Commissioner v. Estate of Holmes,
326 U.S. 480 (1946)

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U.S. Supreme Court

Commissioner v. Estate of Holmes, 326 U.S. 480 (1946)

Commissioner v. Estate of Holmes

No. 203

Argued December 12, 1945

Decided January 2, 1946

326 U.S. 480


1. Decedent in 1935 transferred property upon trusts for the benefit of three sons, retaining no power to revest in himself or in his estate any part of the income or corpus. Decedent was named trustee and acted as such until his death. Each trust was to continue for 15 years, or on certain conditions longer, and various provisions were made for disposition over upon the death of any beneficiary. The trustee was authorized in his discretion either to distribute or to accumulate the income, and to apply each beneficiary's share of the corpus to the welfare and happiness of such beneficiary. Decedent reserved to himself the power to terminate any or all of the trusts, and to distribute the principal and accumulated income to the beneficiaries then entitled to receive it.

Held: that, under 811(d)(2) of the Internal Revenue Code, for the purpose of the federal estate tax, the value of the property so transferred by the decedent was includible in his gross estate as an interest whereof the "enjoyment" was subject, at the date of his death, to change through exercise of a power to "alter, amend, or revoke." P. 326 U. S. 483.

Page 326 U. S. 481

(a) One who has the power to terminate contingencies upon which the right of enjoyment is staled, so as to make certain that a beneficiary will have it who may never come into it if the power is not exercised, has not divested himself of control to the extent which § 811(d)(2) requires in order to avoid the tax. P. 326 U. S. 487.

(b) Decedent's failure to reserve for himself any beneficial interest or power to recapture one is not controlling. P. 326 U. S. 489.

(c) Nor is it controlling that the decedent was without power to designate beneficiaries other than those specified in the indenture, and was therefore limited to changing enjoyment among only that group. P. 326 U. S. 489.

(d) Upon the language of the trusts, it cannot be said that the decedent reserved the power of termination to himself merely as trustee, rather than as donor, and it is therefore unnecessary to determine the effect of the variation between §§ 811(d)(1) and (2) in this respect. P. 326 U. S. 489.

2. The words "enjoyment" and "enjoy," as used in § 811 of the Internal Revenue Code and similar statutes, are not terms of art, but connote substantial present economic benefit, rather than technical vesting of title or estates. P. 326 U. S. 486.

3. The 1936 amendment of § 302(d) of the Revenue Act of 1926, whereby, as to transfers subsequent to June 22, 1936, the words "or terminate" were added to "alter, amend, or revoke," was declaratory of the existing law. P. 326 U. S. 488.

148 F.2d 740, reversed.

Certiorari, post, p. 702, to review the affirmance of a decision of the Tax Court, 3 T.C. 571, which set aside the Commissioner's determination of a deficiency in estate tax.

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