Nichols v. Coolidge

• Decision Date: 31 May 1927
• Docket Number: No. 88,88
• Citation: 47 S.Ct. 710,274 U.S. 531,71 L.Ed. 1184,52 A. L. R. 1081
• Parties: NICHOLS, Collector of Internal Revenue, v. COOLIDGE et al.
• Court: U.S. Supreme Court

274 U.S. 531

47 S.Ct. 710

71 L.Ed. 1184

NICHOLS, Collector of Internal Revenue,

v COOLIDGE et al.

No. 88.

Supreme Court of the United States.

Argued January 6 and 7, 1927.

Decided May 31, 1927.

The Attorney General and Mr. Thomas H. Lewis, Jr., of Washington, D. C., for plaintiff in error.

Mr. Robert G. Dodge, of Boston Mass., for defendants in error.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

Defendants in error sued to recover additional federal taxes wxacted of the estate in their keeping. The cause was heard upon an agreed statement; judgment went for them on a directed verdict; and this writ of error, allowed April 3, 1925, brings the matter here. In a comprehensive charged the trial court interpreted the law, but gave no further opinion. Coolidge v. Nichols (D. C.) 4 F.(2d) 112.

Mrs. Julia Coolidge, of Massachusetts, died January 6, 1921. As required by the Revenue Act approved February 24, 1919, c. 18, 40 Stat. 1057, 1096, the executors returned a schedule to the collector. He estimate the gross estate at $180,184.73 and allowed $77,747.74 deductions. They paid the amount assessed upon the balance. Their return did not include certain property transferred by the decedent through duly executed deeds and without valuable consideration, some to trustees and some directly to her children. The Commissioner of Internal Revenue held that under section 402(c), being Comp. St. § 6336 3/4 c, the value of all this property at her death must be included in the gross state. He raised the assessment accordingly and demanded the additional tax-$34,662.65-here challenged.

July 29, 1907, Mrs. Coolidge and her husbandowned certain real estate in Boston, also valuable personal property, which they transferred without consideration to trustees, who agreed to hold it any pay the income to the settlors, then to the survivor, and after his death to distribute the corpus among the settlors' five children or their representatives. The deed directed that the interest of any child predenceasing the survivor should pass as provided by the statute of distribution 'in effect at the time of the death of such survivor.' The trustees were authorized to sell the property, to make and change investments, etc. April 6, 1917, the settlors assigned to the children their entire interest in the property, especially any right to the income therefrom. At the death of Mrs. Coolidge the trustees held property worth $432,155.35, but through sales and changes much of what they originally received had passed from their possession.

May 18, 1917, by deeds purporting to convey the fee Mrs. Coolidge-her husband joining-gave their five children two parcels of land long used by her for residences. Contemporaneously the grantees leased these parcels to the conveyors for one year at nominal rental, with provision for annual renewals until notice to the contrary. All parties understood that renewals would be made if either lessee wished to occupy the premises. When Mrs. Coolidge died the value of this property was $274,300.

Plaintiff in error now maintains the above-described transfers by Mrs. Coolidge were intended to take effect in possession or enjoyment at or after death, within the ambit of section 402(c), Act February 24, 1919, and that the value at her death of the property held by the conveyees constituted part of her gross estate.

The court below held the transfer of the residences (1917) was absolute, the right to possess or enjoy them did not depend upon death, and their value constituted no part of the gross estate; also that under the statute the value of the property conveyed to trustees in 1907, or resulting therefrom, must be included in the gross estate, but, thus construed, the act went beyond the power of Congress.

Relevant portions of 'Title IV-Estate Tax,' Act February 24, 1919, are printed below.¹ It undertakes to lay a charge equal to the sum of specified percentages-from 1 to 25-'of the value of the net estate * * * upon the transfer of the net estate of every decedent' dying thereafter. And it directs that the net estate shall be ascertained by deducting from the gross certain items and an exemption of $50,000; also 'that 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 his interest therein, subject to the payment of charges against the estate, expenses of administration, and subject to distribution. (b) The dower or curtesy, etc., interest of the surviving spouse. (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this act), except in case of a bona fide sale for a fair consideration in money or money's worth. (d) Any interest held jointly with another and payable to the survivor. (e) Property passing under a general power of appointment. (f) The excess over $40,000 of insurance taken out by the decedent upon his own life.

