Case Name: COOLIDGE et al., TRUSTEES, v. LONG, COMMISSIONER OF CORPORATIONS AND TAXATION OF MASSACHUSETTS
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1931-02-24
Citations: 282 U.S. 582
Docket Number: Nos. 33 and 34
Parties: COOLIDGE et al., TRUSTEES, v. LONG, COMMISSIONER OF CORPORATIONS AND TAXATION OF MASSACHUSETTS.
Judges: Mr. Justice Holmes, Mr. Justice Brandéis, and Mr. Justice Stone concur in this opinion..
Reporter: United States Reports
Volume: 282
Pages: 582–638

Head Matter:
COOLIDGE et al., TRUSTEES, v. LONG, COMMISSIONER OF CORPORATIONS AND TAXATION OF MASSACHUSETTS.
Nos. 33 and 34.
Argued December 8, 1930.
Decided February 24, 1931.
Mr. Robert G. Dodge, with whom Mr. Harold S. Davis was on the brief, for appellants.
Mr. James 8. Eastham, Special Assistant Attorney General of Massachusetts, with whom Mr. Joseph E. Warner, Attorney General, was on the brief, for appellee.

Opinion:
Mb. Justice Butlek
delivered the opinion of the Court.
Each of these appeals brings here for review a decree of the probate, court of Norfolk county, Massachusetts, entered in accordance with a rescript from the supreme judicial court of the Commonwealth. 268 Mass. 443; 167 N. E. 757. In each ^appellants presented to the probate court an application.:for the abatemeiit of an inheritance tax assessed under § í;:;c.. 65, General Laws. There was drawn in question the validity of the statute on the ground of its being repugnant to the contract clause of the Federal Constitution and the-due process and equal protection clauses of the Fourteenth Amendment. The probate court reserved for the consideration of the supreme judicial court all questions of law and the matter of what decrees should be entered. That court held the statute valid and sustained the taxes.
The opinion states the facts as follows:
"The petitioners [appellants here] are trustees, under a deed and declaration of trust executed on July 29, 1907, by J. Randolph Coolidge and Julia Coolidge and the petitioners.
"By that deed a large amount of real and personal estate was transferred to the trustees by the settlors voluntarily and not as a bona fide purchase for full consideration in money or in money's worth. The trustees were given extensive powers of management, investment and reinvestment with the right to determine finally what receipts and payments should be credited to income or principal. The part of the trust fund furnished by J. Randolph Coolidge was four-sevenths, and the part furnished by Julia Coolidge was three-sevenths.
" By the terms of the trust the income was to be paid in these proportions to each of the settlors during their joint lives and then the entire income to the survivor, and, upon the death of the survivor, the principal was to be divided equally among their five sons* provided that, if any of the sons should predecease the survivor of the settlors, his share should go to those entitled to take his intestate property; under the statute of distributions in force at the death of such survivor, with a further provision to the effect that in no event should a widow of such deceased son take as distributee more than half of such share.
" There was in the declaration of trust no power of revocation or modification or termination prior to the death of the survivor of the settlors. Coolidge v. Loring, 235 Mass. 220.
" By instrument executed on April 6, 1917, the settlors assigned their interest in the trust to the five sons, all of whom eventually survived the termination of the trust.
" Julia Coolidge died in January, 1921, and J. Randolph Coolidge on November 10, 1925, both being residents of this Commonwealth.
"The defendant determined that the petitioners were subject to excise taxes under G. L. c. 65, § 1, as amended,' upon the four-sevenths and upon the three-sev.enths of the trust estate furnished respectively by each settlor as. of November 10, 1925."
When the declaration of trust was executed, no statute was in effect under which the succession to the trust property could have been subjected to this tax. The statutes then in force provided for the imposition of an excise only where the succession was to collateral relative's and strangers. The first relevant statute- was approved June 27, 1907 (St. 1907, c. 563) and took effect September 1, about' five week's after the date, of the 'declaration of the trust. It did not apply to property passing by deed, grant, sale or giff made prior to its effective date. But by § 3, c. 678, St. 1912, it was made applicable " to all property passing by deed, grant or gift . . . made or intended to take effect in possession or enjoyment after the death of the grantor or donor, if such death occurs subsequent to the passage hereof." And see § 1, c. 563, St. 1914.
