                                        No. 13109

          I N THE SUPREME COURT OF THE STATE OF M N A A
                                                 OTN

                                             1975



T N THE MATTER OF THE ESTATE
OF GRETCHEN G. WARD, Deceased.



Appeal from:          D i s t r i c t Court o f t h e S i x t h J u d i c i a l D i s t r i c t ,
                      Honorable J a c k Do Shanstrom, Judge p r e s i d i n g .

Counsel of Record:

      For A p p e l l a n t :

                R o b e r t W.   Corcoran a r g u e d , Helena, Montana

      For Respondent :

                Davidson, Veeder, R o b e r t s and Baugh, B i l l i n g s ,
                 Montana
                David A. Veeder a r g u e d , B i l l i n g s , Montana



                                                      Submitted :         November 10, 1975

                                                          Decided:       OEC    - 3 1975
Fi].ed:   ]ti           9/kj
Mr.    J u s t i c e Frank I . Haswell d e l i v e r e d t h e Opinion o f t h e C o u r t .

             T h i s i s a n a p p e a l by t h e Montana Department of Revenue

from a n o r d e r of t h e d i s t r i c t c o u r t , P a r k County, d e t e r m i n i n g

a n i n h e r i t a n c e t a x o f $37,298.09 i n t h e Gretchen G. Ward e s t a t e .

             A t i s s u e i s whether t h e v a l u e o f E n g l i s h t r u s t p r o p e r t y

c o n s i s t i n g of s t o c k s and bonds s u b j e c t t o d e c e d e n t ' s s p e c i a l

power of appointment i s t a x a b l e under Montana i n h e r i t a n c e t a x

laws.      The d i s t r i c t c o u r t h e l d i t n o n t a x a b l e .    W reverse.
                                                                               e

             Decedent i s Gretchen G. Ward who d i e d d o m i c i l e d i n Mon-

t a n a on May 8 , 1973.            H e r w i l l was a d m i t t e d t o p r o b a t e i n t h e

d i s t r i c t c o u r t of Park County, Montana.                  During t h e c o u r s e o f

p r o b a t e , a d i s p u t e a r o s e between t h e Montana Department of Revenue

and t h e e x e c u t o r s of h e r e s t a t e o v e r t h e amount of s t a t e i n h e r i -

t a n c e t a x e s owing.       The c r u x of t h e d i s p u t e w a s whether t h e v a l u e

of c e r t a i n E n g l i s h t r u s t p r o p e r t y o v e r which d e c e d e n t h e l d a

s p e c i a l power o f a p p o i n t m e n t s h o u l d be i n c l u d e d i n h e r g r o s s es-

t a t e s u b j e c t t o Montana i n h e r i t a n c e t a x e s .      The e x e c u t o r s c l a i m e d

i t s h o u l d n o t , e x c l u d e d i t , and r e t u r n e d a g r o s s t a x a b l e e s t a t e

o f $926,864.30 and a n i n h e r i t a n c e t a x o f $37,298.09.                      The Depart-

ment o f Revenue contended t h a t t h e g r o s s t a x a b l e e s t a t e s h o u l d

be i n c r e a s e d by $355,274.68,            t h e value of t h e English t r u s t property

on t h e d a t e o f d e c e d e n t ' s d e a t h , and t h a t a n a d d i t i o n a l i n h e r i -

t a n c e t a x o f $27,421.96 was due t h e s t a t e .

             D e c e d e n t ' s f a t h e r , George G e e , w a s a l i f e l o n g r e s i d e n t o f

England and had n e v e r been a r e s i d e n t o f Montana o r t h e United

States.       He e s t a b l i s h e d a t r u s t under t h e t e r m s of h i s w i l l and

p r o v i d e d t h a t a l l t r u s t income was t o be p a i d d e c e d e n t d u r i n g h e r

lifetime.         Mr.   G e e ' s w i l l a l s o g r a n t e d d e c e d e n t a s p e c i a l power

of appointment o v e r t h e c o r p u s of t h e t r u s t , i . e . a l i m i t e d power

t o d i s p o s e of t h e t r u s t p r o p e r t y .   Decedent was g i v e n t h e power

t o dispose of t h e corpus              " * * * t o h e r c h i l d r e n o r more remote
i s s u e l i v i n g a t her death         * * *     a s s h e may by deed o r w i l l o r

c o d i c i l appoint      * * *:     b u t i f decedent d i d n o t e x e r c i s e such

power o f appointment t h e c o r p u s was t o be d i s t r i b u t e d upon h e r

death     "    * * *    among such c h i l d r e n o r r e m o t e r i s s u e i n e q u a l

shares per s t i r p e s        * * *."        Decedent c o u l d n o t a p p o i n t t h e c o r p u s

t o herself o r her e s t a t e .

