309 U.S. 106 (1940), 110, Helvering v. Hallock

Docket Nº:No. 110
Citation:309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604
Party Name:Helvering v. Hallock
Case Date:January 29, 1940
Court:United States Supreme Court
 
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309 U.S. 106 (1940)

60 S.Ct. 444, 84 L.Ed. 604

Helvering

v.

Hallock

No. 110

United States Supreme Court

Jan. 29, 1940

Argued December 13, 1939

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Syllabus

1. Decedent, in his lifetime, created a trust providing that the income from the trust property should be paid to his wife during her lifetime, that, upon his death, if she survived him, the corpus of the trust should go to her or to other named beneficiaries, but that, upon her death, if he survived, the property should revert to himself. The wife survived. Held, that the value of the remainder interest

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should be included in the decedent's gross estate under § 302(c) of the Revenue Act of 1926, as a transfer intended to take effect in possession or enjoyment at or after the grantor's death. Klein v. United States, 283 U.S. 231, followed; Helvering v. St. Louis Trust Co., 296 U.S. 39, and Becker v. St. Louis Trust Co., ibid., 48, overruled. Pp. 110-115.

2. The testator, by trust deed, established a fund in trust to pay the income to his wife during her life and to himself should he survive her, and, upon the death of the survivor, if the trust had not then been modified or revoked, to pay the principal to the settlor's estate. There was a further provision giving to the settlor and his wife jointly during their lives, and to either of them after the death of the other, power to modify, alter, or revoke the trust, which was not exercised. The wife survived the husband. Held, that the value of the interest which the husband had reserved to himself was properly included in his gross estate under § 302(c) of the Revenue Act of 1926. P. 116.

3. Section 302(c) deals not with property technically passing at death, but with interests theretofore created. The taxable event is a transfer inter vivos. But the measure of the tax is the value of the transferred property at the time when death brings it into enjoyment. P. 110.

4. The statute taxes not merely those interests which are deemed to pass at death according to refined technicalities of the law of property. It also taxes inter vivos transfers that are closely akin to testamentary dispositions. P. 112.

5. The governing principle in the application of this legislation (§ 302(c), supra) is the intention of Congress to include in the gross estate inter vivos gifts which may be resorted to as a substitute for a will, in making dispositions of property operative at death. To effectuate this purpose, practical considerations applicable to

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taxation prevail, and not the niceties of the art of conveyancing. P. 114.

6. Stare decisis is a principle of policy, and not a mechanical formula of adherence to the latest decision, however recent and questionable, when such adherence involves collision with a prior doctrine more embracing in its scope, intrinsically sounder, and verified by experience. P. 118.

7. In the case at bar, the decisions now relied upon by the taxpayers, but overruled by the court, were made after the making of the settlements, and after the death of the settlors, out of which the taxes accrued. P. 119.

8. The right and duty of this Court to reexamine an untenable or undesirable construction placed by itself upon a revenue provision are not impeded by the failure of Congress and of the Treasury to take steps to avoid such construction through legislative amendment. P. 119.

102 F.2d 1; 103 id. 834, reversed.

104 F.2d 1011 affirmed.

Certiorari, 308 U.S. 532, to review decisions of the Circuit Courts of Appeals involving federal estate taxes. In Nos. 110-112, the judgments below affirmed decisions of the Board of Tax Appeals, 34 B.T.A. 575, which had set aside deficiency assessments.

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FRANKFURTER, J., lead opinion

MR. JUSTICE FRANKFURTER delivered the opinion of the Court.

These cases raise the same question -- namely, whether transfers of property inter vivos made in trust, the particulars of which will later appear, are within the provisions of § 302(c) of the Revenue Act of 1926.1 They

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were heard in succession, [60 S.Ct. 447] and may be decided together. In each case, the Commissioner of Internal Revenue included the trust property in the decedent's gross estate. In Nos. 110, 111, and 112, his determination was reversed by the Board of Tax Appeals (34 B.T.A. 575), and the Board was affirmed by the Circuit Court of Appeals for the Sixth Circuit. 102 F.2d 1. In No. 183, the taxpayer paid under protest, successfully sued for recovery in the District Court for the Eastern District of Pennsylvania, and his judgment was sustained by the Circuit Court of Appeals for the Third Circuit. 103 F.2d 834. In No. 399, the Commissioner was in part successful before the Board of Tax Appeals (36 B.T.A. 669), and the Circuit Court of Appeals for the Second Circuit affirmed the Board. 104 F.2d 1011.

