Source: http://openjurist.org/309/us/106
Timestamp: 2015-08-01 18:37:57
Document Index: 543896875

Matched Legal Cases: ['§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302']

309 US 106 Helvering v. Hallock Same | OpenJurist
309 U.S. 106 - Helvering v. Hallock Same Home
309 US 106 Helvering v. Hallock Same 309 U.S. 106
60 S.Ct. 444
84 L.Ed. 604
HELVERING, Com'r of Internal Revenuev.HALLOCK et al. (two cases). SAME v. SQUIRE, Superintendent of Banks of Ohio. ROTHENSIES, Collector of Internal Revenue for Pennsylvania, v. HUSTON. BRYANT et al. v. HELVERING, Com'r of Internal Revenue.
Nos. 110—112, 183, and 399.
Argued and Submitted Dec. 13, 14, 1939.
In Nos. 110—112:
In No. 399: Messrs. J. Gilmer Korner, Jr., of Washington, D.C., and David S. Day, of Bridgeport, Conn., for petitioners Bryant.
These cases raise the same question, namely, whether transfers of property inter vivos made in trust, the particulars of which will later appear, are within the provisions of § 302(c) of the Revenue Act of 1926.1 They were heard in succession and may be decided together. In each case the Commissioner of Internal Revenue included the trust property in the decedent's gross estate. In Nos. 110, 111 and 112 his determination was reversed by the Board of Tax Appeals (34 B.T.A. 575) and the Board was affirmed by the Circuit Court of Appeals for the Sixth Circuit. 102 F.2d 1. In No. 183, the taxpayer paid under protest, successfully sued for recovery in the District Court for the Eastern District of Pennsylvania, and his judgment was sustained by the Circuit Court of Appeals for the Third Circuit. 103 F.2d 834. In No. 399, the Commissioner was in part successful before the Board of Tax Appeals (36 B.T.A. 669) and the Circuit Court of Appeals for the Second Circuit affirmed the Board. 104 F.2d 1011.
Neither here nor below does the issue turn on the unglossed text of § 302(c). In its enforcement, Treasury and courts alike encounter three recent decisions of this Court, Klein v. United States, 283 U.S. 231, 51 S.Ct. 398, 75 L.Ed. 996, Helvering v. St. Louis Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239, and Becker v. St. Louis Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35. Because of the difficulties which lower courts have found in applying the distinctions made by these cases and the seeming disharmony of their results, when judged by the controlling purposes of the estate tax law, we brought the cases here. Helvering v. Hallock, 308 U.S. 532, 60 S.Ct. 82, 84 L.Ed. -; Rothensies v. Cassell, 308 U.S. 538, 60 S.Ct. 94, 84 L.Ed. —-; Bryant v. Commissioner of Internal Revenue, 308 U.S. 543, 60 S.Ct. 141, 84 L.Ed. —-. All involve dispositions of property by way of trust in which the settlement provides for return or reversion of the corpus to the donor upon a contingency terminable at his death. Whether the transfer made by the decedent in his lifetime is 'intended to take effect in possession or enjoyment at or after his death' by reason of that which he retained, is the crux of the problem. We must put to one side questions that arise under sections of the estate tax law other than § 302(c)—sections, that is, relating to transfers taking place at death. Section 302(c) deals with property not technically passing at death but with interests theretofore created. The taxable event is a transfer inter vivos. But the measure of the tax is the value of the transferred property at the time when death brings it into enjoyment.
We turn to the cases which beget the difficulties. In Klein v. United States, supra, decided in 1931, the decedent during his lifetime had conveyed land to his wife for her lifetime, 'and if she shall die prior to the decease of said grantor then and in that event she shall by virtue hereof take no greater or other estate in said lands and the reversion in fee in and to the same shall in that event remain vested in said grantor, * * *.' The instrument further provided, 'Upon condition and in the event that said grantee shall survive the said grantor, then and in that case only the said grantee shall by virtue of this conveyance take, have, and hold the said lands in fee simple, * * *.' The taxpayer contended that the decedent had reserved a mere 'possibility of reverter' and that such a 'remote interest',2 extinguishable upon the grantor's death, was not sufficient to bring the conveyance within the reckoning of the taxable estate. This Court held otherwise. It rejected formal distinctions pertaining to the law of real property as irrelevant criteria in this field of taxation. 'Nothing is to be gained', it was said, 'by multiplying words in respect of the various niceties of the art of conveyancing or the law of contingent and vested remainders. It is perfectly plain that the death of the grantor was the indispensable and intended event which brought the larger estate into being for the grantee and effected its transmission from the dead to the living, thus satisfying the terms of the taxing act and justifying the tax imposed.' Klein v. United States, supra, 283 U.S. at page 234, 51 S.Ct. at page 399, 75 L.Ed. 996.
