A woman, contemplating marriage, created an irrevocable trust of
property, under which she was to receive the income during her
life; upon her death, her mother and stepfather were to have a life
interest in the income; the remainder was to go to her issue upon
their reaching the age of 21, and, in default of issue, then to
whomever the last surviving life tenant should appoint by will. Her
mother created 3 similar trust, reserving a life interest to
herself and her husband, with a second life. interest to the
daughter, and remainder to the daughter's issue. Concededly, the
secondary life interests were subject to the federal gift tax.
1. The remainders (after the life interests) were taxable gifts
under the Revenue Act of 1932. Smith v. Shaughnessy, ante
p. 318 U. S. 176
318 U. S.
2. The fact that, on the date of the creation of the trust,
there were in existence no eligible remaindermen does not defeat
the gift tax. P. 318 U. S.
3. The transfers in this case cannot be regarded as supported by
"full consideration in money or money's worth" within the meaning
of § 503 of the Act, nor as "in the ordinary course of business"
within the meaning of Art. 8 of Treasury Regulations 79. P.
318 U. S.
4. The value of the reversionary interests of the grantors in
this case, being incapable of ascertainment by recognized actuarial
Page 318 U. S. 185
is not deductible in computing the gift tax. Smith v.
U. S. 176
, distinguished. P. 318 U. S.
129 F.2d 832 affirmed.
Certiorari, 317 U.S. 620, to review the reversal of a decision
of the Board of Tax Appeals, 44 B.T.A. 701, which reversed in two
cases, consolidated for hearing before the Board and in the court
below, determinations of deficiencies in federal gift taxes.
MR. JUSTICE BLACK delivered the opinion of the Court.
This is another case [Footnote
] under the gift tax provisions of the Revenue Act of 1932, §§
501, 506, which, while presenting certain variants on the questions
decided today in Smith v. Shaughnessy, ante,
318 U. S. 176
in other respects analogous to and controlled by that case.
In 1936, the petitioner, Elise Paumgarten (nee Robinson), was
thirty years of age and was contemplating marriage; her mother,
Meta Biddle Robinette, was 55 years of age and was married to the
stepfather of Miss Robinson. The three, daughter, mother, and
stepfather, had a conference with the family attorney, with a view
to keeping the daughter's fortune within the family. An agreement
was made that the daughter should place her property in trust,
receiving a life estate in the income for herself and creating a
second life estate in the income for her mother and stepfather if
she should predecease them. The remainder
Page 318 U. S. 186
was to go to her issue upon their reaching the age of 21, with
the further arrangement for the distribution of the property by the
will of the last surviving life tenant if no issue existed. Her
mother created a similar trust, reserving a life estate to herself
and her husband and a second or contingent life estate to her
daughter. She also assigned the remainder to the daughter's issue.
The stepfather made a similar arrangement by will. The mother
placed $193,000 worth of property in the trust she created, and the
daughter did likewise with $680,000 worth of property.
The parties agree that the secondary life estates in the income
are taxable gifts, and this tax has been paid. The issue is whether
there has also been a taxable gift of the remainders of the two
trusts. The Commissioner determined that the remainders were
taxable, the Board of Tax Appeals reversed the Commissioner, and
the Circuit Court of Appeals reversed the Board of Tax Appeals. 129
F.2d 832; 44 B.T.A. 701.
The petitioner argues that the grantors have not relinquished
economic control, and that this transaction should not be subject
both to the estate and to the gift tax. What we have said in the
case determines these questions adversely to the
petitioner. However, the petitioners emphasize certain other
Petitioner argues that, since there were no
donees in existence on the date of the creation of the trust who
could accept the remainders, the transfers cannot be completed
gifts. The gift tax law itself has no such qualifications. It
imposes a tax "upon the transfer . . . of property by gift." And
Treasury Regulation 79, Art. 3, provides that
"The tax is a primary and personal liability of the donor, is an
excise upon his act of making the transfer, is measured by the
value of the property passing from the donor, and attaches
regardless of the fact that the identity of the donee may not then
be known or ascertainable."
