1. Decedent, in his lifetime, created a trust providing that the
income from the trust property should be paid to his wife during
her lifetime, that, upon his death, if she survived him, the corpus
of the trust should go to her or to other named beneficiaries, but
that, upon her death, if he survived, the property should revert to
himself. The wife survived.
Held, that the value of the
remainder interest
Page 309 U. S. 107
should be included in the decedent's gross estate under § 302(c)
of the Revenue Act of 1926, as a transfer intended to take effect
in possession or enjoyment at or after the grantor's death.
Klein v. United States, 283 U. S. 231,
followed;
Helvering v. St. Louis Trust Co., 296 U. S.
39, and
Becker v. St. Louis Trust Co., ibid.,
296 U. S. 48,
overruled. Pp.
309 U. S.
110-115.
2. The testator, by trust deed, established a fund in trust to
pay the income to his wife during her life and to himself should he
survive her, and, upon the death of the survivor, if the trust had
not then been modified or revoked, to pay the principal to the
settlor's estate. There was a further provision giving to the
settlor and his wife jointly during their lives, and to either of
them after the death of the other, power to modify, alter, or
revoke the trust, which was not exercised. The wife survived the
husband.
Held, that the value of the interest which the
husband had reserved to himself was properly included in his gross
estate under § 302(c) of the Revenue Act of 1926. P.
309 U. S.
116.
3. Section 302(c) deals not with property technically passing at
death, but with interests theretofore created. The taxable event is
a transfer
inter vivos. But the measure of the tax is the
value of the transferred property at the time when death brings it
into enjoyment. P.
309 U. S.
110.
4. The statute taxes not merely those interests which are deemed
to pass at death according to refined technicalities of the law of
property. It also taxes
inter vivos transfers that are
closely akin to testamentary dispositions. P.
309 U. S.
112.
5. The governing principle in the application of this
legislation (§ 302(c),
supra) is the intention of Congress
to include in the gross estate
inter vivos gifts which may
be resorted to as a substitute for a will, in making dispositions
of property operative at death. To effectuate this purpose,
practical considerations applicable to
Page 309 U. S. 108
taxation prevail, and not the niceties of the art of
conveyancing. P.
309 U. S.
114.
6.
Stare decisis is a principle of policy, and not a
mechanical formula of adherence to the latest decision, however
recent and questionable, when such adherence involves collision
with a prior doctrine more embracing in its scope, intrinsically
sounder, and verified by experience. P.
309 U. S.
118.
7. In the case at bar, the decisions now relied upon by the
taxpayers, but overruled by the court, were made after the making
of the settlements, and after the death of the settlors, out of
which the taxes accrued. P.
309 U. S.
119.
8. The right and duty of this Court to reexamine an untenable or
undesirable construction placed by itself upon a revenue provision
are not impeded by the failure of Congress and of the Treasury to
take steps to avoid such construction through legislative
amendment. P.
309 U. S.
119.
102 F.2d 1; 103
id. 834, reversed.
104 F.2d 1011 affirmed.
Certiorari, 308 U.S. 532, to review decisions of the Circuit
Courts of Appeals involving federal estate taxes. In Nos. 110-112,
the judgments below affirmed decisions of the Board of Tax Appeals,
34 B.T.A. 575, which had set aside deficiency assessments.
Page 309 U. S. 109
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
These cases raise the same question -- namely, whether transfers
of property
inter vivos made in trust, the particulars of
which will later appear, are within the provisions of § 302(c) of
the Revenue Act of 1926. [
Footnote
1] They
Page 309 U. S. 110
were heard in succession, and may be decided together. In each
case, the Commissioner of Internal Revenue included the trust
property in the decedent's gross estate. In Nos. 110, 111, and 112,
his determination was reversed by the Board of Tax Appeals (34
B.T.A. 575), and the Board was affirmed by the Circuit Court of
Appeals for the Sixth Circuit. 102 F.2d 1. In No. 183, the taxpayer
paid under protest, successfully sued for recovery in the District
Court for the Eastern District of Pennsylvania, and his judgment
was sustained by the Circuit Court of Appeals for the Third
Circuit. 103 F.2d 834. In No. 399, the Commissioner was in part
successful before the Board of Tax Appeals (36 B.T.A. 669), and the
Circuit Court of Appeals for the Second Circuit affirmed the Board.
104 F.2d 1011.
Neither here nor below does the issue turn on the unglossed text
of § 302(c). In its enforcement, Treasury and courts alike
encounter three recent decisions of this Court,
Klein v. United
States, 283 U. S. 231,
Helvering v. St. Louis Trust Co., 296 U. S.
39, and
Becker v. St. Louis Trust Co.,
296 U. S. 48.
Because of the difficulties which lower courts have found in
applying the distinctions made by these cases and the seeming
disharmony of their results, when judged by the controlling
purposes of the estate tax law, we brought the cases here. All
involve dispositions of property by way of trust in which the
settlement provides for return or reversion of the corpus to the
donor upon a contingency terminable at his death. Whether the
transfer made by the decedent in his lifetime is "intended to take
effect in possession or enjoyment at or after his death" by reason
of that which he retained is the crux of the problem. We must put
to one side questions that arise under sections of the estate tax
law other than § 302(c) -- sections, that is, relating to transfers
taking place at death. Section 302(c) deals with
Page 309 U. S. 111
property not technically passing at death, but with interests
theretofore created. The taxable event is a transfer
inter
vivos. B ut the measure of the tax is the value of the
transferred property at the time when death brings it into
enjoyment.
We turn to the cases which beget the difficulties. In
Klein
v. United States, supra, decided in 1931, the decedent, during
his lifetime, had conveyed land to his wife for her lifetime,
"and if she shall die prior to the decease of said grantor, then
and in that event she shall by virtue hereof take no greater or
other estate in said lands and the reversion in fee in and to the
same shall in that event remain vested in said grantor. . . ."
The instrument further provided,
"Upon condition and in the event that said grantee shall survive
the said grantor, then and in that case only the said grantee shall
by virtue of this conveyance take, have, and hold the said lands in
fee simple. . . ."