The inescapable rationale of this decision, rendered by a unanimous Court, was that the statute taxes not merely those interests which are deemed to pass at death according to refined technicalities of the law of property. It also taxes inter vivos transfers that are too much akin to testamentary dispositions not to be subjected to the same excise. By bringing into the gross estate at his death that which the settlor gave contingently upon it, this Court fastened on the vital factor. It refused to subordinate the plain purposes of a modern fiscal measure to the wholly unrelated origins of the recondite learning of ancient property law. Surely the Klein decision was not intended to encourage the belief that a change merely in the phrasing of a grant would serve to create a judicially cognizable difference in the scope of § 302(c), although the grantor retained in himself the possibility of regaining the transferred property upon precisely the same contingency. The teaching of the Klein case is exactly the opposite.3
In Helvering v. St. Louis Trust Co., supra, the decedent had conveyed property in trust, the income of which was to be paid to his daughter during her life, but at her death 'If the grantor still be living, the Trustee shall forthwith * * * transfer, pay, and deliver the entire estate to the grantor, to be his absolutely.' But 'If the grantor be then not living' then the income was to be devoted to the settlor's wife if she were living, and upon the death of both daughter and wife, if he were not living, the trust property was to go to the daughter's children, or if she left none, to the grantor's next of kin.
In Becker v. St. Louis Trust Co., supra, the decedent had declared himself trustee of property with the income to be accumulated or, at his discretion, to be paid over to his daughter during her life. The instrument further provided that (296 U.S. 48, 56 S.Ct. 79, 80 L.Ed. 35) 'If the said beneficiary should die before my death, then this trust estate shall thereupon revert to me and become mine immediately and absolutely, or * * * if I should die before her death, then this property shall thereupon become hers immediately and absolutely * * *.'
On the authority of the Klein case the Commissioner had included in the taxable estates the gifts to which, in the St. Louis Trust cases, the grantor's death had given definitive measure. If the wife had predeceased the settlor in the Klein case, he would have been repossessed of his property. His wife's interests were freed from this contingency by the husband's prior death, and because of the effect of his death this Court swept the gift into the gross estate. So in Helvering v. St. Louis Trust Co., supra, the grantor would have become repossessed of the granted corpus had his daughter predeceased him. But he predeceased her and by that event her interest ripened to full dominion. The same analysis applies to the Becker case. In all three situations the result and effect were the same. The event which gave to the beneficiaries a dominion over property which they did not have prior to the donor's death was an act of nature outside the grantor's 'control, design, or volition.' Helvering v. St. Louis Trust Co., 296 U.S. 39, 43, 56 S.Ct. 74, 76, 80 L.Ed. 29, 100 A.L.R. 1239. But it was no more and no less 'fortuitous', so far as the grantor's 'control, design, or volition' was concerned, in the St. Louis Trust cases than it was in the Klein case. In none of the three cases did the dominion over property which finally came to the beneficiary fall by virtue of the grantor's will, except by his provision that his own death should establish such final and complete dominion. And yet a mere difference in phrasing the circumstance by which identic interests in property were brought into being—varying forms of words in the creation of the same worldly interests—was found sufficient to exclude the St. Louis Trust settlements from the application of the Klein doctrine.