Edwards v. Slocum, 264 U. S. 61, 62, 44 S. Ct. 293, 68 L. Ed. 564, says of this tax:

'This is not a tax upon a residue, it is a tax upon a transfer of his net estate by a decedent, a distinction marked by the words that we have quoted from the statute, and previously commented upon at lengh in Knowlton v. Moore, 178 U. S. 41, 49, 77, 20 S. Ct. 747, 44 L. Ed. 969. It comes into existence before and is independent of the receipt of the property by the legatee. It taxes, as Hansen, Death Duties, puts it in a passage cited in 178 U. S. 49, 20 S. Ct. 751, 'not the interest to which some person succeeds on a death, but the interest which ceased by reason of the death."

Y. M. C. A. v. Davis, 264 U. S. 47, 50, 44 S. Ct. 291, 68 L. Ed. 558:

'What was being imposed here (Act February 24, 1919) was an excise upon the transfer of an estate upon death of the owner.'

Concerning transfer of the residences in 1917, the trial court charged

'I do not have much difficulty in reaching a conclusion respecting the deeds of the Boston and Brookline real estate, and I will first consider the claim of the parties respecting those transfers.

'The deeds conveyed, with warranty covenants, absolute and indefeasible title to the real estate without any valid reservations, conditions, or restrictions whatsoever.

'The leases, executed the same day, were for one year or any renewal thereof, but were always subject to the right in the lessors to terminate the term during any year by giving the notice as therein provided. It is conceded that the parties contemplated that the premises would be enjoyed by the decedent and her husband so long as they might desire to use them for residential purposes, but the decedent had no valid agreement to that effect. Her rights must be held to be governed by the terms of the lease. If it could be said that the grantee did not come into full possession and enjoyment of the estate at the time of the conveyances-and I am inclined to the opinion that they did-their right to come into full possession did not depend in the slightest degree upon the death of the grantor. The effect of this transaction was to vest in the five sons named in the deed full and complete title to the property including the right of disposition. They had a right to sell the property subject to the lease, and had all rights incident to ownership. There was here a gift completed during the lifetime of the donor. The act of 1918 did not purport to tax such gifts.

'I have reached the conclusion, therefore, that respecting the property conveyed by the deed the facts of this case do not bring the property within the reach of the statute, and that the Commissioner of Internal Revenue was without authority to include the value of it as a part of the gross estate. I therefore give the following instructions, as requested by the plaintiffs: The real estate referred to in the second count of the declaration was not a part of the net estate of Julia Coolidge within the meaning of the Revenue Act of 1918.'

We agree with this conclusion and accept as adequate the reasons advanced to support it.

Counsel for the United States argue that the challenged subsection only undertakes to tax the transfer from the dead and merely uses the gross estate to measure the charge. Taken together, sections 402, 408 and 409 disclose definite purpose to do much more than tax this transfer.

Section 402 (Comp. St. § 6336 3/4 c) directs that the gross estate shall be ascertained by including (among other things) the value at his death of all property—

'to the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this act), except in case of a bona fide sale for a fair consideration in money or money's worth.'

The language of this section inhibits the conclusion that only subsequent transfers are to be included. Under Lewellyn v. Frick, 268 U. S. 238, 251, 45 S. Ct. 487, 6. L. Ed. 934, only such transfers come within section 402(f), Shwab v. Doyle, 258 U. S. 529, 536, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454, confined section 202(b), Act September 8, 1916, c. 463, 39 Stat. 756, 777-prototypes of section 402(c), Act 1919-to subsequent transfers. The emphatic words 'whether such transfer or trust is made or created before or after the passage of this act,' added by the latter act, evidently were intended to exclude a like construction.

Section 408 (Comp. St. § 6336 3/4 i) authorizes an executor to recover from one who...