Ryerson v. United States

Decision Date03 March 1941
Docket NumberNo. 495,495
Citation85 L.Ed. 917,312 U.S. 405,61 S.Ct. 656
PartiesRYERSON et al. v. UNITED STATES
CourtU.S. Supreme Court

Messrs. William M. Haddad and Walter T. Fisher, both of Chicago, Ill., for petitioners.

Mr. Francis Biddle, Sol. Gen., for respondent.

Mr. Justice STONE delivered the opinion of the Court.

This is a companion case to Helvering v. Hutchings, 312 U.S. 393, 61 S.Ct. 653, 85 L.Ed. —-, and United States v. Pelzer, 312 U.S. 399, 61 S.Ct. 659, 85 L.Ed. —-, decided this day, and it presents the questions decided in those cases.

The sole question raised by the petition for certiorari is whether, under § 504(b) of the Revenue Act of 1932, 47 Stat. 169, 247, 26 U.S.C.A. Int.Rev.Acts, page 585, the donor of property in trust for numerous beneficiaries is entitled to a single gift tax exemption or exclusion to the extent of the first $5,000 of the gift or to separate exemptions of $5,000 for each beneficiary. The Government insists that if that question be decided against it, it is nevertheless entitled to retain the judgment below in its favor because the gifts to the beneficiaries were of future interests which, by § 504(b), are denied the benefit of the exclusion otherwise allowed by the section.

In 1934 petitioners' testatrix transferred two single premium insurance policies on her own life maturing at a future date, as additions to two separate trusts, one created in 1933, the other established in 1934 but before the transfer. The instrument creating the first trust provided that the trustees should pay over one-fourth of the net income to Mary Ryerson Frost, one of the trustees, for life, with remainder over for life to her two dauthters if surviving at her death, with further remainders over to their issue per stirpes. The trust instrument directed that the remaining three-fourths of the income should be accumulated and added to the principal of the trust. It provided that the trust was to terminate upon the death of the last survivor of three persons, the first life tenant and her two daughters, and was then to be distributed, the particular distribution be- ing dependent upon contingencies which are not now material. The trust instrument also contained numerous provisions for the termination of the trust by joint action of the trustees, Donald McKay Frost and Mary Ryerson Frost, who was also life tenant, or by the survivor or other of them in the case of the death or mental incapacity of either. Other provisions were made for the termination of the trust and distribution of the trust property in the event of the death or mental incapacity of both, without having exercised their power of termination.

The instrument creating the 1934 trust provided that upon the death of the grantor, who was the insured, who was living at the time of the transfer, the trustees should distribute the proceeds of the insurance as follows: If the widow of the grantor's son survived the grantor the income of one-third of the proceeds of the insurance policy was to be paid to the son's widow for life with remainders over to those persons who would be heirs at law of the son had he died at the same time as the life tenant. The remaining two-thirds of the proceeds or all if the son's widow did not survive the grantor, were to go to the descendants of the grantor's son then surviving, with gifts over in default of such descendants.

In a suit brought by petitioner to recover overpaid gift taxes for the year 1934 the district court ruled that in the computation of the tax the taxpayer was entitled to two exclusions to the extent of $5,000 each for the gifts made to Mary Ryerson Frost and Donald McKay Frost under the 1933 trust and to three exclusions under the 1934 trust, one for the son's widow and two for his two living descendants. The Court of Appeals for the Seventh Circuit reversed, 114 F.2d 150, holding that the two trusts were the donees and that a single exclusion was allowable for each trust. We granted certiorari ...

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