               Decedent d i e d w i t h o u t e x e r c i s i n g h e r power o f a p p o i n t -

ment.         P u r s u a n t t o M r . Gee's w i l l , t h e c h i l d r e n and more remote

i s s u e e n t i t l e d t o t h e corpus of t h e t r u s t a r e :           William George

Ward, son; Gretchen Ward D'Ewart, d a u g h t e r ; J e a n Ward C l o s e ,

d a u g h t e r ; and Wanda K .       Swainson, g r a n d d a u g h t e r .

               The t r u s t p r o p e r t y h a s always been p h y s i c a l l y s i t u a t e d

i n England.           I t h a s been a d m i n i s t e r e d i n England i n a c c o r d a n c e

with English l a w .            I t h a s been s u b j e c t e d t o E n g l i s h e s t a t e and

income t a x e s .       The t r u s t p r o p e r t y was s u b j e c t t o d i s t r i b u t i o n

under t h e t e r m s o f t h e t r u s t p u r s u a n t t o t h e l a w s o f England.

               Following h e a r i n g and submission o f b r i e f s , t h e d i s t r i c t

c o u r t h e l d , i n e f f e c t , t h a t t h e v a l u e o f t h e E n g l i s h t r u s t prop-

e r t y was n o t s u b j e c t t o Montana i n h e r i t a n c e t a x e s and d e t e r m i n e d

t h e inheritance t a x accordingly.                     From t h i s o r d e r , t h e Department

of Revenue a p p e a l s .

               The i s s u e s on a p p e a l c a n be summarized i n t h i s manner:

               (1) Is t h e v a l u e o f t h e E n g l i s h t r u s t p r o p e r t y exempt

from Montana i n h e r i t a n c e t a x e s by t r e a t y between t h e United S t a t e s

and t h e United Kingdom, 60 S t a t . 1391?

               ( 2 ) Is s e c t i o n 91-4404,       R.C.M.      1947, o f t h e Montana i n -

h e r i t a n c e t a x law u n c o n s t i t u t i o n a l a s a p p l i e d t o t h i s c a s e ?

               ( 3 ) I f n o t , s h o u l d c r e d i t be g i v e n f o r payment o f E n g l i s h

d e a t h t a x e s a g a i n s t t h e Montana i n h e r i t a n c e t a x ?

               The e x e c u t o r ' s f i r s t c o n t e n t i o n i s t h a t Montana h a s no

j u r i s d i c t i o n t o l e v y an i n h e r i t a n c e t a x on t h e E n g l i s h t r u s t
p r o p e r t y under t h e p r o v i s i o n s of a t a x t r e a t y between t h e United

S t a t e s and t h e United Kingdom.                 T h i s t r e a t y i s found i n 60 S t a t .

1391 and was proclaimed by t h e P r e s i d e n t on J u l y 30, 1946.                              Its

s t a t e d purpose is:

             " * * * t h e a v o i d a n c e o f d o u b l e t a x a t i o n and t h e
             prevention of f i s c a l evasion with r e s p e c t t o t a x e s
             on t h e e s t a t e s of d e c e a s e d p e r s o n s * * *".

The t a x e s s u b j e c t t o t h e t r e a t y a r e :

             " ( a ) I n t h e United S t a t e s o f America, t h e F e d e r a l
             e s t a t e t a x , and ( b ) I n t h e United Kingdom o f Great
             B r i t a i n and N o r t h e r n I r e l a n d , t h e e s t a t e d u t y imposed
             i n G r e a t Britain".          A r t . I , Sec. (1).

