Estate of Spiegel v. Commissioner

ESTATE OF SPIEGEL et COMMISSIONER al.

OF INTERNAL REVENUE. Argued No. 3. Reargued October 11-12, October 1948. 1947. January 17, Decided 1949. argued

Herbert A. Friedlich petitioners. the cause for With him on Tierney, Harry the briefs were Leo F. Thom A. Kohn. Joseph Louis M. Weil was also on the brief on reargument.

Arnold argued Raum the cause for respondent. With him on Perlman, the briefs were Solicitor General As- Caudle, sistant Attorney General Jackson Lee A. L. W. Post. Helen R. Carloss was also on the brief on the original argument, N. and Ellis Slack on was also brief on the reargument. of the Court. opinion Black delivered the

Mr. Justice Here, as controversy. tax a estate This is federal Church, ante, cer- p. 632, granted we Commissioner meaning upon the dependent questions to consider tiorari (c) of the Internal provision a of 811 application amended, 26 S. C. 279, U. 47 Stat. Revenue Code. including requires (c). particular provision §811 prop- all at his death of a the value gross decedent’s estate of which interest therein “To the extent erty transfer, trust or by time made has at decedent possession take . . . intended to effect otherwise at or after his death enjoyment Illinois, made Spiegel,

In M. resident 1920 Sidney an- to himself and trust of certain stocks transfer income During in 1940. his life the trust He died other. they did children; his three among was to be divided children. On him, surviving of their not survive corpus was to be provided the trust that his death was provision But no in the same manner. distributed and its accumulated corpus distribution of the made for all his children Spiegel Mr. survive income should has For this reason the Government grandchildren. property state law controlling that under contended he survived his Spiegel had have reverted to Mr. would beneficiaries. designated included was not corpus of this trust value

The con- Commissioner tax The Spiegel estate return. income, about with accumulated that its value cluded estate gross in the have been included $1,140,000, should in an Tax Court held otherwise (c). The under 811§ Sev- for the Appeals Court of opinion. The unreported held that F. 2d 257. It reversed. enth Circuit required (c) provision enjoyment §811 possession or and accumu- property of the value of inclusion Helvering v. rule declared under the lated income law the trust under state Hallock, 106, because U. S. agreement way open property left the for the to revert he all the Spiegel to Mr. case outlived beneficiaries. parties This rested on the that holding agreement right depended whether there was a of reverter on Illinois law, and the court’s conclusion under Illinois law that of reverter did exist.1 right Hallock on Appeals case which the Court of relied held that properties the value of trust should have been included in a gross “possession settlor’s estate under the enjoyment” provision agreements where trust had ex- pressly provided that corpus should revert to the set- tlor the event tax- he outlived beneficiaries. The payer Tax here, has contended Court and the Appeals, Court of the Hallock applicable that rule is not trust, get this where the settlor’s chance back his property depended on state law and an express not on reservation the settlor. This contention of the tax- payer part rests in argument (c) imposes on the that 811§ only a tax where it can be shоwn that the settlor’s in- tent was to reserve for himself a contingent reversionary interest the property. Another contention is that the value of this contingent reversionary interest was so small in comparison with the total value of corpus that the Hallock A applied. rule should not be third con- tention is Appeals the Court of holding was erroneous in that under corpus Illinois law the of this trust would not have reverted to the settlor had all the beneficiaries died while the settlor was still living. Petitioners urge in that that event the Illinois courts would have that held corpus passed to the heirs of surviving the last beneficiary.