Neither here nor below does the issue turn on the unglossed text of § 302(c). In its enforcement, Treasury and courts alike encounter three recent decisions of this Court, Klein v. United States, 283 U.S. 231, Helvering v. St. Louis Trust Co., 296 U.S. 39, and Becker v. St. Louis Trust Co., 296 U.S. 48. Because of the difficulties which lower courts have found in applying the distinctions made by these cases and the seeming disharmony of their results, when judged by the controlling purposes of the estate tax law, we brought the cases here. All involve dispositions of property by way of trust in which the settlement provides for return or reversion of the corpus to the donor upon a contingency terminable at his death. Whether the transfer made by the decedent in his lifetime is "intended to take effect in possession or enjoyment at or after his death" by reason of that which he retained is the crux of the problem. We must put to one side questions that arise under sections of the estate tax law other than § 302(c) -- sections, that is, relating to transfers taking place at death. Section 302(c) deals with

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property not technically passing at death, but with interests theretofore created. The taxable event is a transfer inter vivos. B ut the measure of the tax is the value of the transferred property at the time when death brings it into enjoyment.

We turn to the cases which beget the difficulties. In Klein v. United States, supra, decided in 1931, the decedent, during his lifetime, had conveyed land to his wife for her lifetime,

and if she shall die prior to the decease of said grantor, then and in that event she shall by virtue hereof take no greater or other estate in said lands and the reversion in fee in and to the same shall in that event remain vested in said grantor. . . .

The instrument further provided,

Upon condition and in the event that said grantee shall survive the said grantor, then and in that case only the said grantee shall by virtue of this conveyance take, have, and hold the said lands in fee simple. . . .

The taxpayer contended that the decedent had reserved a mere "possibility of reverter," and that such a "remote interest,"2 extinguishable upon the grantor's death, was not sufficient [60 S.Ct. 448] to bring the conveyance within the reckoning of the taxable estate. This Court held otherwise. It rejected formal distinctions pertaining to the law of real property as irrelevant criteria in this field of taxation. "Nothing is to be gained," it was said,

by multiplying words in respect of the various niceties of the art of conveyancing or the law of contingent and vested remainders. It is perfectly plain that the death of the grantor was the indispensable and intended event which brought the larger estate into being for the grantee and effected its transmission from the dead to the living, thus satisfying the terms of the taxing act and justifying the tax imposed.

Klein v. United States, supra, at 234.

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The inescapable rationale of this decision, rendered by a unanimous Court, was that the statute taxes not merely those interests which are deemed to pass at death according to refined technicalities of the law of property. It also taxes inter vivos transfers that are too much akin to testamentary dispositions not to be subjected to the same excise. By bringing into the gross estate at his death that which the settlor gave contingently upon it, this Court fastened on the vital factor. It refused to subordinate the plain purposes of a modern fiscal measure to the wholly unrelated origins of the recondite learning of ancient property law. Surely the Klein decision was not intended to encourage the belief that a change merely in the phrasing of a grant would serve to create a judicially cognizable difference in the scope of § 302(c), although the grantor retained in himself the possibility of regaining the transferred property upon precisely the same contingency. The teaching of the Klein case is exactly the opposite.3

In 1935, the St. Louis Trust cases came here. A rational application of the principles of the Klein case to the situations now before us calls for scrutiny of the particulars in the St. Louis cases in order to extract their relation to the doctrine of the earlier decision.

In Helvering v. St. Louis Trust Co., supra, the decedent had conveyed property in trust, the income of which was to be paid to his daughter during her life, but at her death, "[i]f the grantor still be living, the Trustee shall forthwith . . . transfer, pay, and deliver the entire estate to the grantor, to be his absolutely." But, "[i]f the grantor be then not living," then the income was to be

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devoted to the settlor's wife if she were living, and upon the death of both daughter and wife, if he were not living, the trust property was...

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