Helvering v. St Louis Union Trust Co

• Decision Date: 11 November 1935
• Docket Number: No. 25,25
• Citation: 80 L.Ed. 29,100 A.L.R. 1239,56 S.Ct. 74,296 U.S. 39
• Parties: HELVERING, Commissioner of Internal Revenue, v. ST. LOUIS UNION TRUST CO. et al
• Court: U.S. Supreme Court

296 U.S. 39

56 S.Ct. 74

80 L.Ed. 29

HELVERING, Commissioner of Internal Revenue,

v ST. LOUIS UNION TRUST CO. et al.

No. 25.

Argued Oct. 24, 25, 1935.

Decided Nov. 11, 1935.

The Attorney General and Mr. David E. Hudson, of Washington, D.C., for petitioner.

Mr. Daniel N. Kirby, of St. Louis, Mo., for respondents.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

The decedent, several years prior to his death, transferred to a trustee certain securities in trust, to be held, managed, and disposed of as an active trust, the net income thereof to be paid to the decedent's daughter during her life, with remainder over to the persons named. The trustee was given discretionary power to determine the trust whenever the trustee might deem it wise to do so, whereupon the estate was to revert to the grantor. The indenture contained a further provision that if the daughter predecease the grantor, the trust shall terminate and the trust estate be transferred, paid over, and delivered to the grantor, to be his absolutely. It is this latter provision which gives rise to the question we are called upon to consider. By the terms of the indenture, the grantor recited that it was his intention to make for the benefit of his daughter 'an absolute and irrevocable gift and settlement of the property * * * so that the grantor shall during the life of his said daughter have no further individual or beneficial interest therein.' The grant was final and absolute in terms, and beyond the power of the grantor to revoke or alter. At the death of the grantor, neither of the contingencies upon which the trust estate would revert to the grantor had taken place.

The Commissioner assessed a deficiency tax against the estate upon the view that the grantor, having reserved the right to a revestment in him of the trust property, title to which he had conveyed, upon the happening of either of the contingencies mentioned, the transfer to the trustee was one cintended to take effect in possession or enjoyment at or after his death' within the meaning of section 302(c), Revenue Act of 1924, c. 234, 43 Stat. 253, 304 (26 USCA § 411 note).¹

The Board of Tax Appeals decided against the Commissioner's view (28 B.T.A. 107), and its holding was upheld by the court below. 75 F.(2d) 416.

The substantive provision of the act which imposes the tax is section 301(a), 26 USCA § 410 note; and by that provision the tax is laid 'upon the transfer of the net estate of every decedent dying after the enactment of this Act.' The event which gives rise to the tax is the death of the decedent, with the resulting transfer of his estate either by will or the law relating to intestacy. When, therefore, section 302(c) includes within the purview of section 301(a) a transfer inter vivos 'intended to take effect in possession or enjoyment at or after his death,' it does so upon the theory that such a transfer in effect is testamentary; that is to say, a substitute for either a disposition by will or a passing in virtue of intestacy.

'But such a transfer, not so made, embodies a transaction begun and completed wholly by and between the living, taxable as a gift (Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226), but obviously not subject to any form of death duty, since it bears no relation whatever to death. The 'generating source' of such a gift is to be found in the facts of life and not in the circumstance of death. And the death afterward of the donor in no way changes the situation; that is to say, the death does not result in a shifting, or in the completion of a shifting, to the donee of any economic benefit of property, which is the subject of a death tax, Chase Nat. Bank v. United States, 278 U.S. 327, 338, 49 S.Ct. 126, 73 L.Ed. 405, 63 A.L.R. 388; Reinecke v. Northern Trust Co., 278 U.S. 339, 346, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397; Saltonstall v. Saltonstall, 276 U.S. 260, 271, 48 S.Ct. 225, 72 L.Ed. 565; nor does the death in such case bring into being, or ripen for the donee or any one else, so far as the gift is concerned, and property right or interest which can be the subject of any form of death tax. Compare Tyler v. United States, 281 U.S. 497, 503, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758. Complete ownership of the gift, together with all its incidents, has passed during the life of both donor and donee, and no interest of any kind remains to pass to one or cease in the other in consequence of the death which happens afterwards.' (Italics added.) Heiner v. Donnan, 285 U.S. 312, 322, 323, 32 S.Ct. 358, 359, 76 L.Ed. 772.

The property brought into the estate by subdivision 302(c) for the purpose of the tax is, as said by this court in Reinecke v. Trust Co., 278 U.S. 339, 348, 49 S.Ct. 123, 126, 73 L.Ed. 410, 66 A.L.R. 397, 'Either property transferred in contemplation of death or property passing out of the control, possession or enjoyment of the decedent at his death. * * * In the light of the general purpose of the statute and the language of (section 301(a), 26 USCA § 410 note) explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in (section 302(c), 26 USCA § 411 note) 'to take effect in possession or enjoyment at or after his death,' include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under (section 301(a)). That doubt must be resolved in favor of the taxpayer.' (Italics added.)

If, therefore, no interest in the property involved in a given case pass 'from the possession, enjoyment, or control of the donor at his death,' there is no interest with respect to which the decedent has created a trust intended to take effect in possession or enjoyment at or after his death. The grantor here, by the trust instrument, left in himself no power to resume ownership, possession, or enjoyment, except upon a contingency in the nature of a condition subsequent, the occurrence of which was entirely fortuitous so far as any control, design, or volition on his part was concerned. After the execution of the trust he held no right in the trust estate which in any sense was the subject of testamentary disposition. His death passed no interest to any of the beneficiaries of the trust, and enlarged none beyond what was conveyed by the indenture. His death 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. This is well stated by the court below, 75 F.(2d) 416, at page 418: 'It was only in the case of the happening of certain contingencies over which he had no control that the property would revert to him. One of these contingencies was the death of his daughter prior to his death, while the trust still continued; and the second was a termination by the trustee of the trust during the lifetime of the grantor. Neither of these contingencies occurred, and there was, during the decedent's lifetime, nothing more than a possibility that either would occur. In no proper sense was there an enlargement of the interests of the beneficiaries of the trust resulting from the death of the decedent. That event merely changed the possibility that the property would revert to him into an impossibility.'

It is not, in reason, possible to find in the circumstances anything which suggests that the death of the grantor, whenever it might happen, would effect any change, or was intended to effect any change, in the extent or quality of the estates conveyed in trust. The only death which could have had any such effect was that of the daughter, the grantee; and that event did not take place.

In that connection, see Matter of Barstow's Estate, 230 App.Div. 371, 372, 373, 244 N.Y.S. 588, 589, affirmed 256 N.Y. 647, 177 N.E. 177. There the donor transferred irrevocably certain property to a trustee to be held in trust for the benefit of two daughters, with the condition that upon the death of both the fund then in the hands of the trustee was to be transferred back to the donor if then living. The donor died leaving her daughters still living. The court held that the transfer took place when the deed of trust was executed and not when the donor died.

'Mrs. Barstow could do nothing to change the effect of the deed. The corpus was beyond her control, except for the happening of the contingency that she might survive the two life tenants, and then she would have been revested with the corpus. The rights of the beneficiaries did not depend upon the death of the donor. The term of the trust was not measured by the life of the donor, but by the lives of her two daughters. They had an interest in principal and income, provided one or both survived the donor. They took a vested estate subject to being divested if the donor survived both daughters. If we 'are to view the sequence of events in the order of the actual rather than the possible' (In re Schmidlapp's Estate, 236 N.Y. 278, 286, 140 N.E. 697, 699), then we have not only a right, but are...