Helvering v. Hallock Same v. Squire Rothensies v. Huston Bryant v. Helvering 8212 112, 183 399

Decision Date29 January 1940
Docket NumberNos. 110,s. 110
Citation309 U.S. 106,60 S.Ct. 444,84 L.Ed. 604,125 A.L.R. 1368
PartiesHELVERING, Com'r of Internal Revenue v. HALLOCK et al. (two cases). SAME v. SQUIRE, Superintendent of Banks of Ohio. ROTHENSIES, Collector of Internal Revenue for Pennsylvania, v. HUSTON. BRYANT et al. v. HELVERING, Com'r of Internal Revenue. —112, 183, and 399
CourtU.S. Supreme Court

In Nos. 110—112:

[Syllabus from pages 106-108 intentionally omitted] Mr. Arnold Raum, for petitioner.

Messrs. Walker H. Nye and Ashley M. Vau Duzer, both of Cleveland, Ohio, for respondents Hallock.

Mr. W. H. Annat, of Cleveland, Ohio, for respondent Squire.

In No. 183:

Mr. Arnold Raum, of Washington, D.C., for petitioner.

Mr. Wm. R. Spofford, of Philadelphia, Pa., for respondent Huston.

In No. 399:

Messrs. J. Gilmer Korner, Jr., of Washington, D.C., and David S. Day, of Bridgeport, Conn., for petitioners Bryant.

Mr. Arnold Raum, for respondent Helvering.

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 were heard in succession 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, 51 S.Ct. 398, 75 L.Ed. 996, Helvering v. St. Louis Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239, and Becker v. St. Louis Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35. 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. Helvering v. Hallock, 308 U.S. 532, 60 S.Ct. 82, 84 L.Ed. -; Rothensies v. Cassell, 308 U.S. 538, 60 S.Ct. 94, 84 L.Ed. —-; Bryant v. Commissioner of Internal Revenue, 308 U.S. 543, 60 S.Ct. 141, 84 L.Ed. —-. 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 property not 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.

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 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, 283 U.S. at page 234, 51 S.Ct. at page 399, 75 L.Ed. 996.

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 'If the grantor still be living, the Trustee shall forthwith * * * transfer, pay, and deliver the entire estate to the grantor, to be his absolutely.' But 'If the grantor be then not living' then the income was to be 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 to go to the daughter's children, or if she left none, to the grantor's next of kin.

In Becker v. St. Louis Trust Co., supra, the decedent had declared himself trustee of property with the income to be accumulated or, at his discretion, to be paid over to his daughter during her life. The instrument further provided that (296 U.S. 48, 56 S.Ct. 79, 80 L.Ed. 35) 'If the said beneficiary should die before my death, then this trust estate shall thereupon revert to me and become mine immediately and absolutely, or * * * if I should die before her death, then this property shall thereupon become hers immediately and absolutely * * *.'

On the authority of the Klein case the Commissioner had included in the taxable estates the gifts to which, in the St. Louis Trust cases, the grantor's death had given definitive measure. If the wife had predeceased the settlor in the Klein case, he would have been repossessed of his property. His wife's interests were freed from this contingency by the husband's prior death, and because of the effect of his death this Court swept the gift into the gross estate. So in Helvering v. St. Louis Trust Co., supra, the grantor would have become repossessed of the granted corpus had his daughter predeceased him. But he predeceased her and by that event her interest ripened to full dominion. The same analysis applies to the Becker case. In all three situations the result and effect were the same. The event which gave to the beneficiaries a dominion over property which they did not have prior to the donor's death was an act of nature outside the grantor's 'control, design, or volition.' Helvering v. St. Louis Trust Co., 296 U.S. 39, 43, 56 S.Ct. 74, 76, 80 L.Ed. 29, 100 A.L.R. 1239. But it was no more and no less 'fortuitous', so far as the grantor's 'control, design, or volition' was concerned, in the St Louis Trust cases than it was in the Klein case. In none of the three cases did the dominion over property which finally came to the beneficiary fall by virtue of the grantor's will, except by his provision that his own death should establish such final and complete dominion. And yet a mere difference in phrasing the circumstance by which identic interests in property were brought into being—varying forms of words in the creation of the same worldly interests—was found sufficient to exclude the St. Louis Trust settlements from the application of the Klein doctrine.

Four members of the Court saw no difference. They relied on the governing principle of § 302(c) that Congress meant 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.' Helvering v. St. Louis Trust Co., 296 U.S. at page 46, 56 S.Ct. at page 77, 80 L.Ed. 29, 100 A.L.R. 1239. To effectuate...

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