274 U.S. 531 (1927), 88, Nichols v. Coolidge

Docket Nº:No. 88
Citation:274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184
Party Name:Nichols v. Coolidge
Case Date:May 31, 1927
Court:United States Supreme Court
 
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Page 531

274 U.S. 531 (1927)

47 S.Ct. 710, 71 L.Ed. 1184

Nichols

v.

Coolidge

No. 88

United States Supreme Court

May 31, 1927

Argued January 6, 7, 1927

ERROR TO THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

Syllabus

1. An absolute conveyance of real estate made without money consideration by deed to the grantor's children is not a transfer intended to take effect in possession or enjoyment at or after the grantor's death within the intendment of § 402, par. (c) of the Revenue Act approved February 24, 1919, "Estate Tax," although the premises were contemporaneously leased by the grantees to the grantor for one year or any renewal thereof, but subject to the lessors' right to terminate the term during any year, and although the parties contemplated that the grantor should enjoy the property for residential purposes as long as she desired, but made no valid agreement to that effect. P. 538.

2. Section 402(c), supra, insofar 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 to take effect in possession or enjoyment at or after his death, violates the Fifth Amendment. P. 542.

4 F.2d 112 affirmed.

Error to a judgment of the district court, recovered by Coolidge and Loring, Executors, from Nichols, Collector, representing the amount of certain federal estate taxes unlawfully assessed and collected over their protest.

Page 532

MCREYNOLDS, J., lead opinion

MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

Defendants in error sued to recover additional federal taxes exacted of the estate in their keeping. The cause was heard upon an agreed statement, judgment went for them on a directed verdict, and this writ of error, allowed April 3, 1925, brings the matter here. In a comprehensive charge, the trial court interpreted the law, but gave no further opinion. Coolidge v. Nichols, 4 F.2d 112.

Mrs. Julia Coolidge, of Massachusetts, died January 6, 1921. As required by the Revenue Act approved February 24, 1919, c. 18, 40 Stat. 1057, 1096, the executors returned a schedule to the collector. He estimate the gross estate at $180,184.73 and allowed $77,747.74 deductions. They paid the amount assessed upon the balance. Their return did not include certain property transferred by the decedent through duly executed deeds and without valuable consideration, some to trustees and some directly to her children. The Commissioner of Internal Revenue held that, under § 402(c), the value of all this property at her death must be included in the gross state.

Page 533

He raised the assessment accordingly, and demanded the additional tax $34,662.65 -- here challenged.

July 29, 1907, Mrs. Coolidge and her husband owned certain real estate in Boston, also valuable personal property, which they transferred without consideration to trustees, who agreed to hold it any pay the income to the settlors, then to the survivor, and, after his death, to distribute the corpus among the settlors' five children or their representatives. The deed directed that the interest of any child predeceasing the survivor should pass as provided by the statute of distribution "in effect at the time of the death of such survivor." The trustees were authorized to sell the property, to make and change investments, etc. April 6, 1917, the settlors assigned to the children their entire interest in the property, especially any right to the income therefrom. At the death of Mrs. Coolidge, the trustees held property worth $432,155.35, but, through sales [47 S.Ct. 711] and changes, much of what they originally received had passed from their possession.

May 18, 1917, by deeds purporting to convey the fee, Mrs. Coolidge, her husband joining, gave their five children two parcels of land long used by her for residences. Contemporaneously, the grantees leased these parcels to the conveyors for one year at nominal rental, with provision for annual renewals until notice to the contrary. All parties understood that renewals would be made if either lessee wished to occupy the premises. When Mrs. Coolidge died, the value of this property was $274,300.

Plaintiff in error now maintains the above-described transfers by Mrs. Coolidge were intended to take effect in possession or enjoyment at or after death, within the ambit of § 402(c), Act February 24, 1919, and that the value at her death of the property held by the conveyees constituted part of her gross estate.

The court below held the transfer of the residences (1917) was absolute, the right to possess or enjoy them

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did not depend upon death, and their value constituted no part of the gross estate; also that, under the statute, the value of the property conveyed to trustees in 1907, or resulting therefrom, must be included in the gross estate, but, thus construed, the Act went beyond the power of Congress.

Relevant portions of "Title IV -- Estate Tax," Act February 24, 1919, are printed below. * It undertakes to

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lay a charge equal to the sum of specified percentages -- from one to twenty-five -- "of the value of the net estate . . . upon the transfer of the net estate of every

Page 536

decedent" dying thereafter. And it directs that the net estate shall be ascertained by deducting from the gross certain items and an exemption of $50,000; also

that

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the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated --

(a) To the extent of his interest therein, subject to the payment of charges against the estate, expenses of administration, and subject to distribution. (b) The dower or curtesy, etc., interest of the surviving spouse. (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or...

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