Chapter 65, General Laws, effective since January 1, 1921, provides:
§ 1. "All property within the -jurisdiction of the commonwealth . . . which shall pass by'. . . deed, grant or gift, except in cases of a bona fide purchase for full consideration in money or money's worth . . . madé or intended to take effect in possession or enjoyment after his [grantor's] death . to any person, absolutely or in trust, . . . shall be subject to a tax. . . ."
§ 36. " This chapter shall apply only to property or interests therein passing or accruing upon the death of persons dying on or after May fourth, nineteen hundred and twenty ."
The supreme judicial court sustained the exaction as an excise. It held that possession or enjoyment upon the death of the survivor of the settlors was a taxable com* modity under, the statute enacted after the creation of the trust.
The trust deeds are contracts within the meaning of the contract clause of the Federal' Constitution. They were fully executed before the taking effect of the state law under which the excise is claimed. The Commonwealth was without authority by subsequent legislation/ whether enacted under the guise of its power to tax or otherwise, to alter their effect or to impair or destroy rights which had vested under them. Appleby v. City of New York, 271 U. S. 364. Fletcher v. Peck, 6 Cranch 87, 136. Dartmouth College v. Woodward, 4 Wheat. 518, 624, 656. Farrington v. Tennessee, 95 U. S. 679, 683. Carondelet Canal Co. v. Louisiana, 233 U. S. 362, 373, 378.
This court has held that the Revenue Act of 1914, § 319-324, in so far as it undertook to impose a tax on gifts fully consummated before its provisions came before Congress (Blodgett v. Holden, 275 U. S. 142) or before its passage (Untermyer v. Anderson, 276 U. S. 440) was arbitrary and repugnant to the due process clause of the Fifth Amendment. In Nichols v. Coolidge, 274 U. S. 531, we considered the trust deed of Mrs. Coolidge that is now before us. The question in that case was whether the value of the property so conveyed prior to the enactment should be included in her estate for the purpose of ascertaining the federal estate tax thereon. We said (p. 542):
" This court has recognized that a statute purporting to tax may be so arbitrary and capricious as to amount to confiscation and offend the Fifth Amendment. Brushaber v. Union Pacific R. R., 240 U. S. 1, 24; Barclay & Co. v. Edwards, 267 U. S. 442, 450. See also Knowlton v. Moore, 178 U. S. 41, 77. And we must conclude that section 402 (c) of the statute here under consideration, in so far as it requires that there shall be included in the gross estate the value of property transferred by a decedent prior to its passage merely because the conveyance was intended to take effect in possession or enjoyment at or after his death, is arbitrary, capricious and amounts to confiscation."-
See Levy v. Warded, 258 U. S. 542, 544. The States are similarly restrained by the due process clause of the Fourteenth Amendment.
In its opinion, the state court suggests that the federal estate tax was upon property of the deceased transferred at his death and that it ,was levied upon a subject " quite different from the succession to property by a beneficiary, which is the subject of the present excise." Undoubtedly the State has power to lay such an excise upon property so passing after the taking effect of the taxing Act. The fundamental question here is whether rights had so vested prior to the taking effect of the tax statute that there was thereafter no occasion in respect of which the excise might constitutionally be imposed. The state court held that the succession was not complete until the death of the survivor of the grantors and that therefore. the tax is valid. It is well understood that, when the jurisdiction of this court is invoked to determine whether a state law impairs the rights of the litigant under a prior contract, or whether the State is depriving him of his property without due process of law in violation of the Fourteenth Amendment and the question turns upon the existence or terms of a contract, this court is bound to determine for itself whether there is a contract and to ascertain its true meaning and effect. That rule is necessary in order that this court may properly enforce these provisions of the Constitution. Railroad Commission v. Eastern Texas R. Co., 264 U. S. 79, 86, and cases cited.
