Decedent had transferred property to himself as trustee for his
minor children, reserving discretionary power to invest and
reinvest the principal and income, which were to be paid to the
children when they attained certain ages. The trusts were declared
irrevocable, but decedent reserved the right to pay over to the
children at any time any or all of the trust assets.
Held: the value of the trust assets was includable in
decedent's estate for estate tax purposes, under § 811(d)(2) of the
Internal Revenue Code. Pp.
346
U. S. 335-337.
124 Ct.Cl. 44, 108 F. Supp. 731, affirmed.
MR. JUSTICE BLACK delivered the opinion of the Court.
This is an action for an estate tax refund brought by the
executors of the estate of Morris Lober. In 1924, he signed an
instrument conveying to himself as trustee money and stocks for the
benefit of his young son. In 1929, he executed two other
instruments, one for the benefit a daughter, the other for a second
son. The terms of these three instruments were the same. Lober was
to handle the funds, invest and reinvest them as he deemed proper.
He could accumulate and reinvest the income with the same freedom
until his children reached twenty-one years of age. When
twenty-one, they were to be paid the accumulated income. Lober
could hold the principal of each trust until the beneficiary
reached twenty-five. In case he died,
Page 346 U. S. 336
his wife was to be trustee with the same broad powers Lober had
conveyed to himself. The trusts were declared to be irrevocable,
and, as the case reaches us, we may assume that the trust
instruments gave Lober's children a "vested interest" under state
law, so that, if they had died after creation of the trusts, their
interests would have passed to their estates. A crucial term of the
trust instruments was that Lober could, at any time he saw fit,
turn all or any part of the principal of the trusts over to his
children. Thus, he could at will reduce the principal or pay it all
to the beneficiaries, thereby terminating any trusteeship over
it.
Lober died in 1942. By that time, the trust property was valued
at more than $125,000. The Internal Revenue Commissioner treated
this as Lober's property, and included it in his gross estate. That
inclusion brought this lawsuit. The Commissioner relied on §
811(d)(2) of the Internal Revenue Code, 26 U.S.C. §811 (1946 ed.).
That section, so far as material here, required inclusion in a
decedent's gross estate of the value of all property that the
decedent had previously transferred by trust
"where the enjoyment thereof was subject at the date of his
death to any change through the exercise of a power . . . to alter,
amend, or revoke. . . ."
In
Commissioner v. Holmes' Estate, 326 U.
S. 480, we held that power to terminate was the
equivalent of power to "alter, amend, or revoke" it, and we
approved taxation of the Holmes estate on that basis. Relying on
the
Holmes case, the Court of Claims upheld inclusion of
these trust properties in Lober's estate. 124 Ct.Cl. 44 108 F.
Supp. 731. This was done despite the assumption that the trust
conveyances gave the Lober children an indefeasible "vested
interest" in the properties conveyed. The Fifth Circuit Court of
Appeals had reached a contrary result where the circumstances were
substantially the same, in
Hays' Estate v. Commissioner,
181 F.2d 169, 172-174. Because of this conflict, we granted
certiorari. 345 U.S. 969.
Page 346 U. S. 337
Petitioners stress a factual difference between this and the
Holmes case. The
Holmes trust instrument provided
that, if a beneficiary died before expiration of the trust his
children succeeded to his interest, but if he died without
children, his interest would pass to his brothers or their
children. Thus, the trustee had power to eliminate a contingency
that might have prevented passage of a beneficiary's interest to
his heirs. Here, we assume that, upon death of the Lober
beneficiaries, their part in the trust estate would, under New York
law, pass to their heirs. But we cannot agree that this difference
should change the
Holmes result.
We pointed out in the
Holmes case that § 811(d)(2) was
more concerned with "present economic benefit" than with "technical
vesting of title or estates." And the Lober beneficiaries, like the
Holmes beneficiaries, were granted no "present right to immediate
enjoyment of either income or principal." The trust instrument here
gave none of Lober's children full "enjoyment" of the trust
property, whether it "vested" in them or not. To get this full
enjoyment, they had to wait until they reached the age of
twenty-five unless their father sooner gave them the money and
stocks by terminating the trust under the power of change he kept
to the very date of his death. This father could have given
property to his children without reserving in himself any power to
change the terms as to the date his gift would be wholly effective,
but he did not. What we said in the
Holmes case fits this
situation too:
"A donor who keeps so strong a hold over the actual and
immediate enjoyment of what he puts beyond his own power to retake
has not divested himself of that degree of control which §
811(d)(2) requires in order to avoid the tax."
Commissioner v. Holmes, supra, at
326 U. S.
487.
Affirmed.
MR. JUSTICE DOUGLAS and MR. JUSTICE JACKSON dissent.