335 U.S. 701 (1949), 3, Estate of Spiegel v. Commissioner of Internal Revenue

Docket Nº:No. 3
Citation:335 U.S. 701, 69 S.Ct. 301, 93 L.Ed. 330
Party Name:Estate of Spiegel v. Commissioner of Internal Revenue
Case Date:January 17, 1949
Court:United States Supreme Court
 
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Page 701

335 U.S. 701 (1949)

69 S.Ct. 301, 93 L.Ed. 330

Estate of Spiegel

v.

Commissioner of Internal Revenue

No. 3

United States Supreme Court

Jan. 17, 1949

        Argued October 24, 1947

        Reargued October 11-12, 1948

        CERTIORARI TO THE UNITED STATES COURT OF APPEALS

        FOR THE SEVENTH CIRCUIT

        Syllabus

        In 1920, decedent, a resident of Illinois, made a transfer in trust of certain stocks to himself and another. He died in 1940. During his life, the trust income was to be divided among his three children; if they did not survive him, to any of their surviving children. On his death, the corpus was to be distributed in the same manner. But no provision was made for distribution of the corpus and its accumulated income should the decedent survive all of his children and grandchildren. The Tax Court determined that the value of the corpus of the trust was not includible in the gross estate of the decedent under § 811(c) of the Internal Revenue Code. The Court of Appeals for the Seventh Circuit reversed, holding that, under Illinois law, there was a possibility of reverter to the decedent, and that this made the corpus of the trust includible in his gross estate under § 811(c).

        Held:

        1. This Court accepts the determination of the Court of Appeals that, under Illinois law, the settlor had a right of reverter; this renders the trust one "intended to take effect in possession or enjoyment at or after his death," within the meaning of § 811(c) of the Internal Revenue Code, and the value of the corpus of the trust at the settlor's death was includible in his gross estate for purposes of the federal estate tax. Pp. 705-707.

        (a) The taxability of a trust corpus under the "possession or enjoyment" provision of § 811(c) does not hinge on a settlor's motives, but depends on the nature and operative effect of the trust transfer. P. 705.

        (b) A trust transaction cannot be held to alienate all of a settlor's "possession or enjoyment" under § 811(c) unless it effects a bona fide transfer in which the settlor, absolutely, unequivocally, irrevocably, and without possible reservations parts with all of his title and all of his possession and all of his enjoyment of the transferred property. After such a transfer has been made, the settlor must be left with no present legal title in the property, no possible reversionary interest in that title, and no right to possess

Page 702

or to enjoy the property then or thereafter. Commissioner v. Estate of Church, ante, p. 632. P. 705.

        (c) It is immaterial whether a present or future interest, absolute or contingent, remains in the settlor because he deliberately reserves it or because, without considering the consequences, he conveys away less than all of his property ownership and attributes, present or prospective. P. 705.

        (d) The Tax Court having found that the trust contained no provision for disposition of the corpus should the settlor outlive the beneficiaries, and petitioner not having contended that it was denied an opportunity to present any relevant evidence concerning ownership, possession, or enjoyment, remand of the case to the Tax Court for further findings of fact is unnecessary. Pp. 706-707.

        2. The fact that the monetary value of the settlor's contingent reversionary interest is small in comparison with the total value of the corpus does not render the "possession or enjoyment" provision of § 811(c) inapplicable. P. 707.

        3. The ruling of the Court of Appeals for the Seventh Circuit, which circuit embraces Illinois, that, under Illinois law, when all trust beneficiaries die, the trust corpus reverts to the donor, is not plainly wrong, and this Court does not disturb it. Pp. 707-708.

        159 F.2d 257, affirmed.

        The Commissioner determined that the corpus and certain accumulated income of the trust in question was includible in the gross estate of the decedent for purposes of the federal estate tax. The Tax Court reversed. The Court of Appeals reversed. 159 F.2d 257. This Court granted certiorari. 331 U.S. 798. Affirmed, p. 708.

Page 703

        BLACK, J., lead opinion

        MR. JUSTICE BLACK delivered the opinion of the Court.

