1. Section 219(h) of the Revenue Acts of 1924 and 1926, taxing
incomes of trust funds as income of the settlor, when applied to
payment of premiums on policies insuring his life for the benefit
of the trust beneficiaries,
held valid under
Burnet v.
Wells, ante p.
289 U. S. 670. P.
289 U. S.
687.
2. One who conveys securities in trust to keep up insurance on
his life for the benefit of others, but reserves the right to
retake the securities at the end of a stated period if he survives,
retains such an interest in the securities, apart from his interest
in having the premiums paid, that the income from the securities
applied to the premiums during the trust period may
constitutionally be taxed as his own. P.
289 U. S.
688.
63 F.2d 44 affirmed.
Certiorari to review a judgment which affirmed a decision, 20
B.T.A. 482, sustaining an assessment on income.
Page 289 U. S. 687
MR. JUSTICE CARDOZO delivered the opinion of the Court.
This case, like
Burnet v. Wells, ante, p.
289 U. S. 670,
requires us to determine whether § 219(h) of the Revenue Acts of
1924 and 1926 is consistent with the Fifth Amendment in its
application to trusts for the payment of premiums on policies of
insurance.
On September 18, 1923, the petitioner, Du Pont, created nine
trusts for the benefit of his wife and children, transferring to
the trustee thereby two policies of insurance on his life, and
shares of stock in a corporation, the income to be used to keep the
policies in force. The trusts were to last for three years, during
which term they were to be irrevocable. At the end of the term,
they might be extended for a like period at the option of the
settlor, and successively thereafter. Two such notices were given,
with the result that, in 1924, 1925, and 1926, the taxable years
involved in this proceeding, the trusts were still in being.
The deeds make provision for the disposition of the policies and
separate provision for the disposition of the shares.
As to the policies, the provision is that, if the trusts shall
be terminated before the petitioner's death, all interest in the
policies shall vest in certain named beneficiaries. The petitioner
is not one of these, nor has he any power to change them. If the
petitioner shall die while the trusts are still in force, the
trustee is to collect the insurance and to hold the proceeds in
trust for the use of the beneficiaries named in the agreements.
Page 289 U. S. 688
As to the shares of stock, the provision is that, if the trusts
shall be terminated before the petitioner's death, the shares and
any income not paid out shall be transferred to the petitioner. If,
however, he shall die while the trusts are still in force, the
shares are to be divided among the children or their issue.
The Commissioner of Internal Revenue, following the command of §
219(h) of the applicable statutes (Revenue Acts of 1924 and 1926,
chapter 234, 43 Stat. 253, 26 U.S.Code, § 960, chapter 27, 44 Stat.
9, 26 U.S.Code App. § 960), made a deficiency assessment by adding
to the taxpayer's income the amount expended by the trustee in the
preservation of the policies. The Board of Tax Appeals sustained
the assessment, 20 B.T.A. 482, and the Court of Appeals for the
Third Circuit affirmed. 63 F.2d 44. A writ of certiorari was
granted by this Court.
The case is ruled by our judgment in
Burnet v. Wells,
ante, p.
289 U. S. 670,
upholding the validity of the contested statute. If the income of
such a trust may be taxed to the grantor, though he has retained to
himself no reversionary interest in the principal of the trust,
a fortiori that result must follow where he has made a
grant of the estate for a short term of years, reserving the
reversion when the term is at an end.
The provisions of these deeds would require a determination in
favor of the government though
Burnet v. Wells had been
decided the other way. "A statute may be invalid as applied to one
state of facts and yet valid as applied to another."
Dahnke-Walker Milling Co. v. Bondurant, 257 U.
S. 282,
257 U. S. 289.
Here, the grantor did not divest himself of title in any permanent
or definitive way, did not strip himself of every interest in the
subject matter of the trust estate. During a term of three years,
the trustee was to apply the income to the preservation of the
policies, and, while thus applying the income, was to hold the
principal
Page 289 U. S. 689
intact for return to the grantor unless instructed to retain it
longer. The situation in its legal effect would not be greatly
different if the trusts had been created for a month or from day to
day. One who retains for himself so many of the attributes of
ownership is not the victim of despotic power when for the purpose
of taxation he is treated as owner altogether.
The judgment is
Affirmed.
MR. JUSTICE VAN DEVANTER, MR. JUSTICE McREYNOLDS, MR. JUSTICE
SUTHERLAND, and MR. JUSTICE BUTLER concur upon the reasons stated
in the last paragraph.