By the deed of each grantor one-fifth of the remainder was immediately vested in each of the sons subject to be divested only by his death before the death of the survivor of the settlors. It was a grant in praesenti to be possessed and enjoyed by the sons upon the death of such survivor. Blanchard v. Blanchard, 1 Allen 223. Clarke v. Fay, 205 Mass. 228. McArthur v. Scott, 113 U. S. 340, 379, and cases cited. And see United States v. Fidelity Trust Co., 222 U. S. 158. Henry v. United States, 251 U. S. 393. The provision for the payment of income to the settlors during their lives did not operate to postpone the vesting in the sons of the right of possession br enjoyment. The settlors divested themselves of all' control over the principal; they had no power to revoke or modify the trust. Coolidge v. Loring, supra, 223. Upon the happening of the event specified without more, the trustees were bound to hand over the property to the beneficiaries. Neither the death of Mrs. Coolidge n'or of her husband was a generating source of any right in the remaindermen. Knowlton v. Moore, 178 U. S. 41, 56. Nothing moved fíom her or him or from the estates of either when she or he died. There was no transmission then. The rights of the remaindermen^ including possession and enjoyment upon the termination of the trusts, were derived solely from the deeds. The situation would have been precisely the same if the possibility of divestment had been made to cease upon the death of a third person instead of upon the death of the survivor of thd settlors.. The succession, when the time came, did not depend upon any permission or grant of the Commonwealth. While the sons if' occasion should arise might by appropriate suit require the trustees to account, it is to be borne in mind that the property was never in the custody of the'law dr of any court. Resort might be had to the law to enforce the rights that had vested. But the Commonwealth was powerless to condition possession or enjoyment of what hadibeen conveyed to' them by the deeds. Barnitz v. Beverly, 163 U. S. 118, and cases cited..
The-.fact that each son was liable to be divested of the remainder by his own death before that of the survivor of the grantors does not render the succession incomplete. The vesting of actual possession and enjoyment depended upon an event which must inevitably happen by the efflux' of time, and nothing but his failure to survive the settlors could prevent it. Blanchard v. Blanchard, supra. Moore v. Lyons, 25 Wend. 119, 144. Succession is effected, as cpmpletely- by a transfer of a life estate to one and remainder over to another as by a transfer in fee. Reinecke v. Northern Trust Co., 278 U. S. 339, 347-348. The recent case fof Saltonstall v. Saltonstall, 276 U. S. 260, furnishes a good illustration.- of- incomplete succession. There the remaind'er was liable at any time during the settlor's life to be divested, through the exertion of the power of alteration and revocation that was reserved in the instrument creating the trust. The decision sustaining a transfer tax went upon the ground that " the gift taxed is . . . one which never passed to the beneficiaries beyond recall until the death of the donor. . . . A' .power of appointment reserved by the donor leaves the transfer, as to him, incomplete and subject to tax. . . . The beneficiary's acquisition of the property is equally incomplete whether the power be reserved to the donor or another." P. 271. See also Chase Nat. Bank v. United States, 278 U. S. 327, 335, 338.
'No Act of Congress has been held by this court to impose a tax upon possession and enjoyment, the right to which had fully vested prior to the enactment.
Tyler v. United States, 281 U. S. 497, held constitutional §.201 and 202 of the Revenue Acts of 1916, 39 Stat. 756, 777-778,' and of 1921, 42 Stat. 227, 277-278, which included in the gross estate the value of an interest held by decedent and any other person as tenants by the entirety. In each case, the estate was created after the passage of the applicable Act; and none of the property constituting it had prior to its creation ever belonged to the surviving spouse. The court held that the Acts did not impose a direct tax because, putting aside a common law fiction and having regard to substance, the death of one of the parties'was in fact the_ generating source of important and definite accessions to the property rights of the other. It held that the provisions were intended to prevent an avoidance of the estate tax by the creation of such tenancies and were obviously neither arbitrary-nor capricious and so not violative of the Fifth Amendment.
Clapp v. Mason, 94 U. S. 589, and Mason v. Sargent, 104 U. S. 689, arose under the succession tax Act of June 30, 1864, § 124 et seq., 13 Stat. 285. Vanderbilt v. Eidman, 196 U. S. 480, and Hertz v. Woodman, 218 U. S. 205, arose under a similar Act of June 13, 1898, §29 and 30, 30 Stat. 464. In all these cases, the property vested in interest after the Acts took effect, and the decisions went on the ground that the right to impose the excises did not accrue until the subsequent vesting in possession and enjoyment. Under these Acts, the mere passage of title was not sufficient; possession and enjoyment were also required. Wright v. Blakeslee, 101 U. S. 174, 177, went upon the ground that, up to the moment of the life tenant's death, " her children had no interest in the land except a bare contingent remainder expectant upon her death and their surviving her. At her death, it came to them as an estate in fee in possession absolute."
This court has not sustained any state law imposing an excise upon mere entry into possession and enjoyment of property, where the right to such possession and enjoyment upon the happening of a specified event had fully vested before the enactment.