1This Appeals interpretation Court of application (c) and of 811§ inwas conflict holding with the of the Third Circuit Commis sioner Estate, Internal Revenue v. Church’s 161 F. 2d 11. We granted cases, arguments certiorari in both together, have been heard today and we have case, ante, reversed p. the Church 632. applied by rightly rule was hold that the Hallock We holding as to the accept and we its Appeals the Court of law. applicable Illinois Church, ante, p. we In

First. Commissioner scope to holding Hallock relation discussed the have (c) of 811 enjoyment” provision § or “possession What we not what we said there. and need elaborate corpus a taxability of trust that said demonstrates a set- (c) hinge does not on provision under this of §811 operative nature and motives, depends tlor’s but on the In we transfer. the Church case stated effect of the trust all of a transaction cannot be held alienate that un- (c) under “possession enjoyment” § a or settlor’s settlor, in which thе it effects “a bona fide transfer less irrevocably, pos- and without absolutely, unequivocally, all title and all of his reservations, parts with of his sible enjoyment all of the transferred possession and of his made, a set- property. After such transfer has been property, with no title present legal tlor must be left title, no possible right that and reversionary no interest In possess enjoy property or to then or thereafter. immediate and out other words such transfer must be out, grantor and must be unaffected whether the statement, add to that it can be lives or dies.” We whether addition, of as an that it is immaterial conceived present interest, contingent, absolute or such or future it grantor deliberately remains because he reserves because, considering consequences, or without he con- away ownership all of veys property less than In attributes, present prospective. either event parted presently existing settlor has not with all of his contingent property or future interests transferred. “complete” He has therefore not made that kind of trust (c) prerequisite transfer commands as a certainly irrevocably parted that he has showing Any “possession enjoyment.” requirement with his 706 outlined, post- such as a

less than that which we have attempt probe thoughts regard in death the settlor’s partially impair the effectiveness transfer, would “possession enjoyment” provision as an instru- ment frustrate estate tax evasions. To extent this precise purpose pro- it for would defeat which the prompted Congress vision was and which originated (c). include it 811§ ownership, possession,

Determination of such issues as whether transfers have been made and the enjoyment, many transfers, may questions reach of those involve in many fact. And we have held that to cases the extent depends upon the determination of find- such issues fact may ing, many different facts be relevant. These fact issues federal tax cases are for Tax Court to decide brought cases before it. In this case the Tax Court made findings of fact against then It did so, decided Government. how- ever, by holding as matter of law that did those facts require not inclusion of corpus the value of this settlor’s estate.2 But Tax findings Court’s of fact showed that the trust provision disposi- contained no tion the corpus should the settlor outlive the bene- ficiaries. This finding fact, accept, which we plus the Appeals Court of determination of controlling law, Illinois 2 “possession enjoy- The Tax Court’s conclusion of law that the (c) inapplicable ment” clause 811 was of this to the facts § part rested on its belief that Reinecke v. Northern Trust Co., 339, 278 U. S. had decided the issue. But the Halloek case Reinecke, question was decided after and the here involved was not specifically opinion raised in the Reinecke case. Nor did the Court’s case, by Stone, in that written the late Chief Justice indicate that legal always accepted a transfer of bare title in transfer be must showing possession enjoyment provision as a conclusive (c) applied corpus. cannot be to the trust Court’s Cf. opinion Schaffner, Harrison v. Chief U. S. written Justice Stone. within transaction more, brings this trust

without 811(c) provision enjoyment or scope possession Hallock interpreted that section have we it that contended Church cases. And has not petitioner evi- any relevant present an opportunity was denied enjoyment. ownership, possession, concerning dence necessary the case It not to remand is therefore Hormel Tax of facts. See finding Court for further Helvering, 312 552, v. U. 559-560. S. monetary value

Second. It is that since the contended interest is small contingent reversionary the settlor’s corpus, with the total value of comparison not (c) should possession enjoyment provision of 811§ under that corpus a trust applied. be But inclusion of of the rever- dependent upon the value provision is not Trust Co. v. Fidelity-Philadelphia sionary interest. v. Estate Rothensies, Commissioner 108, 112; U. S. Field, v. United 116; see Goldstone 113, 324 U. S. States, how much question 691. The is not 687, 325 U. S. whether after a reservation, value but is the potentially to be a by Congress considered transfer, present some or con transaction, tax evasion dangerous property still remains or interest tingent right complete title, possession or full and the settlor so that the beneficiaries absolutely pass not enjoyment does Shaugh See Smith v. after the settlor’s death. until at or nessy, 318 U. S. 176, 181. under Illinois law