The taxpayer contended that the decedent had reserved a mere
"possibility of reverter," and that such a "remote interest,"
[
Footnote 2] extinguishable
upon the grantor's death, was not sufficient to bring the
conveyance within the reckoning of the taxable estate. This Court
held otherwise. It rejected formal distinctions pertaining to the
law of real property as irrelevant criteria in this field of
taxation. "Nothing is to be gained," it was said,
"by multiplying words in respect of the various niceties of the
art of conveyancing or the law of contingent and vested remainders.
It is perfectly plain that the death of the grantor was the
indispensable and intended event which brought the larger estate
into being for the grantee and effected its transmission from the
dead to the living, thus satisfying the terms of the taxing act and
justifying the tax imposed."
Klein v. United States, supra, at
283 U. S.
234.
Page 309 U. S. 112
The inescapable rationale of this decision, rendered by a
unanimous Court, was that the statute taxes not merely those
interests which are deemed to pass at death according to refined
technicalities of the law of property. It also taxes
inter
vivos transfers that are too much akin to testamentary
dispositions not to be subjected to the same excise. By bringing
into the gross estate at his death that which the settlor gave
contingently upon it, this Court fastened on the vital factor. It
refused to subordinate the plain purposes of a modern fiscal
measure to the wholly unrelated origins of the recondite learning
of ancient property law. Surely the
Klein decision was not
intended to encourage the belief that a change merely in the
phrasing of a grant would serve to create a judicially cognizable
difference in the scope of § 302(c), although the grantor retained
in himself the possibility of regaining the transferred property
upon precisely the same contingency. The teaching of the
Klein case is exactly the opposite. [
Footnote 3]
In 1935, the
St. Louis Trust cases came here. A
rational application of the principles of the
Klein case
to the situations now before us calls for scrutiny of the
particulars in the
St. Louis cases in order to extract
their relation to the doctrine of the earlier decision.
In
Helvering v. St. Louis Trust Co., supra, the
decedent had conveyed property in trust, the income of which was to
be paid to his daughter during her life, but at her death, "[i]f
the grantor still be living, the Trustee shall forthwith . . .
transfer, pay, and deliver the entire estate to the grantor, to be
his absolutely." But, "[i]f the grantor be then not living," then
the income was to be
Page 309 U. S. 113
devoted to the settlor's wife if she were living, and upon the
death of both daughter and wife, if he were not living, the trust
property was to go to the daughter's children, or if she left none,
to the grantor's next of kin.
In
Becker v. St. Louis Trust Co., supra, the decedent
had declared himself trustee of property with the income to be
accumulated or at his discretion, to be paid over to his daughter
during her life. The instrument further provided that,
"If the said beneficiary should die before my death, then this
trust estate shall thereupon revert to me and become mine
immediately and absolutely, or . . . if I should die before her
death, then this property shall thereupon become hers immediately
and absolutely. . . ."
On the authority of the
Klein case, the Commissioner
had included in the taxable estates the gifts to which, in the
St. Louis Trust cases, the grantor's death had given
definitive measure. If the wife had predeceased the settlor in the
Klein case, he would have been repossessed of his
property. His wife's interests were freed from this contingency by
the husband's prior death, and, because of the effect of his death,
this Court swept the gift into the gross estate. So, in
Helvering v. St. Louis Trust Co., supra, the grantor would
have become repossessed of the granted corpus had his daughter
predeceased him. But he predeceased her, and, by that event, her
interest ripened to full dominion. The same analysis applies to the
Becker case. In all three situations, the result and
effect were the same. The event which gave to the beneficiaries a
dominion over property which they did not have prior to the donor's
death was an act of nature outside the grantor's "control, design,
or volition."
Helvering v. St. Louis Trust Co.,
296 U. S. 39,
296 U. S. 43.
But it was no more and no less "fortuitous," so far as the
grantor's "control, design, or volition" was concerned, in the
St.
Page 309 U. S. 114
Louis Trust cases than it was in the
Klein
case. In none of the three cases did the dominion over property
which finally came to the beneficiary fall by virtue of the
grantor's will, except by his provision that his own death should
establish such final and complete dominion. And yet a mere
difference in phrasing the circumstance by which identic interests
in property were brought into being -- varying forms of words in
the creation of the same worldly interests -- was found sufficient
to exclude the
St. Louis Trust settlements from the
application of the
Klein doctrine.
Four members of the Court saw no difference. They relied on the
governing principle of § 302(c) that Congress meant to include in
the gross estate
inter vivos gifts "which may be resorted
to, as a substitute for a will, in making dispositions of property
operative at death."
Helvering v. St. Louis Trust Co., 296
U.S. at
296 U. S. 46. To
effectuate this purpose, practical considerations applicable to
taxation, and not the "niceties of the art of conveyancing," were
their touchstone. "Having in mind," said the dissenters,
"the purpose of the statute and the breadth of its language, it
would seem to be of no consequence what particular conveyancers'
device, what particular string, the decedent selected to hold in
suspense the ultimate disposition of his property until the moment
of his death. In determining whether a taxable transfer becomes
complete only at death, we look to substance, not to form. . . .
However we label the device, it is but a means by which the gift is
rendered incomplete until the donor's death."
296 U.S. at
296 U. S. 47.
For the majority in the
St. Louis Trust Company cases,
these practicalities had less significance than the formal
categories of property law. The grantor's death, the majority said,
in
Helvering v. St. Louis Trust Co., supra,
"simply put an end to what, at best, was a mere possibility of a
reverter by extinguishing it -- that is to say, by converting what
was merely possible into an utter impossibility."
296 U.S.
Page 309 U. S. 115
296 U. S. 39,
296 U. S. 43.
This was precisely the mode of argument which had been rejected in
Klein v. United States, supra.
We are now asked to accept all three decisions as constituting a
coherent body of law, and to apply their distinctions to the trusts
before us.
In Nos. 110, 111 and 112 (
Helvering v. Hallock), the
decedent in 1919 created a trust under a separation agreement,
giving the income to his wife for life, with this further
provision:
"If and when Anne Lamson Hallock shall die and in such event . .
. , the within trust shall terminate and said Trustee shall . . .
pay Party of the First Part if he then be living any accrued
income, then remaining in said trust fund and shall . . . deliver
forthwith to Party of the First Part, the principal of the said
trust fund. If and in the event said Party of the First Part shall
not be living, then and in such event payment and delivery over
shall be made to Levitt Hallock and Helen Hallock, respectively son
and daughter of the Party of the First Part, share and share alike.
