Helvering v. Safe Deposit Trust Co of Baltimore

• Decision Date: 13 April 1942
• Docket Number: No. 600,600
• Citation: 62 S.Ct. 925,139 A.L.R. 1513,316 U.S. 56,86 L.Ed. 1266
• Parties: HELVERING, Com'r of Internal Revenue, v. SAFE DEPOSIT & TRUST CO. OF BALTIMORE et al
• Court: U.S. Supreme Court

316 U.S. 56

62 S.Ct. 925

86 L.Ed. 1266

HELVERING, Com'r of Internal Revenue,

v SAFE DEPOSIT & TRUST CO. OF BALTIMORE et al.

No. 600.

Argued March 9, 1942.

Decided April 13, 1942.

Messrs. Francis Biddle, Atty. Gen., and Samuel O. Clark, Jr., Asst. Atty. Gen for petitioner.

Mr. Charles McH. Howard, of Baltimore, Md., for respondent.

Mr. Justice BLACK delivered the opinion of the Court.

Because of the importance in the administration of the Federal Estate Tax of the questions involved, we granted certiorari to review the judgment of the Circuit Court of Appeals, 4 Cir., 121 F.2d 307, affirming a decision of the Board of Tax Appeals, 42 B.T.A. 145.

Zachary Smith Reynolds, age 20, died on July 6, 1932. At the time he was beneficiary of three trusts: one created by his father's will in 1918, one by deed executed by his mother in 1923, and one created by his mother's will in 1924. From his father's trust, the decedent was to receive only a portion of the income prior to his twenty-eighth birthday, at which time, if living he was to become the outright owner of the trust property and all accumulated income. His mother's trusts directed that he enjoy the income for life, subject to certain restrictions before he reached the age of 28. Each of the trusts gave the decedent a general testamentary power of appointment over the trust property; in default of exercise of the power the properties were to go to his descendants, or if he had none, to his brother and sisters and their issue per stirpes.

The Commissioner included all the trust property within the decedent's gross estate for the purpose of computing the Federal Estate Tax. The Board of Tax Appeals and the Circuit Court of Appeals, however, held that no part of the trust property should have been included.

I.

The case presents two questions, the first of which is whether the decedent at the time of his death had by virtue of his general powers of appointment, even if never exer- cised, such an interest in the trust property as to require its inclusion in his gross estate under Section 302(a) of the Revenue Act of 1926, 44 Stat. 9, 70, 26 U.S.C.A. Int.Rev.Acts page 227. This section provides:

'The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—

'(a) To the extent of the interest therein of the decedent at the time of his death;'

The government argues that at the time of his death the decedent had an 'interest' in the trust properties that should have been included in his gross estate, because he, to the exclusion of all other persons, could enjoy the income from them; would have received the corpus of one trust upon reaching the age of 28; and could alone decide to whom the benefits of all the trusts would pass at his death. These rights, it is said, were attributes of ownership substantially equivalent to a fee simple title, subject only to specified restrictions on alienation and the use of income. The respondents deny that the rights of the decedent with respect to any of the three trusts were substantially equivalent to ownership in fee, emphasizing the practical importance of the restrictions on alienation and the use of income, and arguing further that the decedent never actually had the capacity to make an effective testamentary disposition of the property because he died before reaching his majority.

We find it unnecessary to decide between these conflicting contentions on the economic equivalence of the decedent's rights and complete ownership.¹ For even if we as- sume with the government that the restrictions upon the decedent's use and enjoyment of the trust properties may be dismissed as negligible and that he had the capacity to exercise a testamentary power of appointment, the question still remains: Did the decedent have 'at the time of his death' such an 'interest' as Congress intended to be included in a decedent's gross estate under Section 302(a) of the Revenue Act of 1926? It is not contended that the benefits during life which the trusts provided for the decedent, terminating as they did at his death, made the trust properties part of his gross estate under the statute. And viewing Section 302(a) in its background of legislative, judicial, and administrative history, we cannot reach the conclusion that the words 'interest * * * of the decedent at the time of his death' were intended by Congress to include property subject to a general testamentary power of appointment unexercised by the decedent.