In Cahen v. Brewster, 203 U. S. 543, the testator died May 26,1904, the will was probated May 30, and a special inheritance tax law was passed June 28. It' imposed a tax upon all inheritances and legacies, and provided that the tax should not be enforced when the property had borne its just proportion of taxes prior to the time of the inheritance and that the tax should be collected on all successions not finally closed. The enactment was assailed as repugnant to the due process and equal pro-' tection clauses of the Fourteenth Amendment. This court held that the State, without unconstitutional deprivation, could exercise its power to impose inheritance taxes at any time while it holds the property from the legatee, p. 551and, dealing with- the contention that taxing successions not closed and exempting those that had been closed operated to deny equal protection, the court said (p. 552): " It was certainly not improper classi-ficaition to make the tax depend upon a fact without which it would not have been valid." As the court- said in United States v. Jones, 236 U. S. 106, 112, "It hardly needs statement that personal property does not pass directly from a decedent to legatees or distributees, but goes primarily to the executor or administrator, who is to apply it, so far as may be necessary, in paying debts of the deceased and expenses of administration, and is then to pass the residue, if any, to legatees or distributees." See also Carpenter v. Pennsylvania, 17 How. 456, 462.
In Moffitt v. Kelly, 218 U. S. 400, Moffitt married in California in 1863 and resided there with his wife until his death in 1906. By his will, he gave to her and their children as if he had died intestate. A state law passed in 1905 imposed a tax upon property so descending. The state court sustained the tax upon the wife's share in the community property. This court held that the nature and character of her right was a local, question and that the tax was not violative of the contract clause of the Constitution or the due process or equal protection clause of the Fourteenth Amendment. In United States v. Robbins, 269 U. S. 315, this court considered the character of the wife's estate during the existence of the community, and said (p. 326): "We can see no sufficient reason to doubt that the settled opinion of the Supreme Court of California, at least with reference to the time before the later statutes, is that the wife had a mere expectancy while living with her husband. The latest decision that we have seen dealing directly with the matter explicitly takes that view, says that it is a rule of property that has been settled for more than sixty years . . ." See also Poe v. Seaborn, 282 U. S. 401, 116. Cf. Nickel v. Cole, 256 U. S. 222, 225.
Chanter v. Kelsey, 205 U. S. 466, arose under the New York inheritance tax law of 1897. Prior to its enactment, a father conveyed property to trustees to pay the income to his daughter for life with remainder to her issue in fee or in default of issue to her heirs in fee, and gave her power by will to appoint the remainder among her issue or heirs in such manner and proportions' as she might determino. She died in 1902 and by her will exercised the power. The-tax law deemed such appointment a transfer and made it taxable. It was attacked as repugnant to the due process clause of the Fourteenth Amendment and the contract clause. This court held that without such, appointment. the estates in remainder would have gone to all in the class named in the deeds; that, by the exercise of the power, some were divested of their estates and the same were vested in others, and that it was only on the exercise of the power that the estates of the appointees became complete. And it sustained the tax. Justices Holmes and Moody, dissenting, insisted that the succession was complete when the father's deeds took effect, and that " the execution of the power did not depend in any way upon the continued cooperation of the laws of New York by way of permission or grant." P. 481.
The overwhelming weight' of authority sustains the conclusion that the succession in the present case was complete when the deed took effect.
In Matter of Pell, 171 N. Y. 48, the testator's will gave a life estate' in his property to his widow with remainders over at her death to his nephews and nieces and the issue of any deceased nephew or niece together with a share to his sister. He died in 1863. The life tenant died December 20, 1899, and at that time all the estates in remainder came into actual possession and enjoyment of the beneficiaries. The Act of March 10,1899 (c. 76, Laws of that year) provided:
"All estates upon remainder . . . which vested prior to June 30th, 1886, but which will not come into actual •possession' or enjoyment of the person . . . beneficially interested therein until after the passage of this act, shall be appraised and taxed as soon as the person . . . beneficially interested therein shall be entitled to the actual possession dr enjoyment thereof."
The court said (p. 55):
"This court and the Supreme Court of the United States have held in numerous cases that the transfer tax is not imposed upon property, but upon the right of sue- cession. It, therefore, follows that where there was a complete vesting of a residuary estate before the enactment of the transfer tax statute, it cannot be reached by that form of taxation. In the case before us it is an undisputed fact that these remainders, had vested in 1863, and the only contingency leading to • their divesting was the death of a remainderman in the lifetime of the life tenant, in which event the children of the one so dying would be substituted. If these estates in remainder were vested prior to the enactment of the Transfer Tax Act there could be in no legal sense a transfer of the property at the time of possession and enjoyment. This being so, to impose a tax based on the succession would be to diminish the value of these vested estates, to impair the obligation of a contract and take private property for public use without compensation."