. . ."
When the settlor died in 1932, his divorced wife, the life
beneficiary, survived him. The Circuit Court of Appeals held that
the trust instrument had conveyed the "whole interest" of the
decedent, subject only to a "condition subsequent," which left him
nothing "except a mere possibility of reverter."
Commissioner
v. Hallock, 102 F.2d 1, 3, 4.
In No. 183 (
Rothensies v. Huston) the decedent, by an
antenuptial agreement, in 1925 conveyed property in trust, the
income to be paid to his prospective wife during her life, subject
to the following disposition of the principal:
"In trust if the said Rae Spektor shall die during the lifetime
of said George F. Uber to pay over the principal and all
accumulated income thereof unto the said George F. Uber in fee,
free and clear of any trust. "
Page 309 U. S. 116
"In trust if the said Rae Spektor after the marriage shall
survive the said George F. Uber to pay over the principal and all
accumulated income unto the said Rae Spektor -- then Rae Uber -- in
fee, free and clear of any trust."
Mrs. Uber outlived her husband, who died in 1934. The Circuit
Court of Appeals deemed
Becker v. St. Louis Trust Co.,
supra, controlling against the inclusion of the trust corpus
in the gross estate.
Finally, in No. 399 (
Bryant v. Helvering), the testator
provided for the payment of trust income to his wife during her
life, and, upon her death, to the settlor himself if he should
survive her. The instrument, which was executed in 1917,
continued:
"Upon the death of the survivor of said Ida Bryant and the party
of the first part, unless this trust shall have been modified or
revoked as hereinafter provided, to convey, transfer, and pay over
the principal of the trust fund to the executors or administrators
of the estate of the party hereto of the first part."
There was a further provision giving to the decedent and his
wife jointly during their lives, and to either of them after the
death of the other, power to modify, alter, or revoke the
instrument. The wife survived the husband, who died in 1930. The
Board of Tax Appeals allowed the Commissioner to include in the
decedent's gross estate only the value of a "vested reversionary
interest" which the Board held the grantor had reserved to himself.
On appeal by the taxpayer, the Circuit Court of Appeals sustained
this determination.
The terms of these grants differ in detail from one another, as
all three differ from the formulas of conveyance used in the
Klein and
St. Louis Trust cases. It therefore
becomes important to inquire whether the technical forms in which
interests contingent upon death
Page 309 U. S. 117
are cast should control our decision. If so, it becomes
necessary to determine whether the differing terms of conveyance
now in issue approximate more closely those used in the
Klein case, and are therefore governed by it, or have a
greater verbal resemblance to those that saved the tax in the
St. Louis Trust cases. Such an essay in linguistic
refinement would still further embarrass existing intricacies. It
might demonstrate verbal ingenuity, but it could hardly strengthen
the rational foundations of law. The law of contingent and vested
remainders is full of casuistries. There are great diversities
among the several states as to the conveyancing significance of
like grants; sometimes, in the same state there are conflicting
lines of decision, one series ignoring the other. Attempts by the
Board of Tax Appeals and the Circuit Courts of Appeal to administer
§ 302(c) by reference to these distinctions abundantly illustrate
the inevitable confusion. [
Footnote
4] One of the cases at bar, No. 399, reveals vividly the snares
which inevitably await an attempt to base estate tax law on the
"niceties of the art of conveyancing." In connection with the
ascertainment of its own death duties, the Supreme Court of Errors
of Connecticut defined the nature of the interest which the
decedent in that case retained after his
inter vivos
transfer.
Bryant v. Hackett, 118 Conn. 233, 171 A. 664.
And yet the nature of that interest under Connecticut law and the
scope of the Connecticut Court's adjudication of that interest were
made the subject of lively controversy before
Page 309 U. S. 118
us. The importation of these distinctions and controversies from
the law of property into the administration of the estate tax
precludes a fair and workable tax system. Essentially the same
interests, judged from the point of view of wealth, will be taxable
or not depending upon elusive and subtle casuistries which may have
their historic justification, but possess no relevance for tax
purposes. [
Footnote 5] These
unwitty diversities of the law of property derive from medieval
concepts as to the necessity of a continuous seisin. [
Footnote 6] Distinctions which originated
under a feudal economy when land dominated social relations are
peculiarly irrelevant in the application of tax measures now so
largely directed toward intangible wealth.
Our real problem, therefore, is to determine whether we are to
adhere to a harmonizing principle in the construction of § 302(c)
or whether we are to multiply gossamer distinctions between the
present cases and the three earlier ones. Freed from the
distinctions introduced by the
St. Louis Trust cases, the
Klein case furnishes such a harmonizing principle. Does,
then, the doctrine of
stare decisis compel us to accept
the distinctions
Page 309 U. S. 119
made in the
St. Louis Trust cases as starting points
for still finer distinctions spun out of the tenuosities of
surviving feudal law? We think not. We think the
Klein
case rejected the presupposition of such distinctions for the
fiscal judgments which § 302(c) demands.
We recognize that
stare decisis embodies an important
social policy. It represents an element of continuity in law, and
is rooted in the psychologic need to satisfy reasonable
expectations. But
stare decisis is a principle of policy,
and not a mechanical formula of adherence to the latest decision,
however recent and questionable, when such adherence involves
collision with a prior doctrine more embracing in its scope,
intrinsically sounder, and verified by experience.
Nor have we, in the
St. Louis Trust cases, rules of
decision around which, by the accretion of time and the response of
affairs, substantial interests have established themselves. No such
conjunction of circumstances requires perpetuation of what we must
regard as the deviations of the
St. Louis Trust decisions
from the
Klein doctrine. We have not before us interests
created or maintained in reliance on those cases. We do not mean to
imply that the inevitably empiric process of construing tax
legislation should give rise to an estoppel against the responsible
exercise of the judicial process. But it is a fact that, in all the
cases before us, the settlements were made, and the settlors died,
before the
St. Louis Trust decisions.
