Spiegel Estate v. Commissioner of Internal Revenue

Decision Date17 January 1949
Docket NumberNo. 3,3
Citation335 U.S. 701,69 S.Ct. 301,93 L.Ed. 330
PartiesSPIEGEL'S ESTATE et al. v. COMMISSIONER OF INTERNAL REVENUE. Re
CourtU.S. Supreme Court

Mr. Herbert A. Friedlich, of Chicago, Ill., for petitioner.

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

[Argument of Counsel from page 702 intentionally omitted] Mr. Justice BLACK delivered the opinion of the Court.

This is a federal estate tax controversy. Here, as in Commissioner v. Church, 335 U.S. 632, 69 S.Ct. 322, we granted certiorari to consider questions dependent upon the meaning and application of a provision of § 811(c) of the Internal Revenue Code. 47 Stat. 169, 279, 26 U.S.C. § 811(c), 26 U.S.C.A. § 811(c). The particular provision requires including in a decedent's gross estate 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, 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 surv ved 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, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, because under state law the trust 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.

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, 335 U.S. 632, 69 S.Ct. 322, we have discussed the Hallock holding in relation to the scope of the 'possession or enjoyment' provision of § 811(c) and need not 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 t at 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 a showing that he has certainly and irrevocably parted with his 'possession or enjoyment.' Any requirement less than that which we have outlined, such as a post-death attempt to probe the settlor's thoughts in regard to the transfer, would partially impair the effectiveness of the 'possession or enjoyment' provision as an instrument to frustrate estate tax evasions. To this extent it would defeat the precise purpose for which the provision was originated and which prompted Congress to include it in § 811(c).

Determination of such issues as ownership, possession, enjoyment, whether transfers have been made and the reach of those transfers, may involve many questions of fact. And we have held in many cases that to the extent the determination of such issues depends upon fact finding, many different facts may be relevant. These fact issues in federal tax cases are for the Tax Court to decide in cases brought before it.

In this case the Tax Court made findings of fact and then decided against the Government. It did so, however, by holding as a matter of law that those facts did not require inclusion of the value of this corpus in the settlor's estate. 2 But the Tax Court's findings of fact showed that the trust contained no provision for disposition of the corpus should the settlor outlive the beneficiaries. This finding of fact, which we accept, plus the Court of Appeals determination of controlling Illinois law without more, brings this trust transaction within the scope of the possession or enjoyment provision of § 811(c) as we have interpreted that section in the Hallock and Church cases. And petitioner has not contended that it was denied an opportunity to present any relevant evidence concerning ownership, possession, or enjoyment. It is therefore not necessary to remand the case to the Tax Court for any further findings of facts. See Hormel v. Helvering, 312 U.S. 552, 559, 560, 61 S.Ct. 719, 722, 723, 85 L.Ed. 1037.

Second. It is contended that since the monetary value of the settlor's contingent reversionary interest is small in comparison with the total value of the corpus, the possession or enjoyment provision of § 811(c) should not be applied. But inclusion of a trust corpus under that provision is not dependent upon the value of the reversionary interest. Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, 112, 65 S.Ct. 508, 510, 89 L.Ed. 782, 159 A.L.R. 227; Commissioner v. Estate of Field, 324 U.S. 113, 116, 65 S.Ct. 511, 512, 89 L.Ed. 786, 159 A.L.R. 230; see Goldstone v. United States, 325 U.S. 687, 691, 65 S.Ct. 1323, 132 , 89 L.Ed. 1871, 159 A.L.R. 1330. The question is not how much is the value of a reservation, but whether after a trust transfer, considered by Congress to be a potentially dangerous tax evasion transaction, some present or contingent right or interest in the property still remains in the settlor so that full and complete title, possession or enjoyment does not absolutely pass to the beneficiaries until at or after the settlor's death. See Smith v. Shaughnessy, 318 U.S. 176, 181, 63 S.Ct. 545, 547, 87 L.Ed. 690.

Third. It is contended that under Illinois law the corpus of this trust would not have reverted to the settlor had he outlived the beneficiaries. The record reveals that the state law problem here is not an easy one, but under this Court's decision in Meredith v. Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9, the difficulty involved did not relieve the Court of Appeals of its duty to make a decision. The questioned ruling was made by three judges who are constantly required to pass upon Illinois law questions. One of the three judges has long been a resident and lawyer of Illinois. Examination of the Illinois state court opinions pressed upon us leaves us unable to say with any degree of certainty that the Court of Appeals holding was wrong. It is certainly neither novel nor unreasonable for state law to provide that when all trust beneficiaries die the...

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