Source: https://caselaw.findlaw.com/us-supreme-court/296/39.html
Timestamp: 2019-04-19 07:46:22+00:00

Document:
[296 U.S. 39, 40] The Attorney General and Mr. David E. Hudson, of Washington, D.C., for petitioner.
Mr. Daniel N. Kirby, of St. Louis, Mo., for respondents.
The decedent, several years prior to his death, transferred to a trustee certain securities in trust, to be held, managed, and disposed of as an active trust, the net income thereof to be paid to the decedent's daughter during her life, with remainder over to the persons named. The trustee was given discretionary power to determine the trust whenever the trustee might deem it wise to do so, whereupon the estate was to revert to the grantor. The indenture contained a further provision that if the daughter predecease the grantor, the trust shall terminate and the trust estate be transferred, paid over, and delivered to the grantor, to be his absolutely. It is this latter provision which gives rise to the question we are called upon to consider. By the terms of the indenture, the grantor recited that it was his intention to make for the [296 U.S. 39, 41] benefit of his daughter 'an absolute and irrevocable gift and settlement of the property ... so that the grantor shall during the life of his said daughter have no further individual or beneficial interest therein.' The grant was final and absolute in terms, and beyond the power of the grantor to revoke or alter. At the death of the grantor, neither of the contingencies upon which the trust estate would revert to the grantor had taken place.
The Board of Tax Appeals decided against the Commissioner's view (28 B.T.A. 107), and its holding was upheld by the court below. 75 F.(2d) 416.
The substantive provision of the act which imposes the tax is section 301(a), 26 USCA 410 note; and by that provision the tax is laid 'upon the transfer of the net estate of every decedent dying after the enactment of this Act.' The event which gives rise to the tax is the death of the decedent, with the resulting transfer of his estate either by will or the law relating to intestacy. When, therefore, section 302(c) includes within the purview of section 301(a) a transfer inter vivos 'intended to take effect in possession or enjoyment at or after his death,' it does so upon the theory that such a transfer in effect is testamentary; that is to [296 U.S. 39, 42] say, a substitute for either a disposition by will or a passing in virtue of intestacy.
'But such a transfer, not so made, embodies a transaction begun and completed wholly by and between the living, taxable as a gift (Bromley v. McCaughn, 280 U.S. 124 , 50 S.Ct. 46), but obviously not subject to any form of death duty, since it bears no relation whatever to death. The 'generating source' of such a gift is to be found in the facts of life and not in the circumstance of death. And the death afterward of the donor in no way changes the situation; that is to say, the death does not result in a shifting, or in the completion of a shifting, to the donee of any economic benefit of property, which is the subject of a death tax, Chase Nat. Bank v. United States, 278 U.S. 327, 338 , 49 S.Ct. 126, 63 A.L.R. 388; Reinecke v. Northern Trust Co., 278 U.S. 339, 346 , 49 S.Ct. 123, 66 A.L.R. 397; Saltonstall v. Saltonstall, 276 U.S. 260, 271 , 48 S.Ct. 225; nor does the death in such case bring into being, or ripen for the donee or any one else, so far as the gift is concerned, and property right or interest which can be the subject of any form of death tax. Compare Tyler v. United States, 281 U.S. 497, 503 , 50 S.Ct. 356, 69 A.L.R. 758. Complete ownership of the gift, together with all its incidents, has passed during the life of both donor and donee, and no interest of any kind remains to pass to one or cease in the other in consequence of the death which happens afterwards.' ( Italics added.) Heiner v. Donnan, 285 U.S. 312, 322 , 323 S., 32 S.Ct. 358, 359.
It is not, in reason, possible to find in the circumstances anything which suggests that the death of the grantor, whenever it might happen, would effect any change, or was intended to effect any change, in the extent or quality of the estates conveyed in trust. The only death which could have had any such effect was that of the daughter, the grantee; and that event did not take place.
In that connection, see Matter of Barstow's Estate, 230 App.Div. 371, 372, 373, 244 N.Y.S. 588, 589, affirmed 256 N.Y. 647, 177 N.E. 177. There the donor transferred irrevocably certain property to a trustee to be held in trust for the benefit of two daughters, with the condition that upon the death of both the fund then in the hands of the trustee was to be transferred back to the donor if then living. The donor died leaving her daughters still living. The court held that the transfer took place when the deed of trust was executed and not when the donor died.
We think it unnecessary further to review the decisions which support our conclusion. In addition to those already cited, the following are in point: May v. Heiner, 281 U.S. 238, 243 , 50 S.Ct. 286, 67 A. L.R. 1244; Coolidge v. Long, 282 U.S. 582 , 51 S.Ct. 306; McCormick v. Burnet, 283 U.S. 784 , 51 S.Ct. 343, reversing the Circuit Court of Appeals for the Seventh Circuit, Commissioner v. McCormick, 43 F.(2d) 277, and in effect affirming the Board of Tax Appeals, 13 B.T.A. 423, 437; Duke v. Helvering, 23 B.T.A. 1104, 1113, affirmed Commissioner v. Duke (C.C.A.) 62 F. (2d) 1057, and affirmed by an equally divided court in 290 U.S. 591 , 54 S.Ct. 95; Wallace v. Helvering, 27 B.T.A. 902, 910, 913, affirmed Commissioner v. Wallace (C.C. A.) 71 F.(2d) 1002, certiorari denied 293 U.S. 600 , 55 S.Ct. 117; St. Louis Union Trust Co. v. Becker (C.C.A.) 76 F.(2d) 851.
