1. Section 302(c) of the Revenue Act of 1926, as amended, which,
for the purpose of the federal estate tax, requires inclusion, in
the gross estate of a decedent, of any interest in property of
which "the decedent has at any time made a transfer . . . in
contemplation of . . . his death," held
applicable to a
transfer of property of an incompetent person, effected by order of
a court acting in lieu of the incompetent. P. 323 U. S.
2. A transfer is "in contemplation of death," within the meaning
of § 302(c), where the thought of death is the impelling cause of
the transfer. United States v. Wells, 283 U.
. P. 323 U. S.
3. Where, by court order, annual allowances were made out of the
surplus income of an incompetent person, over seventy years of age
and incurably insane, to descendants who would inherit the
incompetent's property, and where the dominating reason for the
allowances was that the beneficiaries would eventually divide the
that the annual allowances -- to the extent
that they exceeded an amount which the incompetent, for some years
prior to adjudication of incompetency, had regularly allowed --
were made "in contemplation of death" within the meaning of §
302(c). P 323 U. S.
4. Allowances made by court order out of the surplus income of
an incompetent person to collateral relations, who would inherit no
part of the incompetent's property and who were in need of funds
for their maintenance and support, held
not made "in
contemplation of death" within the meaning of § 302(c). P.
323 U. S. 600
142 F.2d 599 reversed in part.
p. 689, to review the affirmance of a
judgment, 43 F. Supp. 790, which allowed recovery in part in a suit
for refund of federal estate taxes.
Page 323 U. S. 595
MR. JUSTICE ROBERTS delivered the opinion of the Court.
This case presents an issue of importance arising under § 302(c)
of the Revenue Act of 1926, as amended, [Footnote 1
] which requires inclusion, in the gross
taxable estate of a decedent, of any interest in property of which
the "decedent has at any time made a transfer . . . in
contemplation of . . . his death. . . ." More specifically, the
inquiry is whether the section reaches allowances out of the income
of an incompetent person.
Helen Hall Vail died in 1935 intestate. For nine years, she had
been incurably insane. In 1926, an adjudication of incompetency was
entered by the Supreme Court of the New York, and a committee was
appointed to care for her property, which consisted of
income-producing realty and personalty. In addition, she was in
receipt of the income of a trust. During the period of five years
prior to the adjudication, her annual income from all sources had
averaged $300,000. She was over 70 years of age, but in good
physical health. She had a living daughter and three grandsons,
children of a deceased daughter. Application was made to the court
to make allowances out of income to Mrs. Vail's issue and to a
brother and sisters. The court referred the matter to a referee
before whom it was shown that she had, over a period of years,
Page 323 U. S. 596
each of her daughters $6,000, and one of her sisters $500, per
annum, and had made gifts to her daughters, but not with
regularity. As she was confined in an institution, her total needs,
including maintenance and taxes, did not exceed $50,000 per annum.
Accumulated income in the hands of the committee amounted to over
The court, on the basis of the referee's report, entered an
order which, after reciting that Mrs. Vail had made no will, that
the daughter and grandchildren, or their issue, would, upon her
death, be her only heirs at law and next of kin, and the only
persons entitled to share in her estate, and that, if she were in
possession of her mental faculties, "she would desire that the
allowance hereinafter fixed be made . . . , and would make such
allowance to such persons out of her property," directed the
committee to pay yearly, in quarterly installments, $50,000 to the
living daughter and $50,000 to the guardian of the children of the
deceased daughter; $2,000 each to all but one of the brother and
sisters, and $3,000 to the remaining sister.
Some six years later, an application was made for an increase in
the allowance. The matter was again referred for hearing and, on
the coming in of the referee's report showing that accumulated
income in Mrs. Vail's account had increased to over $1,000,000,
that income had averaged, for over five years, approximately
$395,000 per annum, and, after paying allowances and all expenses,
the surplus averaged about $191,000 a year, the court made an order
reciting that she was then 77 years of age and incurable,
enumerated the issue who would be entitled to her estate at death,
that she had no will, and that, if she were competent, she would
have desired that the sums named in the earlier decree be
augmented, raised the allowances to the daughters and to the
grandchildren collectively to $75,000, retroactive to the date of
the original order. It was never claimed, and is not contended,
that the next of kin needed any such allowances for their
Page 323 U. S. 597
and support in their station in life. It is conceded that the
brother and sisters to whom allowances were made were destitute,
and in need of maintenance.
At Mrs. Vail's death, the allowances theretofore paid totaled
$1,377,866.67. The Commissioner of Internal Revenue included the
sum in the decedent's gross estate, and determined a deficiency.