Third. It that is contended to the settlor would not have reverted corpus this trust that reveals record had outlived the beneficiaries. he under easy one, an but here is not problem law the state Haven, in Meredith Winter this Court’s decision did not relieve the Court involved difficulty U. S. The ques- duty to make decision. Appeals of its who are con- judges three was made ruling tioned One pass upon questions. Illinois law stantly required to judges lawyer of the three has been a resident and long opin- of Illinois. Examination of the Illinois state court pressed upon ions say us leaves us unable to with degree certainty Appeals that the Court of holding was wrong. certainly It is neither novel nor unreason- provide able for state law to all when trust bene- corpus ficiaries die the trust should revert to the donor. It wholly unprofitable would be analyze us to Illinois cases point urged. on the here It is sufficient for us to say that we think arguments reasonable can be made based on support Illinois cases to a determination of this question petitioner’s either for or against the contention. Under these circumstances we will follow our general policy and Appeals leave undisturbed this Court of hold- on a ing question of state law.3 All other arguments petitioners of the have been noted and we find without merit. them

Affirmed. Mr. Justice Jackson dissents. Reed, Mr. opinion of Justice concurring this

[For dissenting decision but from that v. Commissioner Church, ante, p. ante, Estate 632, p. see 651.] opinion Frankfurter, of Mr. Justice dissenting [For from this decision and that also v. Commissioner Church, ante, ante, Estate p. p. see 632, 667.] Mr. Justice Burton, dissenting.

Today’s decision adds to the difficulties this troubled field of estate tax law. It may, however, good serve a purpose if it leads to simultaneous consideration by 3Helvering 154, v. Stuart, 162-165; 317 U. S. v. Steele General cf. Mills, 329 U. S. 433. Congress of the related fields income, gift and estate taxation in connection with the creation or transfer of future interests.

Five Alternatives. At least five proposals alternative have presented been to us for the solution of this case. The calls first Co., reversal of Reinecke v. 339, Northern Trust S.U. and a against decision taxpayers. calls second for the extension this Helvering case the doctrine of Clifford, 309 U. S. and a remand to determine further third, facts. The existing prece- follow fourth fifth dents closely. more recognizes possi- Each that, no bility of a reverter1 arose favor settlor, by operation law, under us, instrument before the property thereby placed in trust is required by not (c) §811 of the Internal Revenue Code to be included in the gross estate of the settlor for federal estate tax purposes. proposal The third finds that the law to be applied, for the above purpose, is that of It Illinois. calls for a decision in favor taxpayers because, application under a correct law, required possibility The terms “reverter” and “the of a reverter” have been frequently freely opinions general used in and discussions of' this subject. They possible are used here to refer to the return or return estate, the settlor or to his comparable under conditions to those suggested, here property previously placed in trust the settlor. They are not used in peculiar strict or technical sense to the .law property. also, Paul, See I Federal Estate and Gift Taxation (1942). 7.21, They may refer, example, reversionary n. 1 to a § interest, resulting trust, merely or a beneficial interest under a right property some to or control over a beneficial interest and, sense, they “string in that include the or tie” to the trust property frequently that also has been referred to in discussions subject. of this The term “reversion” is used its usual technical meaning property. in the law of

reverter not proposal could arise. The claims or fourth possibility assumes a of a that reverter did arise under by operation this trust of the law of in favor of Illinois the de It, however, settlor. apply declines to the rule minimis non curat lex and, by look it declining further, a against taxpayers. reaches decision al- This is the ternative adopted which has been opinion Court. The proposal is like the fourth that except fifth it does look further and it recognizes (c) that re- a quires finding actual settlor’s intent order to make that applicable. Section It then concludes that the instant case required intent is fifth absent. The proposal, therefore, for a calls decision favor of the tax- payers or at least calls for remand to determine the existence, any, of required I settlor’s intent. believe only proposals third and fifth present sound solution. Each of upon those two is existing founded precedents, an equitable reaches result and contributes to the certainty rather than to the uncertainty of the application of the tax, pending legislative reconsideration subject. I prefer the entire fifth because it avoids complete dependence law a If state. the fifth proposal is not I accepted, believe that present status law of requires acceptance Illinois of the third. Proposal I. The First That Is the Reinecke Case

