1. Section 301(a) of the Revenue Act of 1926 imposes a tax "upon
the transfer of the net estate of every decedent," and § 302
requires that, in computing the tax, there shall be included in the
gross estate the value at the time of death of all property
"(a) To the extent of the interest therein of the decedent at
the time of his death,"
and
"(d) To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to any
change through the exercise of a power, either by the decedent
alone or in conjunction with any person, to alter, amend, or
revoke. . . ."
Held:
(1) Subdivision (d) is not limited by (a) to interests of
decedent at time of his death. P.
288 U. S.
442.
(2) Under subdivision (d), where the decedent had transferred
property by deeds of trust reserving power in himself to make a
complete revision of the trusts, even to the extent of taking the
property from the trustees and beneficiaries named and transferring
it absolutely or in trust for the benefit of others, although
the
Page 288 U. S. 437
reservation expressly excluded the making of any change in favor
of himself or of his estate, the value of such property at the time
of his death was properly included in the gross estate. Pp.
288 U. S. 440,
288 U.S. 443.
2. Where a gift has been made in trust subject to a power in the
donor to change the terms and beneficiaries, although the power
does not extend to any changes in favor of the donor or his estate,
his death, by ending his control in other respects, serves to pass
to the donees a valuable assurance of title. Therefore, Congress
constitutionally may provide for including the property so
transferred in the computation of the federal "estate tax" by a law
passed after the trusts were established and before the death of
the donor. P.
288 U.S.
443.
60 F.2d 673 affirmed.
Certiorari, 287 U.S. 591, to review the affirmance of an order
of the Board of Tax Appeals, 23 B.T.A. 1016, including in the gross
estate of a decedent, in measuring the federal transfer tax,
property which had been conveyed by him in trust before his
death.
Page 288 U. S. 439
MR. JUSTICE BUTLER delivered the opinion of the Court.
The question presented is whether, for the purpose of
determining the tax liability of the estate of the deceased, §
302(d) of the Revenue Act of 1926 [
Footnote 1] requires that there shall be included in the
value of the gross estate certain bonds that he had transferred in
trust.
October 18, 1918, and again on February 1, 1919, decedent
transferred to the Bankers' Trust Company certain bonds for the
benefit of his daughter and her son. Contemporaneously, he made
similar transfers of bonds to the same trustee for the benefit of
his son and his son's daughter. November 27, 1926, in order to make
provision for two children of his daughter born after the creation
of these trusts, he sent the trust company letters purporting to
revoke the trusts of which she was a beneficiary, to terminate the
interest of all persons therein, and to direct it to deliver the
principal and income to itself as trustee according to a new deed
then delivered. Each of the five trust agreements included
provisions governing the management, investment, and disposition of
principal and income, and contained a paragraph reserving to the
donor power at any time to alter or modify the indenture and any or
all of the trusts in any manner, but expressly excepting any change
in favor of himself or his estate. [
Footnote 2]
Page 288 U. S. 440
Deceased died November 30, 1926. The Commissioner of Internal
Revenue included in the gross estate the value of the property
described in the last deed, and petitioners sought redetermination.
The Board of Tax Appeals, because of the reserved power to alter
and amend, held § 302(d) applied, and included the corpus of all
the trusts in the gross estate. 23 B.T.A. 1016. The Circuit Court
of Appeals affirmed that ruling. 60 F.2d 673. Its decision being in
conflict with that of the Circuit Court of Appeals for the First
Circuit in
Brady v. Ham, 45 F.2d 454, and that of the
Court of Appeals of the District of Columbia in
Cover v.
Burnet, 60 App.D.C. 303, 53 F.2d 915, we granted a writ of
certiorari. 287 U.S. 591.
By the trust agreements, decedent divested himself of all
interest in the bonds and, subject only to the reserved power,
transferred full title to the trustee and beneficiaries. The
reservation is broad; evidently he intended to be free at any time
and from time to time to alter or modify the disposition of the
property as he might see fit, subject to the restriction above
mentioned. The power
Page 288 U. S. 441
did not amount to an estate or interest in the property. It was
much like, and, for the purposes of this case, may be deemed the
substantial equivalent of, a general power of appointment by will.