The case of Klein v. United States, 283 U.S. 231 , 51 S.Ct. 398, which is strongly relied upon by the government, does not support its position. There the grantor, 15 months prior to his wife's death, conveyed to his wife by deed a life estate in certain lands. But in the event that she survived the grantor, 'and in that case only,' she was to take the lands in fee simple. The effect of this deed, we held, was that only a life estate was vested, the remainder being retained by the grantor; and whether that should ever become vested in the grantee depended upon the condition precedent that the grantor die during the life of the grantee. The grantor having died first, his death clearly effected a transmission of the larger estate to the grantee. But here the grantor parted with the title and all beneficial interest in the property, retaining no right with respect to it which would pass to any one as a result of his death. Unlike the Klein Case, where the death was the generating source of the title, here, as the court below [296 U.S. 39, 46] said, the trust instrument and the death was the generating source. The death did not transmit the possibility, but destroyed it.
Decedent, in making disposition of his property by his trust deed, retained a valuable interest in the property by which he postponed final disposition of it until his death. I think that the value of that interest was rightly subjected to the tax imposed by section 302(c), 26 USCA 411 note. This conclusion is strengthened and not avoided by construing the section as imposing a tax on the value of the interest which is shifted from donor to donee on the former's death. Although the tax is a death tax, section 302(c) nevertheless applies to any interest in gifts inter vivos which, by their provisions, are 'intended to take effect in possession or enjoyment at or after his death,' and such gifts are subjected to the tax as a death tax if they are not complete until the donor's death. Reinecke v. Northern Trust Co., 278 U.S. 339, 345 , 49 S.Ct. 123, 66 A. L.R. 397; Klein v. United States, 283 U.S. 231, 232 , 51 S.Ct. 398. The decedent's death, operating upon his gift inter vivos not complete until his death, is the event which calls the statute into operation. Klein v. United States, supra, 283 U.S. 231, 234 , 51 S.Ct. 398.
The section, in its scope and purpose, is thus similar to section 302( d), 26 USCA 411 note which includes in the decedent's taxable estate the value of his interest held as joint tenant or tenant by the entirety, although created by deed inter vivos. Tyler v. United States, 281 U.S. 497 , 50 S.Ct. 356, 69 A.L.R. 758; Phillips v. Dime Trust & S.D. Co., 284 U.S. 160 , 52 S.Ct. 46. Both provisions prevent tax evasion by subjecting to the death tax forms of gifts inter vivos which may be resorted to, as a substitute for a will, in making dispositions of property operative at death. See Tyler v. United States, supra, 281 U.S. 497, 505 , 50 S.Ct. 356, 69 A.L.R. 758. [296 U.S. 39, 47] Compare No. 10, Helvering v. City Bank Farmers Trust Co., 296 U.S. 85 , 56 S.Ct. 70.
It seems plain that the gift here was not complete until decedent's death. He did not desire to make a complete gift. He wished to keep the property for himself in case he survived his daughter. He kept this hold upon it by reversing from his gift an interests, terminable only at his death, by which full ownership would be restored to him if he survived his daughter. If he had reserved a power to revoke the trust, if he survived her, Reinecke v. Northern Trust Co., supra, would have made the gift taxable, as would Klein v. United States, supra, if he had reserved a remainder in himself with gift over, if he did not survive his daughter. Instead, by using a different form of words, he attained the same end and has escaped the tax.
Having in mind the purpose of the statute and the breadth of its language it would seem to be of no consequence what particular conveyances' device, what particular string, the decedent selected to hold in suspense the ultimate disposition of his property until the moment of his death. In determining whether a taxable transfer becomes complete only at death we look to substance, not to form. Klein v. United States, supra, 283 U.S. 231, 234 , 51 S.Ct. 398; Chase National Bank v. United States, 278 U.S. 327, 335 , 49 S.Ct. 126, 63 A.L.R. 388; Reinecke v. Northern Trust Co., supra, 278 U.S. 339, 345 , 49 S.Ct. 123, 66 A.L.R. 397; Saltonstall v. Saltonstall, 276 U.S. 260, 271 , 48 S.Ct. 225. However we label the device is it but a means by which the gift is rendered incomplete until the donor's death. The extent to which it is incomplete marks the extent of the 'interest' passing at death, which the statute taxes.
The CHIEF JUSTICE, Mr. Justice BRANDEIS, and Mr. Justice CARDOZO join in this opinion.

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