The t r e a t y a p p l i e s   " * * * t o any o t h e r t a x e s of a s u b s t a n t i a l l y
s i m i l a r c h a r a c t e r imposed by e i t h e r C o n t r a c t i n g P a r t y       subsequently

t o t h e d a t e o f s i g n a t u r e o f t h e p r e s e n t Convention o r by t h e gov-

ernment o f any t e r r i t o r y t o which t h e p r e s e n t Convention a p p l i e s

under A r t i c l e V I I I o r A r t i c l e IX".          Art.     I(2).      A r t i c l e V I I I pro-

v i d e s a procedure f o r t h e extension o r l i m i t a t i o n of t h e scope

of t h e t r e a t y t o e i t h e r c o n t r a c t i n g p a r t y ' s   " * * * colonies,
overseas t e r r i t o r i e s , protectorates, o r t e r r i t o r i e s i n respect

of which it e x e r c i s e s a mandate, which imposes t a x e s s u b s t a n t i a l l y

s i m i l a r i n c h a r a c t e r t o t h o s e which a r e t h e s u b j e c t o f t h e p r e s e n t

Convention.*          * *"      Article I X relates entirely t o estate duties

imposed i n N o r t h e r n I r e l a n d .       The t r e a t y h a s n o t been e x t e n d e d t o

cover s t a t e i n h e r i t a n c e t a x e s s i n c e i t s inception.

             The t r e a t y a t i t s i n c e p t i o n d i d n o t c o v e r s t a t e i n h e r i -

tance taxes.           The Commissioner of I n t e r n a l Revenue o f t h e United

S t a t e s , w i t h a p p r o v a l of t h e S e c r e t a r y o f t h e T r e a s u r y , a d o p t e d

r e g u l a t i o n s implementing t h e t r e a t y , among which was t h e f o l l o w -

ing provision:

             "The p r o v i s i o n s o f t h e c o n v e n t i o n a r e r e s t r i c t e d
             t o t h e e s t a t e t a x imposed by t h e United S t a t e s ,
             t h e e s t a t e d u t y imposed i n G r e a t B r i t a i n , and t h e
             e s t a t e d u t y imposed i n Northern I r e l a n d , and do
             n o t comprehend any o f t h e e s t a t e , i n h e r i t a n c e ,
             l e g a c y , and s u c c e s s i o n t a x e s imposed by t h e S t a t e s
        ~erritories,the District of Columbia, and pos-
        sessions of the United States or the legacy and
        succession duties imposed in Great Britain and
        Northern Ireland. (Articles I and IX of the
        Convention.)" Treasury Dept. Regulations, Sec.
        82-102.
Thus the tax treaty has no application to Montana's inheritance
taxes, and the provisions of the treaty are irrelevant to any
issue in the instant case.
        The principal issue is whether the application of section
91-4404, R.C.M.   1947, to the facts of this case violates the "due
process" clause of the Federal and State Constitutions.   In analyz-
ing this question we find no basis for any distinction between
the "due process" clause in the Federal Constitution and that in
the State Constitution as applied to this issue.
        The fundamental contention of the Department of Revenue
is that domicile alone is a constitutionally permissible basis
for imposing an inheritance tax here, and there is no distinction
as to taxability between a general or special power of appoint-
ment, whether exercised or not exercised.   The ultimate conten-
tion of the executors on the other hand is that there are only
two constitutionally permissible bases on which a domiciliary
state can impose an inheritance tax on intangibles located in a
foreign country, viz. the "ownership" principle and the "benefit"
principle, neither of which is satisfied under the facts of this
case.
        Section 91-4404 provides:
        "Transfers under power of appointment. Whenever
        any person or corporation shall exercise a power
        of appointment derived from any disposition of
        property, made either before or after the passage
        of this act, such appointment, when made, shall be
        deemed a transfer taxable under the provisions of
        this act, in the same manner as though the property
        to which such appointment relates belonged absolute-
        ly to the donee of such power, and had been be-
        queathed or devised by such donee by will; and
        whenever any person or corporation possessing such
        a power of appointment so derived shall omit or
         fail to exercise the same within the time
         provided therefor, in whole or in part, a
         transfer taxable under the provisions of this
         act, shall be deemed to take place to the ex-
         tent of such omission or failure, in the same
         manner as thouqh the persons or corporations
         thereby becoming entitled to the possession or
         enjoyment of the property to which such power
         related, had succeeded thereto by a will of the
         donee of the power failing to exercise such power,
         takinq effect at the time of such omission or
         failure." (Emphasis supplied.)
         A review of the broad constitutional principles applic-
able to state inheritance taxation of intangibles is appropriate
at the outset.       Rights in intangibles are not related to physical
things and the power of the government over them cannot be exer-
cised through control over any physical thing whose situs can be
fixed in one place; rights in intangibles are but relationships
between persons which the law recognizes by attaching to them
certain sanctions enforceable in the courts; they cannot be dis-
sociated from the persons from whose relationships they are de-
rived.   Curry v. McCanless (1939), 307 U.S. 357, 59 S.Ct. 900,
83 L ed 1339.    The constitutional and jurisdictional basis for
the imposition of a state inheritance tax on intangibles is the
state's control over the person and estate of its domiciliary
and his duty to contribute to the support of the government there.
Central Hanover Bank Co. v. Kelly (1943), 319 U.S. 94, 63 S.Ct.
                r8
             t 2-
945, 87 L ed 1243%; Graves v. Schmidlapp (1942), 315 U.S. 657, 62
S.Ct. 870, 86 L ed 1097.      The imposition of a state inheritance
tax on intangibles on this basis does not violate the "due process"
clause of the United States Constitution.      Graves v. Schmidlapp,
supra; Central Hanover Bank Co. v. Kelly, supra.      Nor does the
imposition of an inheritance tax by another state render an in-
heritance tax of the domiciliary state constitutionally imper-
missible.   Curry v. McCanless, supra.
         The right of a state to impose an inheritance tax on a
power of appointment, i.e. a right to control the disposition of
property, is constitutionally well established.   Bullen v.
Wisconsin (1916), 240 U.S. 625, 36 S.Ct. 473, 60 L ed 830;
Saltonstall v. Saltonstall (1928), 276 U.S. 260, 48 S.Ct. 225,
72 L ed 565; Curry v. McCanless, supra; Graves v. Elliott (1939),
307 U.S. 383, 59 S.Ct. 913, 83 L ed 1356; Whitney v. Tax Commis-
sion (1940)r309 U.S. 530, 60 S.Ct. 635, 84 L ed 909; Graves v.
Schmidlapp, supra.    A power of appointment over property is equiv-
alent to ownership of the property for state inheritance tax
purposes.   Bullen v. Wisconsin, Graves v. Elliott, Curry v. Mc-
Canless, supra.    Thus, the value of the property is a proper
measure of a state inheritance tax.   Graves v. Elliott, supra.
        A state may constitutionally impose an inheritance tax
on a general (unlimited) power of appointment over intangibles
which is exercised.    Saltonstall v. Saltonstall, Curry v. McCanless,
Graves v. Schmidlapp, supra.   A state may also constitutionally
impose an inheritance tax on a general power of appointment over
intangibles which is not exercised.   Graves v. Elliott, supra.
And a state may constitutionally impose an inheritance tax on an
exercised special power of appointment, i.e. where the power of
disposition over the property cannot be used to transfer the
property to the holder of the power of appointment or his estate.
Whitney v. Tax Commission (1940), 309 U.S. 530, 60 S.Ct. 653, 84
L ed 909.   As far as we have been able to determine, there is no
United States Supreme Court ruling on the constitutionality of
a state inheritance tax on an unexercised special power of appoint-
ment.
        As we understand it, the executors do not attack the con-
stitutionality of P4ontanaVsstatute imposing such an inheritance
tax on its face.   Instead, they contend that the imposition of
such inheritance tax as applied to the instant case violates "due
process", principally because the sole contact between the state
of Montana and the English trust property is the domicile of a
decedent who did not exercise her special power of appoint-
ment and that such contact is an insufficient basis for impos-
ing an inheritance tax.
         There are two decisions of state supreme courts on this
issue reaching opposite conclusions.    The Colorado Supreme Court
upheld the constitutionality of such inheritance taxation, People
v. Cooke (1962) 150 Colo. 52, 370 P.2d 896, 900, while the Ohio
Supreme Court denied the state's power, Schneider v. Laffoon
(1965), 4 Ohio St.2d 89, 212 N.E.2d 801.
         In Cooke, a Colorado domiciliary held a special power of
appointment over intangibles in a New York trust.    She died with-
out exercising her special power of appointment, expressly provid-
ing in her will that she did not intend to exercise it.    The trust
property, none of which was physically situated in Colorado, was
distributed to her children under the provisions of the New York
trust.   Colorado assessed an inheritance tax on the entire value
of the New York trust property under a statute essentially the
same as Montana's.   The Colorado Supreme Court held such inheri-
tance taxation did not violate the "due process" clause of either
the Federal and State Constitution.    The rationale of the Colorado
Court is summarized in the following language:
         "We fail to perceive a distinction between the
         situation which arises from the non-exercise
         of a general power and that which arises from
         the non-exercise of a special power. In either
         case, beneficiaries named in the trust receive
         their bounty by the inaction of the decedent.
         The failure to act affects the course of succes-
         sion just as fully as if the power had been
         exercised, and until the failure is complete
         the succession is not fully determined. Where
         the donee of the power of appointment holds the
         power, he is in control of the succession. He
         can allow it to go to the persons named in the
         trust or he can appoint others within the limits
         of the power of appointment--limits which, by the
         way, the donee in this case imposed upon herself."