Cf. United States v. Field, 255 U.
S. 257,
255 U. S. 263;
Patterson v.Lawrence, 83 Ga. 703, 707, 10 S.E. 355;
Clapp v. Ingraham, 126 Mass. 200.
The Act, § 301(a), imposes a tax "upon the transfer of the net
estate of every decedent." The net estate as there used does not
mean an amount to be ascertained as such under any general rule of
law or under statutes governing the administration of estates, but
is the gross estate as specifically defined in § 302 less
deductions permitted by § 303. The former section declares 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 the interest therein of the
decedent at the time of his death."
(b) To the extent of any interest therein of the surviving
spouse as or in lieu of dower or curtesy. (c) To the extent of any
interest therein of which the decedent has at any time made a
transfer by trust or otherwise in contemplation of, or intended to
take effect in, possession or enjoyment at or after his death.
"(d) To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to any
change through the exercise of a power, either by the decedent
alone or in conjunction with any person, to alter, amend, or
revoke. . . ."
(e) To the extent of the interest therein held by decedent as a
joint tenant or as a tenant by the entirety. (f) To the extent of
any property passing under a general power of appointment exercised
by the decedent by will or by deed in contemplation of or intended
to take effect in possession or enjoyment at or after death.
(g)
Page 288 U. S. 442
To the extent of the amount of life insurance receivable as
specified. Subdivision (h) requires the interests defined in (b) to
(g), inclusive, to be included whether transfer was made before or
after the passage of the Act.
Petitioners contend that the only thing taxed is the transfer of
the net estate at death, and that property in which the decedent
then held no interest or power of enjoyment must be excluded. They
rely on
Reinecke v. Northern Trust Co., 278 U.
S. 339. But that case is not in point. It involved seven
trusts created by the decedent. Two were held taxable because
subject to a power of revocation in him alone. In each of the
others, he reserved power to alter, change, or modify, to be
exercised in four by joint action of himself and a single
beneficiary, and in the remaining one by himself and a majority of
the beneficiaries acting jointly. As the title was put beyond his
control, we held these transfers not taxable. And petitioners
assume, as held in
White v. Erskine, 47 F.2d 1014, 1016,
that (a) is a limitation upon (d), and argue that the gross estate
includes property only to the extent of the "interest therein of
the decedent at the time of his death," and that, as before his
death he had divested himself of all title, the property so
transferred is not to be included in the gross estate. But the
construction thus taken for granted cannot be sustained.
Subdivision (a) does not in any way refer to or purport to modify
(d), and, in view of the familiar rule that tax laws are to be
construed liberally in favor of taxpayers, it cannot be said that,
if it stood alone, (a) would extend to the transfers brought into
the gross estate by (d).
United States v. Field, supra,
255 U. S. 264.
Moreover, Congress has progressively expanded the bases for such
taxation. Comparison of § 302 with corresponding provisions of
earlier acts warrants the conclusion that (d) is not a mere
specification of something covered by (a), but that it covers
something not included therein.
Cf. 278 U.
S.
Page 288 U. S. 443
United States, 278 U. S. 327;
Tyler v. United States, 281 U. S. 497;
Gwinn v. Commissioner, 287 U. S. 224;
Burnet v. Guggenheim, ante, p.
288 U. S. 280.
The net estate upon the transfer of which the tax is imposed is
not limited to property that passes from decedent at death.
Subdivision (d) requires to be included in the calculation all
property previously transferred by decedent the enjoyment of which
remains at the time of his death subject to any change by the
exertion of a power by himself alone or in conjunction with
another. Petitioner argues that, as decedent was without power to
revoke the transfers or to alter or modify the trusts in favor of
himself or his estate, the property is not covered by subdivision
(d). But the disjunctive use of the words "alter," "modify," and
"amend" negatives that contention. We find nothing in the context
or in the policy evidenced by this and prior estate tax laws or in
the legislative history of subdivision (d) to suggest that
conjunctive use of these words was intended, or that "alter" and
"modify" were used as equivalents of "revoke," or are to be
understood in other than their usual meanings. We need not consider
whether every change, however slight or trivial, would be within
the meaning of the clause. Here, the donor retained until his death
power enough to enable him to make a complete revision of all that
he had done in respect of the creation of the trusts, even to the
extent of taking the property from the trustees and beneficiaries
named and transferring it absolutely or in trust for the benefit of
others. So far as concerns the tax here involved, there is no
differences in principle between a transfer subject to such changes
and one that is revocable. The transfers under consideration are
undoubtedly covered by subdivision (d).
