Chase Nat Bank of City of New York v. United States

Citation63 A. L. R. 388,278 U.S. 327,49 S.Ct. 126,73 L.Ed. 405
Decision Date02 January 1929
Docket NumberNo. 77,77
PartiesCHASE NAT. BANK OF CITY OF NEW YORK et al. v. UNITED STATES
CourtUnited States Supreme Court

Messrs. Dallas S. Townsend, of New York City, and Wm. Marshall Bullitt, of Louisville, Ky., for Chase Nat. Bank of City of New York.

[Argument of Counsel from pages 328-331 intentionally omitted] Mr. Alfred A. Wheat, of Washington, D. C., for the United States.

Mr. Justice STONE delivered the opinion of the Court.

This case comes here from the Court of Claims, under section 288, title 28, U. S. Code (28 USCA § 288), 43 Stat. 939, on certified questions of law concerning which instructions are desired for the proper disposition of the cause. The facts certified are:

On September 13, 1922, after the effective date of the Revenue Act of 1921, Herbert W. Brown procured three insurance policies on his life aggregating $200,000, each naming his wife as beneficiary. Each policy re- served to the insured the right to change the beneficiary. All premiums on the policies were paid by the insured. On April 10, 1924, he died testate, leaving the plaintiff below his executor and an estate subject to the estate tax imposed by the Revenue Act of 1921, c. 136, 42 Stat. 227. The tax as assessed by the commissioner included $9,146.76 imposed by reason of the inclusion in the estate of the proceeds of the three insurance policies, less $40,000 exemption authorized by the statute. The executor paid the tax and upon denial of a claim for refund brought the present suit in the Court of Claims to recover the tax as illegally assessed.

The questions certified are:

Question I: Whether the tax imposed by the final clause of section 402(f), Revenue Act of 1921, 42 Stat. 278, on life insurance policies payable in terms to beneficiaries 'other than the decedent or his estate' is a direct tax on property and void because not apportioned.

Question II: Whether the $9,146.76 tax imposed bears such an unreasonable relation to the subject-matter of the tax as to render it void.

Similar questions were mooted by counsel, but not decided, in Lewellyn v. Frick, 268 U. S. 238, 251, 45 S. Ct. 487, 69 L. Ed. 934.

Section 401 of the Revenue Act of 1921 imposes a tax upon 'the transfer of the net estate of every decedent' dying after the passage of the act, and section 402 provides: 'That 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, * * * tangible or intangible. * * * (f) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.' By section 406 the executor is required to pay the tax but if so paid he is given by section 408 the right to recover from the beneficiaries a part of the tax and by section 409 they are made personally liable for a share of it if not so paid.

In the present case there is no question of the construction of the statute. The tax is plainly imposed by the explicit language of sections 401 and 402(f) if those sections are constitutionally applied. Plaintiff challenges the validity of the tax on the ground that it is not an excise or privilege tax but a direct tax on property, the insurance policies or their proceeds, and so is invalid because not apportioned as required by article 1, §§ 2, 9, of the federal Constitution, and that in any case the measure of the tax and the methods of securing its payment are so arbitrary and capricious as to violate the due process clause of the Fifth Amendment.

The statute in terms taxes transfers. Like provisions in earlier acts have been generally upheld as imposing a tax on the privilege of transferring the property of a decedent at death, measured by the value of the interest transferred or which ceases at death. Cf. Y. M. C. A. v. Davis, 264 U. S. 47, 50, 44 S. Ct. 291, 68 L. Ed. 558; Edwards v. Slocum, 264 U. S. 61, 62, 44 S. Ct. 293, 68 L. Ed. 564; New York Trust Co. v. Eisner, 256 U. S. 345, 349, 41 S. Ct. 506, 65 L. Ed. 963, 16 A. L. R. 660; Nichols v. Coolidge, 274 U. S. 531, 47 S. Ct. 710, 71 L. Ed. 1184, 52 A. L. R. 1081.

It is true, as emphasized by plaintiff, that the interest of the beneficiaries in the insurance policies effected by decedent 'vested' in them before his death and that the proceeds of the policies came to the beneficiaries, not directly from the decedent, but from the insurer. But until the moment of death the decedent retained a legal interest in the policies which gave him the power of disposition of them and their proceeds as completely as if he were himself the beneficiary of them. The precise question presented is whether the termination at death of that power and the consequent passing to the designated beneficiaries of all rights under the policies freed of the possibility of its exercise may be the legitimate subject of a transfer tax, as is true of the termination by death of any of the other legal incidents of property through which its use or economic enjoyment may be controlled.

A power in the decedent to surrender and cancel the policies, to pledge them as security for loans and the power to dispose of them and their proceeds for his own benefit during his life which subjects them to the control of a bankruptcy court for the benefit of his creditors, Cohen v. Samuels, 245 U. S. 50, 38 S. Ct. 36, 62 L. Ed. 143 (see Burlingham v. Crouse, 228 U. S. 459, 33 S. Ct. 564, 57 L. Ed. 920, 46 L. R. A. (N. S.) 148), and which may, under local law applicable to the parties here, subject them in part to the payment of his debts, Domestic Relations Law, N. Y. (chapter 14, Consol. Laws), § 52; Kittel v. Domeyer, 175 N. Y. 205, 67 N. E. 433; Guardian Trust Co. v. Straus, 139 App. Div. 884, 123 N. Y. S. 852, affirmed 201 N. Y. 564, 95 N. E. 1129, is by no means the least substantial of the legal incidents of ownership, and its termination at his death so as to free the beneficiaries of the policy from the possibility of its exercise would seem to be no less a transfer within the reach of the taxing power than a transfer effected in other ways through death.

In Saltonstall v. Saltonstall, 276 U. S. 260, 48 S. Ct. 225, 72 L. Ed. 565, a tax had been imposed by state statute on the succession to a remainder interest which had vested under a trust created before the enactment of the taxing act. It was objected that the tax was void as retroactive and hence in conflict with the Fourteenth Amendment of the federal Constitution under the ruling in Nichols v. Coolidge, supra, later applied in Untermyer v. Anderson, 276 U. S. 440, 48 S. Ct. 353, 72 L. Ed. 645. But by the provisions of the trust indenture a power of disposition of the remainder had been reserved to the settlor to be exercised by him at any time during his life, with the concurrence of one trustee, and we held that the freeing of the remainder of the possibility of the exercise of that power, through its termination by the death of the settlor, effected a transfer which was the appropriate subject of a succession tax and that the tax was not retroactive since the termination of the power which was prerequisite to the complete succession did not occur until after the enactment of the statute. The court said (page 271 of 276 U. S. (48 S. Ct. 227)):

'So long as the privilege of succession has not been fully exercised it may be reached by the tax. See Cahen v. Brewster, 203 U. S. 543 (27 S. Ct. 174, 51 L. Ed. 310, 8 Ann. Cas. 215); Orr v. Gilman, 183 U. S. 278 (22 S. Ct. 213, 46 L. Ed. 196); Chanler v. Kelsey (205 U. S. 466, 27 S. Ct. 550, 51 L. Ed. 882) supra; Moffitt v. Kelly (218 U. S. 400, 31 S. Ct. 79, 54 L. Ed. 1086, 30 L. R. A. (N. S.) 1179) supra; Nickel v. Cole (256 U. S. 222, 41 S. Ct. 467, 65 L. Ed. 900) supra. And in determining whether it has been so exercised technical distinctions between vested remainders and other interests are of little avail, for the shifting of the economic benefits and burdens of property, which is the subject of a succession tax, may even in the case of a vested remainder be restricted or suspended by other...

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