Nor does want of specific Congressional repudiations of the
St. Louis Trust cases serve as an implied instruction by
Congress to us not to reconsider, in the light of new experience,
whether those decisions in conjunction with the
Klein
case, make for dissonance of doctrine. It would require very
persuasive circumstances enveloping Congressional silence to debar
this Court from reexamining its own doctrines. To explain the cause
of
Page 309 U. S. 120
nonaction by Congress when Congress itself sheds no light is to
venture into speculative unrealities. [
Footnote 7] Congress may not have had its attention
directed to an undesirable decision, and there is no indication
that, as to the
St. Louis Trust cases, it had, even by any
bill that found its way into a committee pigeon-hole. Congress may
not have had its attention so directed for any number of reasons
that may have moved the Treasury to stay its hand. But certainly
such inaction by the Treasury can hardly operate as a controlling
administrative practice, through
Page 309 U. S. 121
acquiescence, tantamount to an estoppel barring reexamination by
this Court of distinctions which it had drawn. [
Footnote 8] Various considerations of
parliamentary tactics and strategy might be suggested as reasons
for the inaction of the Treasury and of Congress, but they would
only be sufficient to indicate that we walk on quicksand when we
try to find, in the absence of corrective legislation, a
controlling legal principle.
This Court, unlike the House of Lords, [
Footnote 9] has from the beginning rejected a doctrine
of disability at self-correction. Whatever else may be said about
want of Congressional action to modify by legislation the result in
the
St. Louis Trust cases, it will hardly be urged that
the reason
Page 309 U. S. 122
was Congressional approval of those distinctions between the
St. Louis Trust and the
Klein cases to which four
members of this Court could not give assent. By imputing to
Congress a hypothetical recognition of coherence between the
Klein and the
St. Louis Trust cases, we cannot
evade our own responsibility for reconsidering, in the light of
further experience, the validity of distinctions which this Court
has itself created. Our problem, then, is not that of rejecting a
settled statutory construction. The real problem is whether a
principle shall prevail over its later misapplications. Surely we
are not bound by reason or by the considerations that underlie
stare decisis to persevere in distinctions taken in the
application of a statute which, on further examination, appear
consonant neither with the purposes of the statute nor with this
Court's own conception of it. We therefore reject as untenable the
diversities taken in the
St. Louis Trust cases in applying
the
Klein doctrine -- untenable because they drastically
eat into the principle which those cases professed to accept and to
which we adhere.
In Nos. 110, 111, 112 and 183, the judgments are
Reversed.
In No. 399, the judgment is
Affirmed.
THE CHIEF JUSTICE concurs in the result upon the ground that
each of these cases is controlled by our decision in
Klein v.
United States, 283 U. S. 231.
Page 309 U. S. 123
* Together with No. 111,
Helvering, Commissioner of Internal
Revenue v. Hallock, Executrix, and No. 112,
Helvering,
Commissioner of Internal Revenue v. Squire, Superintendent of Banks
of Ohio, also on writs of certiorari, 308 U.S. 532, to the
Circuit Court of Appeals for the Sixth Circuit, argued December 13,
1939; No. 183,
Rothensies, Collector of Internal Revenue v.
Huston, Administrator, on writ of certiorari, 308 U.S. 538, to
the Circuit Court of Appeals for the Third Circuit, argued December
13, 14, 1939, and No. 399,
Bryant et al., Executors v.
Helvering, Commissioner of Internal Revenue, on writ of
certiorari, 308 U.S. 543, to the Circuit Court of Appeals for the
Second Circuit, argued December 14, 1939.
[
Footnote 1]
. 27, 44 Stat. 9, as amended by § 803 of the Revenue Act of
1932, c. 209, 47 Stat. 169, 279:
"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 --"
"
* * * *"
"(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, or of which he has at any time
made a transfer, by trust or otherwise, under which he has retained
for his life or for any period not ascertainable without reference
to his death or for any period which does not in fact end before
his death (1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in
conjunction with any person, to designate the persons who shall
possess or enjoy the property or the income therefrom, except in
case of a
bona fide sale for an adequate and full
consideration in money or money's worth. Any transfer of a material
part of his property in the nature of a final disposition or
distribution thereof, made by the decedent within two years prior
to his death without such consideration, shall, unless shown to the
contrary, be deemed to have been made in contemplation of death
within the meaning of this title."
[
Footnote 2]
Petitioner's Brief,
Klein v. United States, pp.
11-13.
[
Footnote 3]
Some indication of the influence of
Klein v. United States,
supra, upon the lower courts may be found in
Sargent v.
White, 50 F.2d 410, and
Union Trust Co. v. United
States, 54 F.2d 152,
cert. denied, 286 U.S. 547.
Cf. Commissioner v. Schwarz, 74 F.2d 712.
[
Footnote 4]
See, for example, the attempts by the Board of Tax
Appeals to deal with the peculiarities of New York law in the field
of vested and contingent remainders. Elizabeth B. Wallace v.
Comm'r, 27 B.T.A. 902; Louis C. Raegner, Jr. v. Comm'r, 29 B.T.A.
1243. In both of these cases, limitations which would probably have
been "contingent" at "common law" were held to be "vested" under
the New York statutory rule.
Cf. Commissioner v. Schwarz,
74 F.2d 712; Flora M. Bonney v. Comm'r, 29 B.T.A. 45.
[
Footnote 5]
Cf. Lyeth v. Hoey, 305 U. S. 188,
305 U. S. 194.
See Paul, The Effect on Federal Taxation of Local Rules of
Property in Selected Studies in Federal Taxation (2nd Series), pp.
23-28; Developments in the Law-Taxation, 47 Harv.L.Rev. 1209,
1238-41; Note, 49 Harv.L.Rev. 462.
[
Footnote 6]
See, for example, Fearne, Contingent Remainders, (4th
Am.Ed.), pp. 3-241; Gray, Rule Against Perpetuities (2nd Ed.), pp.
99-118; VII Holdsworth, History of English Law, 81
et
seq.; 1 Simes, Future Interests, §§ 64-96. The confusion apt
to be engendered by judicial forays into this field is well
illustrated by the use of the term "possibility of reverter" by the
majority in
Helvering v. St. Louis Union Trust Co., supra.
