Spiegel Estate v. Commissioner of Internal Revenue Commissioner of Internal Revenue v. Church Estate
| Decision Date | 17 January 1949 |
| Docket Number | Nos. 3 and 5,s. 3 and 5 |
| Parties | SPIEGEL'S ESTATE et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CHURCH'S ESTATE et al |
| Court | U.S. Supreme Court |
Mr. Arnold Raum, of Washington, D.C., for petitioner.
Mr. William W. Owens, of New York City, for respondent.
This case raises questions concerning the interpretation of that part of § 811(c) of the Internal Revenue Code, 26 U.S.C.A. § 811(c), which for estate tax purposes requires including in a decedent's gross estate the value of all the property the decedent had transferred by trust or otherwise before his death which was 'intended to take effect in possession or enjoyment at or after his death * * *.' Estate of Spiegel v. Commissioner, 335 U.S. 701, 69 S.Ct. 301, involves questions which also depend upon interpretation of that provision of § 811(c). After argument and consideration of the cases at the October 1947 Term, an order was entered restoring them to the docket and requesting counsel upon reargument particularly to discuss certain questions
broader in scope than those originally presented and argued. Journal Supreme Court, 297—298, June 21, 1948. Those additional questions have now been fully treated in briefs and oral arguments.
This case involves a trust executed in 1924 by Francois Church, then twenty-one years of age, unmarried and childless. He executed the trust in New York in accordance with state law. Church and two brothers were named co-trustees. Certain corporate stocks were transferred to the trust with grant of power to the trustees to hold and sell the stocks and to reinvest the proceeds. Church reserved no power to alter, amend, or revoke, but required the trustees to pay him the income for life. This reservation of life income is the decisive factor here.
At Church's death (which occurred in 1939) the trust was to terminate and the trust agreement contained some directions for distribution of the trust assets when he died. These directions as to final distribution did not, however, provide for all possible contingencies. If Church died without children and without any of his brothers or sisters, or their children, surviving him, the trust instrument made no provision for disposal of the trust assets. Had this unlikely possibility come to pass (at his death there were living, five brothers, one sister, and ten of their children) the distribution of the trust assets would have been controlled by New York law. It has been the government's contention that under New York law had there been no such surviving trust beneficiaries the corpus would have reverted to the decedent's estate. This possibility of reverter plus the retention by the settlor of the trust income for life, the Government has argued, requires inclusion of the value of the trust property in the decedent's gross estate under our holding in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368.
The Hallock case held that where a person while living makes a transfer of property which provides for a reversion of the corpus to the donor upon a contingency terminable at death, the value of the corpus should be included in the decedent's gross estate under the 'possession or enjoyment' provision of § 811(c) of the Internal Revenue Code.1 In this case, the Tax Court, relying upon its former holdings2 declared that 'The mere possibility of reverter by operation of law upon a failure of the trust, due to the death of all the remaindermen prior to the death of decedent, is not such a possibility as to come within the Hallock case.' This holding made it unnecessary for the Tax Court to decide the disputed question as to whether New York law operated to create such a reversionary interest. The United States Court of Appeals for the Third Circuit, one judge dissenting, affirmed on the ground that it could not identify a clear-cut mistake of law in the Tax Court's decision. 161 F.2d 11. The United States Court of Appeals for the Seventh Circuit in the Spiegel case found that under Illinois law there was a possibility of reverter and reversed the Tax Court, holding that possible reversion by operation of law required inclusion of a trust corpus in a decedent's estate. Commissioner v. Spiegel's Estate, 159 F.2d 257. Other United States courts of appeal have held the same.3
Because of this conflict we granted certiorari in this and the Spiegel case.
Counsel for the two estates have strongly contended in both arguments of these cases that the law of neither New York nor Illinois provides for a possibility of reverter under the circumstances presented. They argue further that even if under the law of those states a possibility of reverter did exist, it would be an unjustifiable extension of the Hallock rule to hold that such a possibility requires inclusion of the value of a trust corpus in a decedent's estate. The respondent in this case pointed out the extreme improbability that the decedent would have outlived all his brothers, his sister, and their ten children. He argues that the happening of such a contingency was so remote, the money value of such a reversionary interest was so infinitesimal, that it would be entirely unreasonable to hold that the Hallock rule requires an estate tax because of such a contingency. But see Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, 112, 65 S.Ct. 508, 510, 89 L.Ed. 783, 159 A.L.R. 227.
Arguments and consideration of this and the Spiegel case brought prominently into focus sharp divisions among courts, judges and legal commentators, as to the intended scope and effect of our Hallock decision, particularly whether our holding and opinion in that case are so incompatible with the holding and opinion in May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, that the latter can no longer be accepted as a controlling interpretation of the 'possession or enjoyment' provision of § 811(c).4 May v. Heiner held that the corpus of a trust transfer need not
be included in a settlor's estate, even though the settlor had retained for himself a life income from the corpus. We have concluded that confusion and doubt as to the effect of our Hallock case on May v. Heiner should be set at rest in the interest of sound tax and judicial administration. Furthermore, if May v. Heiner is no longer controlling, the value of the Church trust corpus was properly included in the gross estate, without regard to the much discussed state law question, since Church reserved a life estate for himself. For reasons which follow, we conclude that the Hall ck and May v. Heiner holdings and opinions are irreconcilable. Since we adhere to Hallock, the May v. Heiner interpretation of the 'possession or enjoyment' provisions of § 811(c) can no longer be accepted as correct.