The forerunner of Section 302(a) of the Revenue Act of 1926 was Section 202(a) of the Revenue Act of 1916, 39 Stat. 777. In United States v. Field, 255 U.S. 257, 41 S.Ct. 256, 257, 65 L.Ed. 617, 18 A.L.R. 1461, this Court held that property passing under a general power of appointment exercised by a decedent was not such an 'interest' of the decedent as the 1916 Act brought within the decedent's gross estate. While the holding was limited to exercised powers of appointment, the approach of the Court, the authorities cited, and certain explicit statements² in the opinion left little doubt that the Court regarded property subject to unexercised general powers of appointment as similarly beyond the scope of the statutory phrase 'interest of the decedent.' ³

After the Field case, the provision it passed upon was reenacted without change in the Revenue Act of 1921, Section 402(a), 42 Stat. 278, and in the Revenue Act of 1924, Section 302(a), 43 Stat. 304, 26 U.S.C.A. Int.Rev.Acts, page 67. If the implications of the Field opinion with respect to unexercised powers had been considered contrary to the intendment of the words 'interest of the decedent' it is reasonable to suppose that Congress would have added some clarifying amendment.

If the counterparts in the earlier Acts of Section 302(a) of the Revenue Act of 1926 did not require the inclusion of property subject to an unexercised general testamentary power of appointment within the decedent's gross estate, there is no basis for concluding that the amendment of 1926 changed the act in this respect. Prior to 1926 an 'interest * * * of the decedent' was to be included in his gross estate only if subject 'after his death * * * to the payment of the charges against his estate and the expenses of its administration and * * * subject to distribution as part of his estate.' 26 U.S.C.A. Int.Rev.Acts page 67. In the 1926 Act this qualification was abandoned. In the report accompanying the bill which embodied this change, the House Committee on Ways and Means stated only that 'In the interest of certainty it is recommended that the limiting language * * * shall be eliminated in the proposed bill, so that the gross estate shall include the entire interest of the decedent at the time of his death in all the property.' ⁴ Nothing in the report suggested that the change was intended to have any relevance to powers of appointment, and no such intention can reasonably be inferred from the amended section itself. It is noteworthy that the regulations of the Bureau of Internal Revenue issued after passage of the 1926 Act contain no indication that the Treasury Department regarded the amendment as affecting unexercised powers of appointment. On the other hand, the article pertaining to powers of appointment was reincorporated in the 1926 regulations with the same content, so far as here relevant, as the corresponding article in the last regulations issued prior to the 1926 Act.⁵

When it was held in the Field case that property subject to an exercised general testamentary power of appointment was not to be included in the decedent's gross estate under the Revenue Act of 1916, this Court referred to an amendment passed in 1919, 40 Stat. 1097, § 402(e), which specifically declared property passing under an exercised general testamentary power to be part of the decedent's gross estate. The passage of this amendment, said the Court, 'indicates that Congress at least was doubtful whether the previous Act included property passing by appointment.'⁶ In the face of such doubts, which cannot reasonably be supposed to have been less than doubts with respect to unexercised powers, Congress nevertheless specified only that property subject to exercised powers should be included. From this deliberate singling out of exercised powers alone, without the corroboration of the other matters we have discussed, a Congressional intent to treat unexercised powers otherwise can be de- duced. At the least, Section 302(f) of the 1926 Act,⁷ the counterpart of the 1919 amendment referred to in the Field case, represents a course of action followed by Congress since 1919 entirely consistent with a purpose to exclude from decedents' gross estates property subject to unexercised general testamentary powers of appointment.

In no judicial opinion brought to our attention has it been held that the gross estate of a decedent includes, for purposes of the Federal Estate Tax, property subject to an unexercised general power. On the contrary, as the court below points out, 'the courts have been at pains to consider whether property passed under a general power or not so as to be taxable under section 302(f), a consideration which would have been absolutely unnecessary if the estate were taxable under 302(a) because of the mere existence of a general power whether exercised or not.'⁸ 121 F.2d 307, 312. In addition, the uniform administrative practice until this case arose appears to have placed an interpretation upon the Federal Estate Tax contrary to that the government now urges. No regulations issued under the several revenue acts, including those in effect at the time this suit was initiated, prescribe that property subject to an unexer- cised general testamentary power of appointment should be included in a decedent's gross estate. Because of the cimbined effect of all of these circumstances, we...