The petitioner, as administrator, paid the sum demanded, claimed a
refund, and, on denial, instituted this action in the District
Court. That court, upon consideration of the record of the
proceedings in the Supreme Court of New York, found that the total
of the allowances was properly included in the decedent's gross
estate, except so much as represented annual payments to the
daughter and the grandchildren's guardian of $6,000 each and $500
per annum of the gifts to collaterals, and entered judgment
accordingly. [Footnote 2
Circuit Court of Appeals, by a divided court, affirmed the
judgment. [Footnote 3
The Supreme Court of New York is empowered by statute to act as
representative of the State, as parens patriae,
for the persons and the estates of its incompetent citizens. That
court may grant allowances out of income only if it determines that
the incompetent would probably have granted such allowances himself
had he been sane. The court does not, in any proper sense, act as
the incompetent's agent. In the exercise of the power, the primary
consideration is that the incompetent's property shall not be
wasted, but preserved against the possibility of restoration to
sanity. On these propositions, the parties are in accord.
The petitioner urges that the present case is not within the
terms of the statute, and that, in enacting § 302, Congress did not
contemplate any such contingency as that
Page 323 U. S. 598
here involved. It insists that Mrs. Vail made no transfer, but,
if any was made, the court made it; that she had and could have no
motive in respect of the gift. In addition, it urges that, under
the State law, the court's control over the estate ceases at the
incompetent's death, and the court cannot make a will for her or in
any wise interfere with the devolution of her estate. Hence, it
concludes that to suggest the court sanctioned transfers of a
testamentary character is to assume that it exceeded its powers.
Such an assumption, so petitioner says, ought not to be indulged.
On the contrary, it should be presumed that the court acted within
its granted powers -- that is, authorized transfers inter
with no testamentary motive.
The Government, on the other hand, takes the position that
nothing in the law of New York, and no authority cited by the
petitioner, precludes the State court from making an allowance in
contemplation of death if, upon the record made, the court, placing
itself in the incompetent's position on the supposition that she
were sane and competent, concludes that she would have made the
transfers. And it adds that what was done by the Supreme Court in
this case was not appealed, and is now beyond correction, if
erroneous, and that the records and orders evince an understanding
that the certainty of continuance of disability until death, the
fact of intestacy, and the natural expectations of the distributees
under the intestate laws were prevalent factors in moving the court
to make the orders in question, and characterize the court's action
as taken in contemplation of death. The Government says that, as
the court was required to, and did, act as the decedent would have
acted if competent, this case is not outside the terms of § 302(c),
but, on the contrary, in contemplation of law, the decedent did
make the transfers in question.
The issue is a narrow one. Literally, Mrs. Vail neither made the
transfers nor did she have any motive with respect
Page 323 U. S. 599
to them. But a court stood in her place, and unquestionably had
the function of effectuating a transfer of her property and of
determining what motive or purpose would have actuated her had she
been competent to act. It seems to us that it is sticking in the
bark to say that, in the circumstances, the transfers are not
within the section because Congress did not add a phrase to the
effect that, where a court made the transfer, acting in lieu of the
incompetent owner, such a transfer should be governed by the
We hold, therefore, that where, as in New York, the court is to
substitute itself as nearly as may be for the incompetent, and to
act upon the same motives and considerations as would have moved
her, the transfer is, in legal effect, her act, and the motive is
This being so, the only remaining question is whether the proof
was sufficient to overcome the presumption arising from the
Commissioner's determination that the transfers were made in
contemplation of death. The applicable test is that stated in
United States v. Wells, 283 U. S. 102
This is whether the thought of death is the impelling cause of the
transfer. As respects the descendants of Mrs. Vail, it would seem
clear enough that there was no dominant motive for the transfer
other than the thought that, as they would inherit her estate, and
as there was a large accumulation of unneeded income, they might as
well receive substantial portions now as await her death to enjoy
their inheritance. The fact that these beneficiaries did not stand
in need of the money, the fact that the increase granted at the
second hearing was made retroactive, and that the past installments
were paid in a lump sum, the arguments of counsel in both hearings
that the only reason for granting the allowances to Mrs. Vail's
descendants was that they inevitably would divide her estate
amongst them, and the recitals of the court orders, to which
reference has been made, all go to confirm, rather than to
undermine, the Commissioner's determination.
Page 323 U. S. 600
We think the District Court was right in holding that, to the
extent of $6,000 per annum, which was the sum Mrs. Vail, when
competent, had regularly allowed each of her daughters, the
transfers fall without the terms of § 302(c), but that the balance
of the payments to her descendants falls within its sweep.
A different question is presented respecting the allowances to
collaterals. It appears that they were in need of funds for their
maintenance and support, and it is obvious that no payments to them
could be on account of any share of their sister's intestate
estate. The allowances have the color of current payments for
support, and they were authorized because the court concluded that,
if sane and cognizant of the situation, Mrs. Vail would have made
them. These considerations lead to the conclusion that the
Commissioner's determination concerning them is rebutted, and that
they should not have been included in the decedent's gross estate.
To the extent indicated, the judgment of the Circuit Court of
Appeals is reversed.
Internal Revenue Code § 811(c), 26 U.S.C. § 811(c).
43 F. Supp. 790.
142 F.2d 599.