"A possibility of reverter" is traditionally defined as the
interest remaining in a grantor who has conveyed a determinable
fee. The definition has not been thought to have any relation to
the reversionary interest of a grantor who has transferred either a
vested or contingent remainder in fee.
See Gray, Rule
Against Perpetuities (2nd Ed.), §§ 13-51.
[
Footnote 7]
We are not unmindful of amendments to the estate tax law to
which other decisions of this Court gave rise. Thus, by § 805 of
the Revenue Act of 1936, c. 690, 49 Stat. 1648, Congress undid the
construction which this Court gave the estate tax law in another
connection by a decision rendered on the same day as were the
St. Louis Trust cases.
Cf. White v. Poor,
296 U. S. 98. This
case arose under § 302(d), and not § 302(c). But, in any event, the
fact of Congressional action in dealing with one problem while
silent on the different problems created by the
St. Louis
Trust cases does not imply controlling acceptance by Congress
of those cases.
By the Joint Resolution of March 3, 1931, c. 454, 46 Stat. 1516,
Congress displaced the construction which this Court put upon §
302(c) in those cases wherein it was held that the reservation by a
decedent of a life estate in property conveyed
inter
vivos, did not constitute a sufficient postponement of the
remainder to bring it into the grantor's gross estate.
May v.
Heiner, 281 U. S. 238;
Burnet v. Northern Trust Co., 283 U.S. 782;
Morsman v.
Burnet, 283 U. S. 783;
McCormick v. Burnet, 283 U. S. 784. The
speculative arguments that may be drawn from
ad hoc
legislation affecting one set of decisions and the want of such
legislation to modify another set of decisions dealing with a
somewhat different, though cognate, problem are well illustrated by
this remedial amendment. For it may be urged with considerable
plausibility that, in 1931, Congress had in principle already
rejected the general attitude underlying the
St. Louis
Trust cases, as illustrated by the fact that, in those cases,
the majority, in part at least, relied upon the Congressionally
discarded
May v. Heiner doctrine.
Whatever may be the scope of the doctrine that reenactment of a
statute impliedly enacts a settled judicial construction placed
upon the reenacted statute, that doctrine has no relevance to the
present problem. Since the decisions in the
St. Louis
Trust cases, Congress has not reenacted § 302(c). The
amendments that Congress made to other provisions of § 302 in
connection with other situations than those now before the Court
were made without reenacting § 302(c). Nor has Congress, under any
rational canons of legislative significance, by its compilation of
internal revenue laws to form the Internal Revenue Code of 1939, 53
Stat. 1, impliedly enacted into law a particular decision which, in
the light of later experience, is seen to create confusion and
conflict in the application of a settled principle of internal
revenue legislation.
Here, unlike the situation in such cases as
National Lead
Co. v. United States, 252 U. S. 140,
252 U. S.
146-147, and
Murphy Oil Co. v. Burnet,
287 U. S. 299,
287 U. S.
302-303, we have no conjunction of long, uniform
administrative construction and subsequent reenactments of an
ambiguous statute to give ground for implying legislative adoption
of such construction.
See Preface, Internal Revenue Code,
53 Stat. III;
compare Smiley v. Holm, 285 U.
S. 355,
285 U. S. 373,
and
Warner v. Goltra, 293 U. S. 155,
293 U. S.
161.
[
Footnote 8]
Since the Treasury has amended its regulations in an effort to
conform administrative practice to the compulsions of the
St.
Louis Trust cases, it cannot be deemed to have bound itself by
this change. Art. 17, Reg. 80 (1937 Ed.), p. 42.
Cf. Estate of
Sanford v. Commissioner, 308 U. S. 39.
[
Footnote 9]
London Street Tramways Co., Ltd. v. London County
Council, [1898] A.C. 375. But the rule is otherwise in the
Privy Council.
Read v. Bishop of Lincoln, [1892] A.C. 644,
655. For the role of precedent in English law,
see, inter
alia, 2 Yorke, Life of Lord Chancellor Hardwicke, pp. 425,
498; Goodhart, Precedent in English and Continental Law, 50
L.Q.Rev. 40; Holdsworth, Case Law,
ibid. 180; Lord Wright
in
Westminster Council v. Southern Ry. Co., [1936] A.C.
511, 562-63; Allen, Law in the Making, 3rd ed., pp. 224
et
seq.
MR. JUSTICE ROBERTS.
There is certainly a distinction in fact between the transaction
considered in
Klein v. United States, 283 U.
S. 231, and those under review in
Helvering v. St.
Louis Union Trust Co., 296 U. S. 39, and
Becker v. St. Louis Union Trust Company, 296 U. S.
48. The courts, the Board of Tax Appeals, and the
Treasury have found no difficulty in observing the distinction in
specific cases. I believe it is one of substance, not merely of
terminology, and not dependent on the niceties of conveyancing or
recondite doctrines of ancient property law.
But if I am wrong in this, I still think the judgments in Nos.
110-112, and 183 should be affirmed, and that in 399 should be
reversed. The rule of interpretation adopted in the
St. Louis
Union Trust Company cases should now be followed for two
reasons:
first, that rule was indicated by decisions of
this court as the one applicable in the circumstances here
disclosed, as early as 1927; was progressively developed and
applied by the Board of Tax Appeals, the lower federal courts, and
this court, up to the decision of
McCormick v. Burnet,
283 U. S. 784, in
1931, and has since been followed by those tribunals in not less
than fifty cases. It ought not to be set aside after such a
history.
Secondly. The rule was not contrary to any
treasury regulation; was, indeed, in accord with such regulations
as there were on the subject; was subsequently embodied in a
specific regulation, and, with this background, Congress has three
times reenacted the law without amending § 302(c) in respect of the
matter here in issue. The settled doctrine that reenactment of a
statute so construed, without alteration, renders such construction
a part of the statute itself should not be ignored, but
observed.