The 'possession or enjoyment' provision appearing in § 811(c) seems to have originated in a Pennsylvania inheritance tax law in 1826.5 As early as 1884 the Supreme Court of Pennsylvania held that where a legal transfer of property was made which carried with it a right of possession with a reservation by the grantor of income and profits from the property for his life, the transfer was not intended to take effect in enjoyment until the grantor's death: 'One certainly cannot be considered, as in the actual enjoyment of an estate, who has no right to the profits or incomes arising or accruing therefrom.' Reish, Adm'r v. Commonwealth, 106 Pa. 521, 526. That court further held that the Possession or enjoyment' clause did not involve a mere technical question of title, but that the law imposed the death tax unless one had parted
during his life with his possession and his title and his enjoyment. It was further held in that case that the test of 'intended' was not a subjective one, that the question was not what the parties intended to do, but what the transaction actually effected as to title, possession and enjoyment.
Most of the states have included the Pennsylvania-originated 'possession or enjoyment' clause in death tax statutes, and with what appears to be complete unanimity, they have up to this day, despite May v. Heiner, substantially agreed with this 1884 Pennsylvania Supreme Court interpretation.6 Congress used the 'possession or enjoyment' clause in death tax legislation in 1862, 1864, and 1898. ,12 Stat. 432, 485; 13 Stat. 223, 285; 30 Stat. 448, 464. In referring to the provision in the 1898 Act, this Court said that it made 'the liability for taxation depend, not upon the mere vesting, in a technical sense, of title to the gift, but upon the actual possession or enjoyment thereof.' Vanderbilt V. Eidman, 196 U.S. 480, 493, 25 S.Ct. 331, 334, 49 L.Ed. 563. And five years before the 1916 estate tax statute incorporated the 'possession or enjoyment' clause to frustrate estate tax evasions, 39 Stat. 756, 780, this Court had affirmed a judgment of the New York Court of Appeals sustaining the constitutionality of its state inheritance tax in an opinion which said: 'It is true that an ingenious mind may devise other means of avoiding an inheritance tax, but the one commonly used is a transfer with reservation of a life estate.' Matter of Keeney's Estate, 194 N.Y. 281, 287, 87 N.E. 428, 429; Keeney v. Comptroller of State of New York, 222 U.S. 525, 32 S.Ct. 105, 56 L.Ed. 299, 38 L.R.A.,N.S., 1139. And see Helvering v. Bullard, 303 U.S. 297, 302, 58 S.Ct. 565, 567, 82 L.Ed. 852,
where the foregoing quotation was...
To continue reading
Request your trial
-
Estate Of Margot Stewart v. Comm'r Of Internal Revenue, 07-5370-ag.
...reservation of a life estate-or any similar device-in order to avoid having to pay the estate tax. See Comm'r v. Estate of Church, 335 U.S. 632, 639-42, 69 S.Ct. 322, 93 L.Ed. 288 (1949). Absent § 2036, a decedent could transfer to her heir the remainder in a property while retaining a life......
-
Estate of Paxton v. Comm'r of Internal Revenue
...property transferred during his lifetime.‘ United States v. Estate of Grace, 395 U.S. 316, 320 (1969). As stated in Commissioner v. Estate of Church, 335 U.S. 632, 645 (1949): (A)n estate tax cannot be avoided by any trust transfer except by a bona fide transfer in which the settlor, absolu......
-
Louisiana Power Light Company v. City of Thibodaux
...state law when properly before us. Propper v. Clark, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480; Commissioner of Internal Revenue v. Estate of Church, 335 U.S. 632, 69 S.Ct. 322, 93 L.Ed. 288; Estate of Spiegel v. Commissioner, 335 U.S. 701, 69 S.Ct. 301, 93 L.Ed. 330; Williams v. Green Bay......
-
Indian Towing Company v. United States
...74 S.Ct. 78, 98 L.Ed. 64, with Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604; Commissioner of Internal Revenue v. Church's Estate, 335 U.S. 632, 69 S.Ct. 322, 337, 93 L.Ed. 288. 8 Edwards v. City of Shreveport, La.App., 66 So.2d 373; cf. Howard v. City of New Orleans, 159 L......
-
Chapter 8 SOME CURRENT PROBLEMS IN DEPLETION
...of debt a gift) with Commissioner v. Jacobson, 336 US 28 (1949) (cancellation of debt not a gift). But see Commissioner v. Church Estate, 335 US 632 (1949) which overruled May v. Heiner, 281 US 238 (1930). [15*] Commissioner v. Southwest Exploration Co., supra N 14 at 314. [16] GCM 22730, 1......