Four members of the Court saw no difference. They relied on the governing principle of § 302(c) that Congress meant to include in the gross estate inter vivos gifts 'which may be resorted to, as a substitute for a will, in making dispositions of property operative at death.' Helvering v. St. Louis Trust Co., 296 U.S. at page 46, 56 S.Ct. at page 77, 80 L.Ed. 29, 100 A.L.R. 1239. To effectuate this purpose practical considerations applicable to taxation and not the 'niceties of the art of conveyancing' were their touchstone. 'Having in mind', said the dissenters, 'the purpose of the statute and the breadth of its language it would seem to be of no consequence what particular conveyancers' 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. * * * However we label the device it is but a means by which the gift is rendered incomplete until the donor's death.' 296 U.S. at page 47, 56 S.Ct. at page 78, 80 L.Ed. 29, 100 A.L.R. 1239. For the majority in the St. Louis Trust Company cases, these practicalities had less significance than the formal categories of property law. The grantor's death, the majority said, in Helvering v. St. Louis Trust Co., supra, 'simply put an end to what, at best, was a mere possibility of a reverter by extinguishing it; that is to say, by converting what was merely possible into an utter impossibility.' 296 U.S. 39, 43, 56 S.Ct. 74, 76, 80 L.Ed. 29, 100 A.L.R. 1239. This was precisely the mode of argument which had been rejected in Klein v. United States, supra.
In Nos. 110, 111 and 112 (Helvering v. Hallock) the decedent in 1919 created a trust under a separation agreement, giving the income to his wife for life, with this further provision: 'If and when Anne Lamson Hallock shall die and in such event * * * the within trust shall terminate and said Trustee shall * * * pay Party of the First Part if he then be living any accrued income, then remaining in said trust fund and shall * * * deliver forthwith to Party of the First Part, the principal of the said trust fund. If and in the event said Party of the First Part shall not be living then and in such event payment and delivery over shall be made to Levitt Hallock and Helen Hallock, respectively son and daughter of the Party of the First Part, share and share alike * * *.' When the settlor died in 1932, his divorced wife, the life beneficiary, survived him. The Circuit Court of Appeals held that the trust instrument had conveyed the 'whole interest' of the decedent, subject only to a 'condition subsequent,' which left him nothing 'except a mere possibility of reverter.' Commissioner of Internal Revenue v. Hallock, 6 Cir., 102 F.2d 1, 3, 4.
'In trust if the said Rae Spektor shall die during the lifetime of said George F. Uber to pay over the principal and all accumulated income thereof unto the said George F. Uber in fee, free and clear of any trust.
'In trust if the said Rae Spektor after the marriage shall survive the said George F. Uber to pay over the principal and all accumulated income unto the said Rae Spektor—then Rae Uber—in fee, free and clear of any trust.'
Finally, in No. 399 (Bryant v. Helvering), the testator provided for the payment of trust income to his wife during her life and upon her death to the settlor himself if he should survive her. The instrument, which was executed in 1917, continued: 'Upon the death of the survivor of said Ida Bryant and the party of the first part, unless this trust shall have been modified or revoked as hereinafter provided, to convey, transfer, and pay over the principal of the trust fund to the executors or administrators of the estate of the party hereto of the first part.' There was a further provision giving to the decedent and his wife jointly during their lives, and to either of them after the death of the other, power to modify, alter or revoke the instrument. The wife survived the husband, who died in 1930. The Board of Tax Appeals allowed the Commissioner to include in the decedent's gross estate only the value of a 'vested reversionary interest' which the Board held the grantor had reserved to himself. On appeal by the taxpayer, the Circuit Court of Appeals sustained this determination.
The terms of these grants differ in detail from one another, as all three differ from the formulas of conveyance used in the Klein and St. Louis Trust cases. It therefore becomes important to inquire whether the technical forms in which interests contingent upon death are cast should control our decision. If so, it becomes necessary to determine whether the differing terms of conveyance now in issue approximate more closely those used in the Klein case and are therefore governed by it, or have a greater verbal resemblance to those that saved the tax in the St. Louis Trust cases. Such an essay in linguistic refinement would still further embarrass existing intricacies. It might demonstrate verbal ingenuity, but it could hardly strengthen the rational foundations of law. The law of contingent and vested remainders is full of casuistries. There are great diversities among the several states as to the conveyancing significance of like grants; sometimes in the same state there are conflicting lines of decision, one series ignoring the other. Attempts by the Board of Tax Appeals and the Circuit Courts of Appeal to administer § 302(c) by reference to these distinctions abundantly illustrate the inevitable