Page 309 U. S. 124
1. The Revenue Act of 1926 lays a tax upon the transfer of the
net estate of a decedent. That estate is defined to embrace the
value of all his property, real or personal, tangible or intangible
(less certain deductions) at the time of his death. [
Footnote 2/1] As the Treasury Department
stated in its earliest regulations: "The statute also includes only
property rights existing in the decedent in his lifetime and
passing to his estate." [
Footnote
2/2] In all the treasury regulations, from the earliest to the
one now in force, applicable to the relevant sections of the
successive Revenue Acts defining the "gross estate" of a decedent
the Treasury has used this language: [
Footnote 2/3]
"The value of a vested remainder should be included in the gross
estate. Nothing should be included, however, on account of a
contingent remainder where [in the case] the contingency does not
happen in the lifetime of the decedent,
and the interest
consequently lapses at his death."
(Italics supplied.) The next sentence: "Nor should anything be
included on account of a life estate in the decedent," has been
repeated in substance in the corresponding article of all
subsequent regulations.
If, by the will of his grandmother, A is given a life estate,
with remainder to another, his executor is not bound to return
anything on account of the life estate because, in respect of it,
nothing passes on A's death. The estate simply ceases. The Treasury
has never contended the contrary. If, however, A's grandmother gave
a life estate to B, and the remainder to A, A has something which,
at his death, will pass to someone else under his will, or under
the intestate laws. The statute plainly taxes the value of the
interest thus transferred at A's death.
Page 309 U. S. 125
If A's grandmother, by her will, gave interests in succession to
specific persons and then provided that, if A should outlive all
these persons, the property should pass to him, A would have a
chance to receive and enjoy the property. If he did so receive it,
it would pass as part of his estate. If he died before the other
beneficiaries named by his grandmother, his death would deprive him
of that chance. The chance would not pass to anyone else. No tax
would be laid on the supposed value of his contingent interest or
chance, because the chance cannot, at his death, pass by his will
or the intestate laws to another. I do not understand the
Government has ever denied this.
Subsection (c) of § 302 lays down no different rule respecting
similar interests created by irrevocable deed or agreement of the
decedent. The subsection directs that there shall be included in
the gross estate the value, at the time of the decedent's death, of
any interest in property of which the decedent has at any time made
a
transfer "intended
to take effect in possession
or enjoyment
at or after his
death" (excluding
sales for adequate consideration).
A transfer can only take effect, within the meaning of the
statute, by the shifting of possession or enjoyment from the
decedent to living persons. The fact that the terms of the gift
bring about some other effect at the decedent's death is
immaterial. The fact that something may happen in respect of the
beneficial enjoyment of the property conditioned upon the
decedent's death is irrelevant so long as that something is not the
shifting of possession or beneficial enjoyment from the decedent.
This is made clear by
Reinecke v. Northern Trust Co.,
278 U. S. 339,
278 U. S.
347.
If A makes a present irrevocable transfer in trust, conditioned
that he shall receive the income for life and, at his death, the
principal shall go to B, B is at once legally
Page 309 U. S. 126
invested with the principal. A's life estate ceases at his
death. Nothing then passes. There is no tax imposed by the statute,
because there is no transfer, any more than there would be in the
case of a similar life estate given A by his grandmother. (This is
May v. Heiner, 281 U. S. 238.)
If, on the other hand, A creates an estate for years or for life in
B, retaining the remaining beneficial interest in the property for
himself, and, whether by the terms of the grant, or by the terms of
A's will, or under the intestate law, that remainder passes to
someone else at his death, such passage renders the transfer
taxable. (This is
Klein v. United States, supra.) If what
A does is to transfer his property irrevocably, with provision that
it shall be enjoyed successively by various persons for life and
then go absolutely to a named person, but that, if he, A, shall
outlive that person, the property shall come back to him, and A
dies in the lifetime of the person in question, A has merely lost
the chance that the beneficial ownership of the property may revert
to him. That chance cannot pass under his will or under the
interstate laws. As there is no transfer which can become effective
at his death by the shifting of any interest from him, no tax is
imposed. (This is
McCormick v. Burnet, supra, and
Helvering v. St. Louis Union Trust Company, supra.)
2. These governing principles were indicated as early as 1927,
[
Footnote 2/4] and were thereafter
developed, in application to specific cases, in a consistent line
of authorities.
In
May v. Heiner, supra, it was held that a transfer in
trust under which the income was payable to the transferor's
husband for his life and, after his death, to the transferor during
her life, with remainder to her children, was not subject to tax as
a transfer intended to take effect
Page 309 U. S. 127
in possession or enjoyment at or after death. This court said
(p. ):
". . . At the death of Mrs. May, no interest in the property
held under the trust deed passed from her to the living; title
thereto had been definitely fixed by the trust deed. The interest
therein which she possessed immediately prior to her death
was
obliterated by that event."
(Italics supplied.)
It will be noted that this is the equivalent of the Treasury's
statement,
supra, that such an interest lapses at
death.
That decision is indistinguishable in principle from the
St.
Louis Union Trust Company cases and the instant cases, and
what was there said serves to distinguish the
Klein
case.
McCormick v. Burnet followed
May v. Heiner,
supra. The court there held that neither a reservation by the
grantor of a life estate with remainders over nor a provision for a
reverter in case all the beneficiaries should die in the lifetime
of the grantor made the gifts transfers intended to take effect in
possession or enjoyment at or after the grantor's death. In the
Circuit Court of Appeals, the Commissioner urged that the provision
for payment of the trust estate to the settlor in case she survived
all the beneficiaries rendered the transfer taxable. That court
dealt at length with the point, and sustained his view.
Commissioner v. McCormick, 43 F.2d 277, 279. The
Commissioner made the same contention in this Court, but it was
overruled upon the authority of
May v. Heiner, supra.
Then came the two
St. Louis Union Trust Company cases,
decided upon the authority of
May v. Heiner and
McCormick v. Burnet, supra. Finally, the
McCormick case was followed in
Bingham v. United
States, 296 U. S. 211.
Since the opinion of the court appears to treat the
St.
Louis cases as the origin of the principle there
announced,
Page 309 U. S. 128
it is important to emphasize the fact that the rule had been
settled by this Court as early as 1930, and to note other decisions
rendered prior to the
St. Louis cases. In seven
intervening between
May v. Heiner, supra, and the
St.
Louis cases, the Board of Tax Appeals reached the same
conclusion as that announced in the
St. Louis cases.
