Union Trust Co of San Francisco v. Wardell

• Decision Date: 01 May 1922
• Docket Number: No. 236,236
• Citation: 42 S.Ct. 393,66 L.Ed. 753,258 U.S. 537
• Parties: UNION TRUST CO. OF SAN FRANCISCO et al. v. WARDELL, Collector of Internal Revenue, etc., et al
• Court: U.S. Supreme Court

258 U.S. 537

42 S.Ct. 393

66 L.Ed. 753

UNION TRUST CO. OF SAN FRANCISCO et al.

v WARDELL, Collector of Internal Revenue, etc., et al.

No. 236.

Argued April 17 and 18, 1922.

Decided May 1, 1922.

Messrs. Garret W. McEnerney, Edward F. Treadwell, and Sidney M. Ehrman, all of San Francisco, Cal., for plaintiffs in error.

Mr. James A. Fowler, of Knoxville, Tenn., for defendants in error.

Mr. Justice McKENNA delivered the opinion of the Court.

This case was argued at the same time and submitted with No. 200, Shwab v. Doyle, 258 U. S. 529, 42 Sup. Ct. 391, 66 L. Ed. ——, just decided. It involves, as that case did, the Estate Tax Act of September 8, 1916 (Comp. St. §§ 6336 1/2 a-6336 1/2 m), and its different facts illustrate and aid the principle upon which that case was decided.

Plaintiffs in error are executors of the last will and testament of Henriette S. Lachman, deceased. They were also parties to a trust deed made by her during her lifetime. They sued defendant in error Wardell, he then being United States Collector of Internal Revenue for the First District of California, to recover the sum of $4,545.50; that being the amount of a tax assessed against the estate of Henriette S. Lachman, upon the value of 4,895 shares of stock transferred in trust by Henriette S. Lachman to trustees, upon the assumption that the Act of Congress of September 8, 1916, was applicable to the trust.

The following is a summary of the facts stated narratively:

On May 31, 1901, Henriette S. Lachman was the owner of 7,475 shares of the capital stock of the S. & H. Lachman Estate, a corporation. On that date she executed and delivered to Albert Lachman and Henry Lachman, her sons, the following instrument:

'Alameda, Cal., May 31, 1901.

'To Albert Lachman and Henry Lachman, My Sons:

'This is to certify that I have delivered to you seven thousand four hundred and seventyfive (7,475) shares of the capital stock of the S. & H. Lachman Estate, represented by certificates numbers eleven (11), twelve (12), and thirteen (13) respectively, however, upon the following trust:

'To pay to me during my lifetime, all the income earned and derived therefrom, and, upon my death, to deliver two thousand four hundred and ninety (2,490) shares, respectively by certificate number eleven (11) unto Henry Lachman, thenceforth for his absolute property; two thousand four hundred and ninety-five (2,495) shares, represented by certificate number thirteen (13) unto Albert Lachman, thenceforth for his absolute property; and yourselves, to wit, Albert Lachman and Henry Lachman, to hold two thousand four hundred and ninety (2,490) shares, represented by certificate number twelve (12) upon my death, in trust paying the income derived therefrom unto my daughter, Rebecca, wife of Leo Metzger, and upon the death of my said daughter, the income and earnings derived from said two thousand four hundred and ninety (2,490) shares shall be held, or expended, by you, according to your judgment, for the benefit of my grandchildren, the children of my said daughter, Rebecca Metzger, and upon the youngest of said children attaining the age of majority, all the then surviving children of my said daughter, Rebecca Metzger, shall be immediately entitled to said two thousand four hundred and ninety (2,490) shares in equal proportions.

'Henriette Lachman.'

The requirements of the deed were performed upon the contingencies occurring for which it provided.

On November 14, 1916, Henriette S. Lachman died, being then a resident of Alameda county, Cal., leaving an estate of the value of $302,963.64, which included 2,490 shares of the stock that passed to her upon the death of her husband and 25 shares of stock in a business that had been conducted by her husband, but did not include the transfer of the 4,985 shares included in the trust deed.

The will was duly probated, and the tax under the Act of September 8, 1916, was paid on the property which passed under her will, but no tax was paid on the 4,985 shares transferred 15 years before by the trust deed.

The Commissioner, having ruled that those shares were subject to a tax, assessed against them the sum of $4,545.50. It was paid under protest and this action was brought for its recovery.

Wardell demurred to the complaint on the ground that it did not state facts sufficient to constitute a cause of action against him. The demurrer was sustained and judgment entered dismissing the complaint.

Stating the contention of the plaintiffs, the court said it was that:

'The act should not be so construed as to include transfers...