Document: 395 U.S. 316 89 S.Ct. 1730 23 L.Ed.2d 332 UNITED STATES, Petitioner,v.ESTATE of Joseph P. GRACE, Deceased, et al. No. 574. Argued April 22, 1969. Decided June 2, Rehearing Denied Oct. 20, See 90 147. Sol. Gen. Erwin N. Griswold, for petitioner. William S. Downard, Dallas, Tex., respondents. Mr. Justice MARSHALL delivered the opinion Court. 1 This case involves application § 811(c)(1)(B) Internal Revenue Code 1939 to a so-called 'reciprocal trust' situation.1 After Grace's death in 1950, Commissioner determined that value trust created by his wife was includible gross estate. A deficiency assessed and paid, and, after denial claim refund, this refund suit brought. The Court Claims, with two judges dissenting, ruled not decedent's estate under entered judgment respondent. Estate Grace v. United States, 393 F.2d 939, 183 Ct.Cl. 745 (1968). We granted certiorari because an alleged conflict between decision below certain decisions courts appeals importance issue presented administration federal tax laws. 975, 452, 21 437 reverse. I. 2 Decedent very wealthy man at time marriage late Janet 1908. had no wealth or property her own, but, 1908 1931, decedent transferred large amount personal real property, including family's Long Island retained effective control over business affairs, wife. She took interest part affairs relied upon husband's judgment. Whenever some formal action required regarding name, would have appropriate instrument prepared she execute it. 3 On December 15, executed instrument, hereinafter called trust. Named as trustees were decedent, nephew, third party. directed pay income during lifetime, any principal which majority might deem advisable. given power designate, will de d, manner remaining be distributed among their children. properties included securities interests. 4 30, trust, virtually identical family corporate securities, all been preceding years. 5 instruments one employees accordance plan devised create additional trusts before advent new gift expected enacted next year. selected each Grace, acting plan, request. 6 died 1937. terminated death. Her estate's return disclosed reported it nontaxable transfer Grace. asserted 'reciprocal' extent mutual value. Compromises on unrelated issues resulted 55% smaller trusts, being 7 1950. both trusts. held limited appointment. Neither 8 $363,500.97, plus interest, paid. II. 9 Section provided life general purpose statute include transfers are essentially testamentary—i.e., leave transferor significant lifetime. Church, 335 632, 643—644, 69 322, 328, 93 L.Ed. 288 (1949). 10 doctrine reciprocal formulated response attempts draft seemingly avoid literal terms 811(c)(1)(B), while still leaving lifetime enjoyment property.2 dates from Lehman Revenue, 109 99 (C.A.2d Cir.), cert. denied, 310 637, 60 1080, 84 1406 (1940). In Lehman, brother owned equal shares stocks bonds. Each placed other's benefit life, remainder tenant's issue. also gave other right withdraw $150,000 principal. If brothers reserved created, estates interests made revoke. When died, argued neither did he created. 11 Second Circuit disagreed. That court effect same if stock himself, issue, $150,000. reasoned: 12 'The fact reciprocated 'crossed' is trifle, quite lacking practical legal signifia nce. * law searches out reality concerned form.' F.2d, 100. 13 decisive point caused make establishing own 14 has applied numerous times since decision.3 It received congressional approval Technical Changes Act 1949, 63 Stat. 893.4 present is, however, Court's first examination doctrine. 15 Claims divided requirements situation case. Relying language appeals' decisions,5 crucial factor whether established consideration establishment beneficiary. quid pro quo exchange Rather, found pattern giving, party desiring obtain other. Indeed, requested do so. therefore inapplicable. 16 recognized cases slightly different test reciprocity.6 Those inferred similar about time. inference rebutted evidence case, particularly lack avoidance motive Graces. contrast, dissent felt majority's approach entirely too much weight subjective intent. Once interrelated, intent parties should become irrelevant. relevant settlors approximately objective economic position they rather than other, 17 agree places emphasis creating reason hinders proper true there seem support approach. results those arguably below.7 Nevertheless, we think these accord prior interpreting related provisions 18 Emphasis when members unit, creates substantial obstacles thef ederal As said Spiegel 701, 705—706, 301, 303, 330 (1949): 19 'Any requirement (of) post-death attempt probe settlor's thoughts regard transfer, partially impair effectiveness (section 811(c)) frustrate evasions.' 20 'the taxability corpus does hinge motives, but depends nature operative transfer.' Id., 705, S.Ct., 303. supra. observations particular situation. First, inquiries into intent, especially intrafamily transfers, perilous. illustrates practically speaking, impossible determine what mind 30 years earlier. Second, high probability such arrangement indeed tax-avoidance purposes. And, even estate-tax-avoidance motive, settlor sense retain purporting give away property.8 Finally, unrealistic assume usually bargained-for 'Consideration,' traditional sense, simply normally enter transfers.9 22 For reasons, hold dependent finding Such 'consideration' necessarily difficult inquiry settlors. Nor necessary prove existence motive. above, standards sort, rely factors, rarely workable requires only arrangement, value, leaves naming themselves beneficiaries.10 Applying clear fund must undisputed interrelated. They substantially single transaction designed carried decedent. left party, eo nomic before. appears, husband wife, vis-a -vis change all. answer character. purposes tax, criterion. remained undiminished wife's accordingly increased 24 reversed remanded further proceedings consistent opinion. 25 so ordered. 26 Reversed remanded. 27 STEWART 28 DOUGLAS, dissenting. 29 object I understand it, rid himself taxable exchanging powers settlor. Yet powers. sufficient require inclusion settlor, three trustees, alter paying chief beneficiary 'any amounts up whole thereof, Trustees them may advisable.' quoted But almost provision conclude power* tax. Lober 346 335, 74 98, 98 15. 31 say use device aid 32 dismiss petition improvidently granted. that— shall '(c) '(1) General rule. To therein (except bona fide sale adequate full money money's worth), otherwise— '(B) period ascertainable without reference end (i) possession of, from, (ii) right, either alone conjunction person, designate persons who possess enjoy therefrom *.' recodified 2036 1954, U.S.C. 2036. Colgan & Molloy, Converse Trusts—The Rise And Call Of Tax Avoidance Device, L.Rev. 271 (1948). e.g., Glaser 306 57 (C.A.7th Cir. 1962); Moreno 260 389 (C.A.8th 1958); Hanauer's 149 857 326 770, 66 175, 465 (1945); Cole's 140 636 1944). S.Rep. 831, 81st Cong., 1st Sess., 5—6 (1949); H.R.Rep. 920, Cong. McLain Jarecki, 232 211 1956); Newberry's 201 874, 38 A.L.R.2d 514 (C.A.3d 1953); re Lueder's Estate, 164 128 1947). E.g., Orvis Higgins, 180 537 340 810, 71 37, 95 595 (1950). cited n. 5, example, ostensibly imminent Instead children, chose pass children imposition probably typical regard. so; Commissioner, supra, 3. mean 'consideration,' exchange, can ever relevant. cases, reasons helpful requisite link establish reciprocity. (§ 811(d)(2)) corresponding 1954 (26 2038(a)(2)). provides property— 'To where thereof subject date throught exercise alter, amend, revoke (Emphasis supplied.) satisfy test, Helvering City Bank Farmers Trust Co., 296 85, 56 70, 80 62.

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