         In Schneider, an Ohio domiciliary held a special power
of appointment over intangibles in a Kentucky trust.   The
trust was created by a person who was never a resident of Ohio,

the trust property was always outside Ohio in the custody of
nonresident trustees, the donee of the power of appointment had
no power to appoint any of the trust property to herself or her
estate and could only exercise her power of appointment inter
vivos in writing signed by her and delivered to a nonresident
trustee.   She did not exercise her special power of appoint-

ment and the trust property apparently passed to two children
under the provisions of the Kentucky trust.   Under an inheri-
tance tax statute similar to that of Montana, the Ohio Supreme
Court held that neither the exercise nor the nonexercise of the
special power of appointment by its domiciliary was taxable as
a succession.   The gist of its rationale was that imposition of
an inheritance tax under the facts of the case was unconstitu-
tional where succession to the trust property was not dependent
on Ohio law and no privilege by which the property passed was
conferred by Ohio law.
        While some differences exist in the facts of the two
cases, they are unimportant to the divergent principles on which
the two decisions rest.   As applied to inheritance taxation of
a special power of appointment over intangibles in a foreign
trust, Colorado recognizes domicile alone as a constitutional
basis and holds the right to control disposition equivalent to
ownership; Ohio denies constitutionality based on domicile alone,
requiring some benefit or privilege to be accorded by the laws
of the domiciliary state.
        We consider the Colorado case the better reasoned and
more in accord with the constitutional principles enunciated by
the United States Supreme Court.   Domicile has long been recog-
nized as a constitutional basis for inheritance taxation without
r e g a r d t o whether s u c c e s s i o n was e f f e c t e d under t h e laws of

t h e s t a t e of d o m i c i l e .    Curry v . McCanless, Graves v . E l l i o t t ,

supra.       For p u r p o s e s of e s t a t e and i n h e r i t a n c e t a x a t i o n t h e

power t o d i s p o s e o f p r o p e r t y a t d e a t h i s t h e e q u i v a l e n t of

ownership.          Graves v . Schmidlapp, s u p r a ; Graves v . E l l i o t t ,

supra.       Although b o t h Schmidlapp and E l l i o t t i n v o l v e d a n un-

e x e r c i s e d g e n e r a l power of a p p o i n t m e n t , a n u n e x e r c i s e d s p e c i a l

power o f appointment i n v o l v e s no less t h e power t o d i s p o s e o f

p r o p e r t y a t d e a t h a l b e i t t o a more l i m i t e d e x t e n t .       The power

t o c o n t r o l t h e d i s p o s i t i o n of p r o p e r t y a f t e r d e a t h i s t h e t a x -

a b l e e v e n t , and t h i s c o n t r o l i s a s e f f e c t i v e l y m a i n t a i n e d by

t h e n o n e x e r c i s e of a s p e c i a l power o f a p p o i n t m e n t a s by i t s e x e r -

cise.      I n e i t h e r c a s e decedent determines t h e u l t i m a t e disposi-

t i o n of t h e p r o p e r t y and t h e c o u r s e of s u c c e s s i o n .