Matter of Craig, 97 App. Div. 289 (affirmed, 181 N. Y. 651), involved a similar state of facts. The court said (p.296):
" The underlying principle which supports the tax is that such right [the right of succession] is not a natural one but is in fact, a privilege only, and that'the authority conferring the privilege may impose conditions upon its exercise. But when the privilege has ripened into a right it is too late to impose conditions of the character in question, and when the right is conferred by a lawfully executed'grant or contract it is property and not privilege, and as such is protected from legislative encroachment by constitutional guaranties."
In Hunt v. Wicht, 174 Cal. 205, the court held that a deed delivered- by grantor to a third person in escrow to be delivered to grantee on the death of the grantor passed a present title to the grantee, the grantor, retaining only a life estate; and that the legislature was without power subsequently to impose a succession tax accruing at the termination of the grantor's life estate, simply because the grantee was during the intervening life estate without immediate possession of the property conveyed. The court said (p. 209): " It is the vesting in interest that constitutes the succession, and the question of liability to such a tax must be determined by the law in force at that time. . . . What we have said appears perfectly clear on principle, and is sustained by practically all of the authorities in other states where the .question has arisen."
In Lacey v. State Treasurer, 152 Iowa 477, a contract created a vested interest in .real estate subject only to postponement of the right of possession and enjoyment until the death of the grantor. The court held that there-was a transfer of a present interest and that its character was not affected by a condition therein, that might subsequently reduce the share of each grantee. It was also held (pp. 483-484):
"Even though the remainder is so far conditional that it may have to be opened up to let in afterborn children, and, on the other hand, may be divested by death without issue of the person named, nevertheless it constitutes a vested interest, not subject to a subsequent collateral inheritance tax statute, passed before the termination of the life estate. In re Beaman, 147 N. Y. 69. Any attempted legislation imposing a collateral inheritance tax upon interests in remainder, which have become vested by the taking effect of the will creating them, would be unconstitutional. In re Pell, 171 N. Y. 48."
In Houston's Estate, 276 Pa. 330, a deed irrevocably conveyed property in trust- to pay income to the settlor for life and at her death to a remainderman. The statute thén in forcé imposed a five per cent, tax ©n transfers intended to take effect in possession or enjoyment at or after death. The life tenant died after the taking effect of legislation which increased the rate to ten per cent. The court held the estate passing to the remainderman taxable at five per.eenriand japt, at. j^he higher rate fixed by the later statute. The opinion of the Orphans' Court, adopted by the Supremé-Court, said (p. 331):
" Nor can it be successfully^ argued that the tax is not on the transfer of title to the property, but on the transfer of enjoyment, for, as it seems to us, the act means by this the right of enjoyment, and this was vested under the' deed. If the tax is imposed when enjoyment is perfected by actual possession, and this theory is carried to its logical conclusion, it would seem that if, during the administration of an estate, delays occur, as they necessarily must, and if, before actual distribution is made, the rate of taxation is changed, a legacy would be taxed at the changed rate, which would appear to be a reductio ad absurdum."
In State ex rel. Tozer v. Probate Court, 102 Minn. 268, an owner of much property organized a corporation and, his wife joining, conveyed practically all to the corporation. It issued its shares to him and he gave one-third to her. Then they transferred the stock to their four children who leased two-thirds to the father for his life and one-third to the mother for her life. The father died in 1905 after the taking effect of an inheritance tax law enacted in that year. The court held that the leases vested in each parent a life estate in the stock and reserved to the children estates in reversion which were beyond the control of the life tenants; and that the interests of the children vested when the leases were made, came into possession upon the termination of the life estates and that the inheritance tax could not be collected thereon. See also Commonwealth v. Wellford, 114 Va. 372.
We conclude that the succession Was complete when the trust deeds of Mb'. ahd'Mrs. Coolidge took effect and that the enforcement of the statute imposing the excise in question would be repugnant to the contract clause of the Constitution and the due process clause of the Four teenth Amendment. We need not consider whether it would also conflict with the equal protection clause.
Reversed.