
    In the Matter of the Appraisal, Under the Act in Relation to Taxable Transfers of Property, of the Property of Eugene A. Livingston, Deceased. John Henry Livingston, as Executor, etc., of Eugene A. Livingston, Deceased, Appellant; Ashbel P. Fitch, Comptroller of the City of New York, Respondent.
    
      Taxable Transfer Act—payment of mortgages from personalty does not reduce the personalty for pwposes of taxation — heir or devisee must pay mortgages.
    
    In a proceeding taken under the Taxable Transfer Law (Chap. 399 of the Laws of 1892) it appeared that Eugene A. Livingston left a will by which he devised his residuary estate, real and personal, to his executors in trust for the benefit of four of his children, and after the termination of these trusts to such of his five children as should be living, and to the issue of such as should be dead. He empowered his executors, in their discretion, to pay certain mortgages which existed upon his real property out of the personal property, and the executors made payments -of this nature to the amount of more than §52,000.
    An order was entered in the Surrogate’s Court assessing the transfer tax upon the residuary personal estate, in which no deduction was made for this payment by the executors of the mortgages upon the real property.
    
      Held, that the order was correct;
    That the mortgage debt was payable by the heir or devisee, under the provisions of the Revised Statutes (R. S. pt. 2, chap. 1, tit. 5, § 4), which were applicable despite the fact that both the real and personal property were owned by the same individuals;
    That since both the real and personal property were in the same hands, if the legatee chose to apply his personalty to the satisfaction of the mortgage, he thereby benefited his real estate, and the effect was substantially that he made an investment of the personalty in the realty;
    That the exercise of the power given to the executors to pay the mortgages out of the personalty was the same in effect as though the two estates had been given directly to the beneficiaries, and they, at their pleasure, had utilized one of the estates for the relief of the other;
    That the “ transfer ” of the property, within the meaning of the act, was effected by the death of the testator; that the tax became due and payable at once, and that the payment of the mortgages out of the personalty had no effect in reducing the amount of the taxable personal estate.
    Appeal by John Henry Livingston, as executor, etc., of Eugene A. Livingston, deceased, from an order 'of the Surrogate’s Court of the county of New York, entered in said Surrogate’s Court on the 8th day of January, 1896, affirming an order entered in said court on the 19th day of November, 1895, assessing a tax upon the estate under the Taxable Transfer Law.
    The testator, a resident of this State, left a will, by the third clause of which he gives and devises all the rest and residue of his property, both real and personal, remaining after the payment of certain legacies contained in prior clauses, to his executors upon certain trusts for the benefit of four of his children. By the fourth clause, after the termination of'these trusts, he devises and bequeaths all of said property to such of his five children as shall be living, and to the issue of such as shall be dead. In a latter part of the will he empowers his executors “ in their discretion ” to pay certain mortgages, upon the real property out of the personalty. This the executors did, the payment amounting to $52,297.96. The order appealed from, in assessing the transfer tax upon the residuary personal estate, makes no deduction for this payment, but assesses the tax upon the whole of said estate of $67,283.40.
    
      David B. Ogden, for the appellant.
    
      Emmet Ii. Oleott and Edgar J. Levey, for the respondent.
   Barrett, J.:

The learned surrogate, in declining to reduce the personal estate as demanded by the appellant, acted upon the principle that the mortgage debt was, under the Revised Statutes, properly payable by the heir or devisee. (R. S. pt. 2, chap. 1, tit. 5, § 4.) The appellant insists that the statute is inapplicable to cases where the same persons take the realty and personalty as a blended fund. The contrary seems to us to be the correct view. Indeed, we think the statute is doubly applicable to such a case. Eyen the common-law rule would scarcely, under such circumstances, affect the statutory liability. Whether treated under the common-law rule or under the statute, the practical question is, shall the heir or devisee satisfy the mortgage or shall that burden be borne by others interested in the personalty? No such question can arise when the real and personal property are in the same hands. If the legatee chooses to apply his personalty to the satisfaction of the mortgage he benefits his real estate pro tamto. He neither gains nor loses by its application or non-application. The payment of the mortgage would amount substantially to an investment of the personalty in the real estate.

In Hepburn v. Hepburn (2 Bradf. 75) the provisions of the will were somewhat similar to those in the case at bar. There, the executrix had paid interest upon mortgages out of the principal of the estate. Surrogate Bbadfobd, after referring to the statutory rule, that real estate must bear its own burdens, and that the personal estate cannot be resorted to for the purpose of discharging bonds and mortgages, said: ' “ But here the testator has thrown his whole property into one fund, and designed that his wife and son should receive the entire net income for life. There is no-strife between the two classes of property. The same parties are interested in both equally. The testator’s intention would be answered by the payment of a mortgage on the real estate, if it were a good investment or necessary for the preservation of the property, instead of an investment on bond and mortgage elsewhere.”

In the present case the executor was clothed with power, in his-discretion, to apply the personalty in satisfaction of the mortgages; in other words, discretion to satisfy them as the statute declares they shall be satisfied, namely, out of the property of the devisee. It is immaterial whether that property came under the will or was independent of it.

The exercise of the power was, in effect, the same as though the two estates had been given directly to the objects of the testator’s bounty, and they at their pleasure had utilized one of such estates for the relief of the other. This exercise of power was not in the least analogous to that referred to in Matter of James (144 N. Y. 6). There the executor exercised his discretion to pay legacies out of property in Great Britain. The court held that he had the right to do so, and that as the testator was domiciled in Great Britain, and as the property was out of our jurisdiction, the legacies could not be taxed here. The legacies were not necessarily payable out of the property within our jurisdiction. The executor acted within the scope of his authority in paying them out of non-taxable property, and the legatees were absolved because, under the will, they neither received taxable property nor derived any benefit therefrom.

In the present case the testator was domiciled here, and the estate is here. The tax was imposed by the statute upon the “ transfer ” of the property (Laws of 1892, chap. 399, § 3). That transfer was effected, by the death of the testator, and the tax became due and payable immediately. The subsequent act of the executor had no greater effect to reduce the taxable personalty than would the taking of the money by the beneficiary out of one pocket and putting it into the other.

The order of the surrogate should be affirmed, with costs.

Vait Brunt, P. J., Rumsey, Williams and Patterson, JJ., concurred.

Order affirmed, with costs.  