       This is a federal estate tax controversy. Here, as in Commissioner v. Church, ante, p. 632, we granted certiorari to consider questions dependent upon the meaning and application of a provision [69 S.Ct. 302] of § 811(c) of the Internal Revenue Code. 47 Stat. 169, 279, 26 U.S.C. § 811(c). The particular provision requires including in a decedent's gross estate the value at his death of all property

[t]o the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise . . . intended to take effect in possession or enjoyment at or after his death. . . .

        In 1920, Sidney M. Spiegel, a resident of Illinois, made a transfer by trust of certain stocks to himself and another. He died in 1940. During his life, the trust income was to be divided among his three children; if they did not survive him, to any of their surviving children. On his death, the trust provided that the corpus was to be distributed in the same manner. But no provision was made for distribution of the corpus and its accumulated income should Mr. Spiegel survive all of his children and grandchildren. For this reason, the Government has contended that, under controlling state law, the property would have reverted to Mr. Spiegel had he survived his designated beneficiaries.

        The value of the corpus of this trust was not included in the Spiegel estate tax return. The Commissioner concluded that its value with accumulated income, about $1,140,000 should have been included in the gross estate under § 811(c). The Tax Court held otherwise in an unreported opinion. The Court of Appeals for the Seventh Circuit reversed. 159 F.2d 257. It held that the possession or enjoyment provision of § 811(c) required inclusion of the value of the trust property and accumulated income under the rule declared in Helvering v. Hallock, 309 U.S. 106, because, under state law, the trust

Page 704

agreement left the way open for the property to revert to Mr. Spiegel in case he outlived all the beneficiaries. This holding rested on the agreement of parties that whether there was a right of reverter depended on Illinois law, and the court's conclusion that, under Illinois law, a right of reverter did exist.1

        The Hallock case on which the Court of Appeals relied held that the value of trust properties should have been included in a settlor's gross estate under the "possession or enjoyment" provision where trust agreements had expressly provided that the corpus should revert to the settlor in the event he outlived the beneficiaries. The taxpayer has contended here, as in the Tax Court and the Court of Appeals, that the Hallock rule is not applicable to this trust, where the settlor's chance to get back his property depended on state law, and not on an express reservation by the settlor. This contention of the taxpayer rests in part on the argument that § 811(c) imposes a tax only where it can be shown that the settlor's intent was to reserve for himself a contingent reversionary interest in the property. Another contention is that the value of this contingent reversionary interest was so small in comparison with the total value of the corpus that the Hallock rule should not be applied. A third contention is that the Court of Appeals holding was erroneous in that, under Illinois law, the corpus of this trust would not have reverted to the settlor had all the beneficiaries died while the settlor was still living. Petitioners urge that, in that event, the Illinois courts would have held that the corpus passed to the heirs of the last surviving beneficiary.

Page 705

        We hold that the Hallock rule was rightly applied by the Court of Appeals and we accept its holding as to the applicable Illinois law.

       First. In Commissioner v. Church, ante, p. 632, we have discussed the Hallock holding in relation to the scope of the "possession or enjoyment" provision of § 811(c) and need not [69 S.Ct. 303] elaborate what we said there. What we said demonstrates that the taxability of a trust corpus under this provision of § 811(c) does not hinge on a settlor's motives, but depends on the nature and operative effect of the trust transfer. In the Church case we stated that a trust transaction cannot be held to alienate all of a settlor's "possession or enjoyment" under § 811(c) unless it effects

a bona fide transfer in which the settlor, absolutely, unequivocally, irrevocably, and without possible reservations, parts with all of his title and all of his possession and all of his enjoyment of the transferred property. After such a transfer has been made, the settlor must be left with no present legal title in the property, no possible reversionary interest in that title, and no right to possess or to enjoy the property then or thereafter. In other words, such a transfer must be immediate and out and out, and must be unaffected by whether the grantor lives or dies.

        We add to that statement, if it can be conceived of as an addition, that it is immaterial whether such a present or future interest, absolute or contingent, remains in the grantor because he deliberately reserves it or because, without considering the consequences, he conveys away less than all of his property ownership and attributes, present or prospective. In either event, the settlor has not parted with all of his presently existing or future contingent interests in the property transferred. He has therefore not made that "complete" kind of trust transfer that § 811(c) commands as a prerequisite to...

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