[
Footnote 2/5] The Board's action
was affirmed in four of them. [
Footnote
2/6] Four other decisions by Circuit Courts of Appeal were to
the same effect. [
Footnote 2/7] In
practically all, reliance was placed upon
Shukert v. Allen,
Reinecke v. Northern Trust Company, May v. Heiner, and
McCormick v. Burnet, supra, or some of them. Thus, when
the question came before this Court again in the
St. Louis
cases, there was a substantial body of authority following and
applying the
Heiner and
McCormick cases.
Since the
St. Louis cases were decided, the principle
on which they went has been repeatedly applied by the Board of Tax
Appeals and the courts. The Board has followed the cases in no less
than seventeen instances. [
Footnote
2/8]
Page 309 U. S. 129
The record is the same in the courts. The
St. Louis
cases have been followed in fourteen cases. [
Footnote 2/9] In some of these, the Government has
sought review in this Court, but in none, except those now
presented, has it asked the Court to overrule those decisions.
If there ever was an instance in which the doctrine of
stare
decisis should govern, this is it. Aside from the obvious
hardship involved in treating the taxpayers in the present cases
differently from many others whose cases have been decided or
closed in accordance with the settled rule, there are the weightier
considerations that the judgments now rendered disappoint the just
expectations of those who have acted in reliance upon the uniform
construction of the statute by this and all other federal
tribunals, and that to upset these precedents now must necessarily
shake the confidence of the bar and the public in the stability of
the rulings of the courts and make it impossible for inferior
tribunals to adjudicate controversies in reliance on the decisions
of this Court. To nullify more than fifty decisions, five of them
by this
Page 309 U. S. 130
Court, some of which have stood for a decade, in order to change
a mere rule of statutory construction, seems to me an altogether
unwise and unjustified exertion of power. As I shall point out,
there is no necessity for such action, because it has been, and
still is, open to Congress to change the rule by amendment of the
statute if it deems such action necessary in the public
interest.
3. Section 301 of the Revenue Act of 1926 imposes a tax upon the
value of the net estate of a decedent. Section 302 provides the
method for determining the value of the gross estate. Subsections
(c), (d), (e), (f), and (g) require inclusion in the gross estate
of interests which otherwise might be held not to form a part of
the decedent's estate or not to pass from him to others at his
death. These subsections sweep such interests into the gross estate
in order to forestall tax avoidance. Section 302(c) was the
successor of analogous sections in earlier acts and the predecessor
of similar sections in later acts. [
Footnote 2/10] The subsection has been amended in
successive Revenue Acts. As a result of the Treasury's experience
in the enforcement of the law, Congress has from time to time
thought it necessary to extend the scope of the subsection in the
interest of more efficient administration. Within constitutional
limits, such extension is a matter of legislative policy for
Congress alone. [
Footnote
2/11]
It is familiar practice for Congress to amend a statute to
obviate a construction given it by the courts. The legislative
history of § 302(c) demonstrates that Congress has elected not to
make such an amendment to
Page 309 U. S. 131
meet the construction placed upon it by this court in the
St. Louis cases.
May v. Heiner, supra, was decided in 1930. The Treasury
was dissatisfied with the decision, and, in three later cases,
attacked the ruling, amongst them
McCormick v. Burnet,
supra. The Court announced its judgments in these cases on
March 2, 1931, reaffirming
May v. Heiner, supra. On the
following day, Congress adopted a joint resolution amending §
302(c) to tax a transfer with reservation of a life estate to the
grantor, but, in so doing, it omitted to deal with a contingent
interest reserved to the grantor or the possibility of reverter
remaining in him, involved in both
Heiner and
McCormick. See Hassett v. Welch, 303 U.
S. 303,
303 U. S.
308-309. The omission is significant.
It may be argued that, in the haste of preparing and passing the
amendment, the point was overlooked. But the joint resolution was
reenacted by § 803 of the Revenue Act of 1932, [
Footnote 2/12] without any alteration to cover the
point. The Revenue Act of 1934 [
Footnote 2/13] amended § 302(d) of the Revenue Act of
1926, but did not change § 302(c) as it then stood.
The day the
St. Louis cases were decided, this Court
announced its opinion in
White v. Poor, 296 U. S.
98, construing § 302(d) of the Act of 1926. In order to
make the section apply to such a situation as was disclosed in that
case, [
Footnote 2/14] the
Congress, on June 22, 1936, by the Act of 1936, [
Footnote 2/15] amended it to preclude the
construction the Court had given it. Again, Congress let § 302(c)
stand as before and as construed in the
St. Louis
cases.
Page 309 U. S. 132
Three revenue acts have since been adopted, [
Footnote 2/16] in none of which has the wording of
§ 302(c) been altered. If there is any life in the doctrine often
announced that reenactment of a statute as uniformly construed by
the courts is an adoption by Congress of the construction given it,
this legislative history ought to be conclusive that the statute,
as it now stands, means what this Court has said it means.
Little weight can be given to the argument of the Government
that the Treasury has not applied to Congress for alteration of the
section because of the difficulty of wording a satisfactory
amendment. A moment's reflection will show that it would be easy to
phrase such an amendment. Whatever the reason for the failure to
amend § 302(c), whether hesitancy on the part of the Treasury to
recommend such action, or the satisfaction of Congress with the
construction put upon the section by this court, or mere
inadvertence, the fact remains that the section has been reenacted
again and again with the courts' construction plain for all to
read.
4. As shown by the matter above quoted from the Treasury
Regulations affecting the estate tax, [
Footnote 2/17] a contingent interest is not to be
included in the taxable estate. In the light of this construction,
estate tax provisions were reenacted or amended in 1921, 1924,
1926, 1928, 1931, 1932, 1934, 1935, 1936 and 1937.
At the bar, counsel for the Government stated that it had always
been the view of the Treasury that the article in question applied
only to § 302(a), and had no application to § 302(c). But we are
not concerned with what the Treasury thought about the matter. The
regulations were issued to guide taxpayers in complying with the
Act. Section 302 is an entirety. Subsections (a) and (c) were
Page 309 U. S. 133
not intended to contradict each other, but the latter was to
supplement the former. The gross estate was to be computed
according to the section as a whole. It is hard to understand how
the taxpayer was expected to discriminate between a contingent
interest of a decedent under the will of his grandmother and a
similar interest under an absolute deed executed by him
inter
vivos. If the one did not pass from the decedent at death,
neither did the other.
