1. Decedent made a transfer of property in trust limited in
duration to the lives of two nieces. If decedent survived both
nieces, the corpus was to go to the decedent, rather than to the
beneficiaries named in the trust instrument. The nieces survived
the decedent.
Held: that, under § 302(c) of the Revenue Act of 1926,
the value of the entire corpus of the trust property at the death
of the decedent was includible in the gross estate for the purpose
of the federal estate tax.
Fidelity-Philadelphia Trust Co. v.
Rothensies, ante p.
324 U. S. 108. P.
324 U. S.
115.
2. Since the corpus of the trust did not shed the possibility of
reversion until the decedent's death, the value of the entire
corpus on the date of death was taxable under § 302(c). P.
324 U. S.
116.
144 F.2d 62 reversed.
Page 324 U. S. 114
Certiorari, 323 U.S. 704, to review the reversal of a decision
of the Tax Court, 2 T.C. 21, which sustained the Commissioner's
determination of a deficiency in estate taxes.
MR. JUSTICE MURPHY delivered the opinion of the Court.
This is a companion case to
Fidelity-Philadelphia Trust Co.
v. Rothensies, ante, p.
324 U. S. 108. It
too presents a question as to the proper valuation of the corpus of
an
inter vivos trust under Section 302(c) of the Revenue
Act of 1926, 44 Stat. 9, 70.
On June 8, 1922, the decedent transferred to a trustee certain
assets valued at the date of his death at the sum of $157,452.82.
The material portions of the trust provided:
1. The trust was to continue for the joint lives of two nieces
and the life of the survivor of them unless terminated earlier
under 4,
infra.
2. The income was to be paid to the decedent for his life unless
the trust terminated before his death.
3. If the decedent died prior to the termination of the trust
leaving issue, the trust property was to be held in trust for the
children or their issue, subject to decedent's right to reduce or
cancel the amounts of the gifts by will or written instrument.
Provisions were also made for a
Page 324 U. S. 115
$150,000 trust for the widow which is not in issue in this
case.
4. During the continuance of the trusts, the income was to be
paid to the beneficiary named, and, upon the death of the
beneficiary during the continuance of the trust, the corpus was to
be paid to the beneficiary's issue surviving, but if there be none,
to the issue of the decedent surviving, if none, then to decedent's
brother or sister or their issue.
5. Upon termination of the trust before the death of the
decedent, the corpus was to be paid over to decedent.
6. Upon termination of the trust after the death of the decedent
but during the existence of any trust, the corpus was to be paid to
the life beneficiary.
The decedent at no time had any issue. At his death in 1937 at
the age of 52, he was survived by the two nieces whose lives were
to measure the maximum life of the trust. These nieces were then
aged 18 and 25, respectively. He was also survived by his widow, a
sister, and issue of a deceased brother.
The Tax Court held that the entire amount of $157,452.82 was
includable in the gross estate for purposes of the estate tax. 2
T.C. 21. But the court below reversed and remanded the case to the
Tax Court with directions to include in the gross estate only
$24,930.76 -- the value at the time of decedent's death of a
remainder in the sum of $157,452.82 payable at all events upon the
death of the survivor of two females, aged 18 and 25, respectively.
144 F.2d 62.
The error of the court below is self-evident from our discussion
in the
Fidelity-Philadelphia Trust Co. case. The trust
here was limited in duration to the lives of the decedent's two
nieces. But if both nieces died before the decedent, the corpus
would have been paid to the decedent, rather than to the
beneficiaries named in the trust instrument (in this instance, the
decedent's sister and the
Page 324 U. S. 116
issue of his deceased brother). Thus, until decedent's death, it
was uncertain whether any of the corpus would pass to the
beneficiaries or whether it would revert to the decedent. Decedent
retaining a string attached to all the property until death severed
it, the entire corpus was swept into the gross estate, and was
taxable accordingly.
There is no basis evident for deducting the value of the corpus
for the period of the life expectancies of the two measuring lives,
as was done by the court below. The estate tax is not based on the
value of the reversionary interest of the decedent at the time of
his death, but on the value at the time of his death of the
property to which that reversionary interest relates. It makes no
difference how vested may be the remainder interests in the corpus
or how remote or uncertain may be the decedent's reversionary
interest. If the corpus does not shed the possibility of reversion
until at or after the decedent's death, the value of the entire
corpus on the date of death is taxable.
Reversed.
MR. JUSTICE DOUGLAS, concurring.
If the trust gave a life estate to the decedent and the
remainder to his children, section 302(c) of the 1926 Act would not
require the payment of a tax under the rule of
May v.
Heiner, 281 U. S. 238;
Burnet v. Northern Trust Co., 283 U.S. 782;
McCormick
v. Burnet, 283 U. S. 784, and
Hassett v. Welch, 303 U. S. 303. The
theory of
May v. Heiner was that, under those
circumstances, no interest in the property passed from the grantor
to the remainderman on the grantor's death, since the title of the
remainderman had been definitely fixed by the trust deed. We need
not determine whether the rule of
May v. Heiner should
survive
Helvering v. Hallock, 309 U.
S. 106.
See Paul, Federal Estate & Gift
Taxation (1942) § 7.15. For,
Page 324 U. S. 117
in this case, the grantor retained the right to reduce or cancel
by will or written instrument the interests of the children, and
the corpus would have been returned to the grantor if he survived
his nieces. Hence, it seems plain that the gifts over would take
effect in possession or enjoyment only at or after the death of the
grantor.