             For t h e s e r e a s o n s we h o l d t h a t "due p r o c e s s " i s n o t v i o -

l a t e d by r e q u i r i n g t h e i n c l u s i o n o f t h e v a l u e o f t h e E n g l i s h

t r u s t p r o p e r t y on t h e d a t e of d e c e d e n t ' s d e a t h i n t h e t a x a b l e

e s t a t e o f Gretchen G. Ward under s e c t i o n 91-4404.

             The f i n a l c o n t e n t i o n o f t h e e x e c u t o r s i s t h a t i n any

e v e n t t h e e s t a t e i s e n t i t l e d t o c r e d i t i n t h e amount o f t h e

E n g l i s h d e a t h d u t y p a i d a g a i n s t t h e Montana i n h e r i t a n c e t a x .        The

answer simply i s t h a t t h e r e i s no l a w p e r m i t t i n g s u c h c r e d i t .                 As

p r e v i o u s l y set f o r t h , t h e t a x t r e a t y between t h e United S t a t e s

and t h e United Kingdom ( 6 0 S t a t . 1391) i s i n a p p l i c a b l e .                   The

Montana i n h e r i t a n c e t a x law l i m i t s t a x c r e d i t s t o i n h e r i t a n c e

t a x e s p a i d t o o t h e r s t a t e s and t e r r i t o r i e s of t h e United S t a t e s .

             S e c t i o n 91-4412,      R.C.M.      1947, i s a s f o l l o w s :

            " C r e d i t a l l o w a n c e on i n h e r i t a n c e t a x e s p a i d by
            r e s i d e n t d e c e d e n t s t o o t h e r s t a t e s . The t a x
            imposed by s e c t i o n 91-4401 t o 91-4411 s h a l l , a s
            t o - a r e s i d e n t o f t h e s t a t e o f Montana who d i e d
            d o m i c i l e d i n Montana, be c r e d i t e d w i t h t h e amount
            of any v a l i d i n h e r i t a n c e , e s t a t e , l e g a c y o r s u c c e s -
            s i o n t a x e s a c t u a l l y p a i d t o any s t a t e o r t e r r i t o r y
                      of t h e United S t a t e s [ o t h e r t h a n t h e s t a t e
                      of Montana], o r t o t h e D i s t r i c t o f Columbia.
                      P r o v i d e d , however, t h a t t h e amount t o be s o
                      c r e d i t e d s h a l l i n no e v e n t exceed t h a t amount
                      which t h e r e s i d e n t d e c e d e n t was t a x e d on t h a t
                      p r o p e r t y i n Montana."        (Emphasis s u p p l i e d . )

         There a r e no o t h e r p r o v i s i o n s o f l a w on which t o b a s e a t a x c r e d i t .

                      W e have n o t e d t h e s u b o r d i n a t e arguments and c o n t e n t i o n s

         o f t h e e x e c u t o r s , f i n d them t o be w i t h o u t m e r i t , and deem it un-

         n e c e s s a r y t o d i s c u s s them i n t h i s o p i n i o n .   W have answered t h e
                                                                                 e

         p r i n c i p a l contentions of t h e executors with t h e reasons f o r our

         rulings.

                      The o r d e r o f t h e d i s t r i c t c o u r t i s r e v e r s e d .   The c a u s e

         i s remanded t o t h e d i s t r i c t c o u r t w i t h d i r e c t i o n s t o i n c l u d e a n

         a d d i t i o n a l $355,274.68 v a l u a t i o n i n d e c e d e n t ' s t a x a b l e e s t a t e , t o

         i n c r e a s e t h e i n h e r i t a n c e t a x owing t h e s t a t e o f Montana by a n

         a d d i t i o n a l $27,421.96 by r e a s o n t h e r e o f , and t o e n t e r a p p r o p r i a t e

         o r d e r s f o r d e t e r m i n a t i o n and payment of t h e t o t a l amount o f t h e

         Montana i n h e r i t a n c e t a x , s u b j e c t t o d i s c o u n t a s p r o v i d e d by l a w ,

         c o n s i s t e n t with t h i s opinion.




                                                                                Justice




     i
i'          Chief J u s t i c e
