but by way of substitutive limiation; and the recipient is the "successor", being the person entitled to the succession at the date when it becomes an interest in possession: Duke of Northumberland v. Attorney-General (1905) AC 406, at p 419 . (at p65)
14. A useful contrast is provided by the case of Attorney-General v. Eyres (1909) 1 KB 723 . A settlement provided an annuity for each of the trustees for the time being, and it gave the settlor a power to appoint new trustees. One trustee having died and the settlor having made an appointment to fill the vacancy, the Crown claimed succession duty, contending that the new trustee became entitled to his annuity by reason of the settlement and upon the death of the former trustee. The argument for the Crown sought to read the appointment into the settlement as if the new trustee had been named therein in substitution for the original trustee, and by this means to show that the new trustee's annuity arose upon the death "by way of substitutive limitation". Channell J. decided against the Crown. He held that a "substitutive limitation" means a limitation substituted by virtue of the settlement for that originally created, and that, while it might have been otherwise if the settlement had provided that upon the death of the original trustee the individual appointed as new trustee should take the vacant place, there was no such substitutive limitation where the annuity arose by reason of a vacancy (which might have resulted from causes other than death) and the appointment to fill it, coupled with the annuity provision in the settlement. "The death had really only a remote and accidental connection with the matter." (at p66)
15. In the present case, there is no difficulty in treating each exercise of the trustees' power as taking effect by reason of that provision of the settlement which declares the trusts to take effect upon the settlor's death. To do so accords with well-established principle. It follows that with respect to each amount of income distributed the conditions are fulfilled upon which a succession consisting of the absolute interest in that amount must be deemed by virtue of s. 4 of the Act to have been conferred. To this succession the selected beneficiary becomes entitled in possession upon the trustees deciding to make the payment; and the duty becomes payable at that time by virtue of s. 20. (at p66)
16. The assessments were right and the appeals should be dismissed. (at p66)
ORDER
Appeals dismissed with costs.