After the decisions in the
St. Louis cases, the
Treasury rendered its regulations even more explicit. In
Regulations 80 (Revised), promulgated October 26, 1937, a new
Article 17 was inserted which is:
"The statutory phrase, 'a transfer . . . intended to take effect
in possession or enjoyment at or after his death' includes a
transfer by the decedent . . . whereby and to the extent that the
beneficial title to the property . . . or the legal title thereto .
. . remained in the decedent at the time of his death and the
passing thereof was subject to the condition precedent of his
death. . . ."
"On the other hand, if, as a result of the transfer, there
remained in the decedent at the time of his death no title or
interest in the transferred property, then no part of the property
is to be included in the gross estate merely by reason of a
provision in the instrument of transfer to the effect that the
property was to revert to the decedent upon the predecease of some
other person or persons or the happening of some other event."
If theretofore doubt could have been entertained, it then must
have vanished. And, with this regulation in force, Congress
reenacted § 302(c) as so interpreted.
What, then, is to be said of the principle that reenactment of a
statute which the Treasury, by its regulations, has interpreted in
a given sense is an embodiment of the interpretation in the law as
reenacted? Surely the principle cannot be avoided, as the
Government argues, because
Page 309 U. S. 134
the Treasury felt bound so to interpret § 302(c) by reason of
this court's decisions. That fact should make application of the
principle the more urgent.
MR. JUSTICE McREYNOLDS joins in this opinion.
[
Footnote 2/1]
§§ 300-303, 44 Stat. 69-72.
[
Footnote 2/2]
Regulations 37, Art. 12 (1917).
[
Footnote 2/3]
Regulations 37, Art. 12; Regulations 63, Art. 11; Regulations
68, Art. 11; Regulations 80, Art. 11.
[
Footnote 2/4]
Shukert v. Allen, 273 U. S. 545.
[
Footnote 2/5]
Wheeler v. Commissioner, 20 B.T.A. 695; Duke v. Commissioner, 23
B.T.A. 1103, 1104; Peabody v. Commissioner, 24 B.T.A. 787; Dunham
v. Commissioner, 26 B.T.A. 286; Taylor v. Commissioner, 27 B.T.A.
220; Wallace v. Commissioner, 27 B.T.A. 902; Bonney v.
Commissioner, 29 B.T.A. 45.
[
Footnote 2/6]
Commissioner v. Duke, 62 F.2d 1057 (affirmed by an
equally divided court, 290 U.S. 591);
Commissioner v.
Wallace, 71 F.2d 1002;
Commissioner v. Dunham, 73
F.2d 752;
Commissioner v. Bonney, 75 F.2d 1008.
[
Footnote 2/7]
Commissioner v. Austin, 73 F.2d 758;
Tait v. Safe
Deposit & Trust Co., 74 F.2d 851;
Tait v. Safe Deposit
& Trust Co., 78 F.2d 534;
Helvering v. Helmholz,
64 App.D.C. 114, 75 F.2d 245. I have been able to find only one
case decided
contra: Commissioner v. Schwarz, 74 F.2d
712.
[
Footnote 2/8]
Taft v. Commissioner, 33 B.T.A. 671; Guaranty Trust Company v.
Commissioner, 33 B.T.A. 1225; Kneeland v. Commissioner, 34 B.T.A.
816; Kienbusch v. Commissioner, 34 B.T.A. 1248; Schneider v.
Commissioner, 35 B.T.A. 183; Van Sicklen v. Commissioner, 35 B.T.A.
306; Patterson v. Commissioner, 36 B.T.A. 407; Rushmore v.
Commissioner, 36 B.T.A. 480; Bryant v. Commissioner, 36 B.T.A. 669;
Wetherill v. Commissioner, 36 B.T.A. 1259; Mitchell v.
Commissioner, 37 B.T.A. 1; Stone v. Commissioner, 38 B.T.A. 51;
Harter Bank v. Commissioner, 38 B.T.A. 387; White v. Commissioner,
38 B.T.A. 593; Donnelly v. Commissioner, 38 B.T.A. 1234; Pyeatt v.
Commissioner, 39 B.T.A. 774; Dravo v. Commissioner, 40 B.T.A.
309.
[
Footnote 2/9]
Old Colony Trust Co. v. United States, 15 F. Supp.
417;
Myers v. Magruder, 15 F.
Supp. 488;
Chase National Bank v. United
States, 28 F. Supp.
947;
Commissioner v. Brooks, 87 F.2d 1000;
Bullard
v. Commissioner, 90 F.2d 144;
Welch v. Hassett, 90
F.2d 833;
United States v. Nichols, 92 F.2d 704;
Mackay v. Commissioner, 94 F.2d 558;
Commissioner v.
Grosse, 100 F.2d 37;
Commissioner v. Hallock, 102
F.2d 1;
Commissioner v. Kaplan, 102 F.2d 329;
Rothensies v. Cassell, 103 F.2d 834;
Corning v.
Commissioner, 104 F.2d 329;
Rheinstrom v.
Commissioner, 105 F.2d 642.
[
Footnote 2/10]
Revenue Act of 1916, § 202(b), 39 Stat. 756, 777; Revenue Act of
1918, § 402(c), 40 Stat. 1057, 1097; Revenue Act of 1924, § 302(c),
43 Stat. 253, 304; Revenue Act of 1932, § 803(a), 47 Stat. 169,
279; Internal Revenue Code of 1939, § 811(c), 53 Stat., Part 1, 1,
121.
[
Footnote 2/11]
Helvering v. City Bank Farmers Trust Co., 296 U. S.
85.
[
Footnote 2/12]
47 Stat. 169, 279.
[
Footnote 2/13]
48 Stat. 680, 752, § 401.
[
Footnote 2/14]
House Report on H.R. 12793.
[
Footnote 2/15]
49 Stat. 1648, 1744.
[
Footnote 2/16]
Revenue Act of 1937, 50 Stat. 313; Revenue Act of 1938, 52 Stat.
447; Internal Revenue Code, 53 Stat., Part. 1, p. 1.
[
Footnote 2/17]
See 309
U.S. 106fn2/3|>Note 3,
supra.