We are asked to strike down this regulation
Page 318 U. S. 187
as being invalid because inconsistent with he statute. We do not
think it is. As pointed out in the Smith
case, the effort
of Congress was to reach every kind and type of transfer by gift.
The statute "is aimed at transfers of the title that have the
quality of a gift." Burnet v. Guggenheim, 288 U.
, 288 U. S. 286
The instruments created by these grantors purported on their face
wholly to divest the grantors of all dominion over the property; it
could not be returned to them except because of contingencies
beyond their control. Gifts of future interests are taxable under
the Act, § 504(b), and they do not lose this quality merely because
of the indefiniteness of the eventual recipient. The petitioners
purported to give the property to someone whose identity could be
later ascertained, and this was enough.
It is argued that the transfers were not gifts,
but were supported by "full consideration in money or money's
worth." [Footnote 2
contention rests on the assumption that an agreement between the
parties to execute these trusts was sufficient consideration to
support the transfers. We need not consider or attempt to decide
what were the rights of these parties as among themselves.
Petitioners think that their transaction comes within the
permissive scope of Article 8 of Regulation 79 (1936 edition),
which provides that
"a sale, exchange or other transfer of property made in the
ordinary course of
Page 318 U. S. 188
business (a transaction which is bona fide,
length, and free from any donative intent) will be considered as
made for an adequate and full consideration in money or money's
The basic premise of petitioner's argument is that the moving
impulse for the trust transaction was a desire to pass the family
fortune on to others. It is impossible to conceive of this as even
approaching a transaction "in the ordinary course of business."
The last argument is that, "in any event, in
computing the value of the remainders herein, allowance should be
made for the value of the grantor's reversionary interest." Here,
unlike the Smith
case, the government does not concede
that the reversionary interest of the petitioner should be deducted
from the total value. In the Smith
case, the grantor had a
reversionary interest which depended only upon his surviving his
wife, and the government conceded that the value was therefore
capable of ascertainment by recognized actuarial methods. In this
case, however, the reversionary interest of the grantor depends not
alone upon the possibility of survivorship, but also upon the death
of the daughter without issue who should reach the age of 21 years.
The petitioner does not refer us to any recognized method by which
it would be possible to determine the value of such a contingent
reversionary remainder. It may be true as the petitioner argues
that trust instruments such as these before us frequently
"a complex aggregate of rights, privileges, powers and
immunities, and that, in certain instances, all these rights,
privileges, powers, and immunities are not transferred or released
But, before one who gives this property away by this method is
entitled to deduction from his gift tax on the basis that he had
retained some of these complex strands, it is necessary that he at
least establish the possibility of approximating what value he
holds. Factors to be considered in fixing the value of this
contingent reservation as of the date of the
Page 318 U. S. 189
gift would have included consideration of whether or not the
daughter would marry, whether she would have children, whether they
would reach the age of 21, etc. Actuarial science may have made
great strides in appraising the value of that which seems to be
unappraisable, but we have no reason to believe from this record
that even the actuarial art could do more than guess at the value
here in question. Humes v. United States, 276 U.
, 276 U. S. 494
The judgment of the Circuit Court of Appeals is
MR. JUSTICE ROBERTS dissents for the reasons set forth in his
opinion in Smith v. Shaughnessy, ante,
* Together with No. 500, Paumgarten v. Helvering,
Commissioner of Internal Revenue,
also on writ of certiorari,
317 U.S. 620, to the Circuit Court of Appeals for the Third
These two matters have been considered as one case below, and
will be so treated here.
Section 503 of the 1932 Act, 47 Stat. 169, provides that,
"Where property is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by
which the value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this
title, be deemed a gift. . . ."
This language is interpreted in the House and Senate Committee
Reports as follows:
"The tax is designed to reach all transfers to the extent that
they are donative, and to exclude any consideration not reducible
to money or money's worth."
House Report No. 708, 72d Cong., 1st Sess., p. 29; Senate Report
No. 665, 72d Cong., 1st Sess., p. 41.