Petitioners contend that, so construed, § 302(d) is repugnant to
the due process clause of the Fifth Amendment. They insist, and we
assume, that the measures
Page 288 U. S. 444
taken by means of decedent's letter to the trustee and the new
deed of November 27, 1926, operated merely to alter and modify, but
did not supersede, the earlier trusts made for the benefit of his
daughter and her son. They maintain that inclusion of the transfers
in question would be to measure decedent's tax by property
belonging to others, a thing condemned in
Heiner v.
Donnan, 285 U. S. 312, and
Hoeper v. Tax Commission, 284 U.
S. 206, and would be to tax gifts
inter vivos
that were fully consummated prior to the enactment of subdivision
(d), and therefore would be confiscatory under
Nichols v.
Coolidge, 274 U. S. 531, and
Heiner v. Donnan, supra.
They treat as without significance the power the donor reserved
unto himself alone, and ground all their arguments upon the fact
that deceased, prior to such enactment, completely divested himself
of title without power of revocation. It is true that the power
reserved was not absolute, as in the transfer considered in
Burnet v. Guggenheim, supra, in which this Court, in the
absence of any provision corresponding to subdivision (d), held
that the donor's termination of the power amounted to a transfer by
gift within the meaning of § 319 of the Revenue Act of 1924, 43
Stat. 313. But the reservation here may not be ignored for, while
subject to the specified limitation, it made the settlor dominant
in respect of other dispositions of both corpus and income. His
death terminated that control, ended the possibility of any change
by him, and was, in respect of title to the property in question,
the source of valuable assurance passing from the dead to the
living. That is the event on which Congress based the inclusion of
property so transferred in the gross estate as a step in the
calculation to ascertain the amount of what, in § 301, is called
the net estate. Thus was reached what it reasonably might deem a
substitute for testamentary disposition.
United States v.
Wells, 283 U. S. 102,
283 U. S. 116.
There is no doubt as to the power of Congress so to do.
Page 288 U. S. 445
Reinecke v. Northern Trust Co., supra; Chase National Bank
v. United States, supra. Tyler v. United States,
supra, 281 U. S. 502;
Klein v. United States, 283 U. S. 231;
Gwinn v. Commissioner, 287 U. S. 224.
Judgment affirmed.
MR. JUSTICE CARDOZO concurs in the result.
[
Footnote 1]
44 Stat. 70, 71, 26 U.S.C. § 1094(d).
[
Footnote 2]
Paragraph tenth in each of the transfers is as follows:
"Notwithstanding anything to the contrary herein contained, the
Donor at any time during the continuance of the trust herein
provided for may, by instrument in writing executed and
acknowledged or proved by him in the manner required for a deed of
real estate (so as to enable such deed to be recorded in the state
of New York) delivered to the trustee, or its successor, modify or
alter in any manner this indenture, and any or all of the trusts
then existing and the limitations and estates and interest in
property hereby created and provided for subsequent to such trusts,
and, in case of such modification or alteration, said instrument
shall direct the revised disposition to be made of the trust fund
or the income thereof, or that part of the trust fund or the income
thereof affected by such modification or alteration, and, upon the
delivery of such instrument to the Trustee or its successor, said
instrument shall take effect according to its provisions, and the
Trustee or its successors shall make and execute all such
instruments, if any, and make such conveyance, transfers or
deliveries of property as may be necessary or proper in order to
carry the same into effect, and no one, born or unborn, shall have
any right, interest, or estate under this indenture except subject
to the proper modification or alteration thereof; but this power to
modify or alter is not intended and shall not be construed to
include the right to the Donor to make such modification or
alteration in his own favor or in favor of his estate, but shall
apply only so far as the interest of third parties may be
concerned."