Be Overruled. judicial The lack of support for overruling Reinecke Co., Northern Trust supra, at this late day, makes it unnecessary to consider this proposal at length. It has been, however, strongly urged upon us. The Spiegel trust instrument simple is so complete in its terms2 apply that to the federal estate tax corpus to its merely on the strength of those terms require would reversal Spiegel instrument is Appendix I, set forth in full in infra, p. 735. the Reinecke case. Accordingly, reargument on the case, this we the following question: asked

“1. Assuming that, applicable law, under the state there possibility was no of reverter and no interest of any other kind retained or in favor of arising the settlor or his estate under made the transfer vivos, inter in trust, (c) did In- section 811 ternal Revenue Code require that the value of corpus of the trust be gross included the settlor’s purposes? is, estate for federal ‍​​‌‌​​​​​​​‌‌​​‌​‌‌‌‌‌‌​‌‌‌​‌​​​​‌​​‌‌‌​​‌‌‌‌​​‌‍did estate-tax That (c) require section 811 the inclusion in the gross corpus estate of the settlor of the value of the vivos, created inter trust, merely because the settlor provided that, upon had in it his the trust death, corpus should terminate and the be distributed to designated Journal surviving?” beneficiaries then Supreme Court, Term, 1947, pp. Oct. 296-297.

In response, argued counsel for the Commissioner petitioners the affirmative and for counsel negative. interpretation urged The statute on Commissioner, ago behalf of the had been however, long rejected unanimously by passing upon this Court in Reinecke Accordingly, so-called “five trusts” in the case. precedent stands, question that the answer to the above remains “No” and that should be at rest. issue of the Reinecke case for reasoning requires that, be taxable in a like the settlor this, a transfer to case must have intended that the transfer come from settlor possession enjoyment it take effect dead at or after the settlor’s death. It must be from the living. requirement That calls the existence at least interest, right settlor, of an or control possibility the existence of some reverter estate, or tie to amounting string settlor or (c) applicable. make property, order to or tie must also be one that was interest, string Such 712 by the terms of the off or obliterated

transferred, cut settlor. the death of the trust at or after 811 of be said about § there now should Accordingly, (1940 C. 120, 53 Stat. 26 U. S. Code, the Internal Revenue in the Stone, 1929, said what Justice ed.) 811, Mr. § 402 the Rev- of corresponding § about the Reinecke case 227, 42 278: 1921, 136, of c. Stat. enue Act on imposed tax is one plan scope “In and the its contemplation of death at or made transfers death interest value at death of the by and is measured the Davis, A. v. 264 Cf. Y. M. C. which is transferred. Slocum, 61, 62; 264 S. 47, v. U. 50; U. S. Edwards Eisner, 345, 349. It is N. Y. Trust Co. v. 256 U. S. by imposed a tax once the gift tax, gifts not and the on 234, 313, 43 Stat. has been Act of c. Revenue prop- may freely give 44 Stat. 126. One repealed, subjecting gift to another absolute without erty tax, his estate to a but we are asked himself or make may that he not say that this statute means vivos, complete, and gift equally a inter absolute a subjecting gift it to tax takes without with remainder over form of life estate one It would re- at or after the donor’s death. another plain compelling language justify and so quire wanting think it is incongruous result we pp. Id. at 347-348. present statute.” Hallock, Helvering dissenting 309 also, 106; v. U. S. See Co., v. Louis Union Trust 296 S. opinion Bеcker St. U. Trust 48, 53, Helvering Co., v. St. Louis Union States, 39, 46; 231; v. U. S. Klein United U. S. Allen, Shukert v. 273 U. S. 545. Proposal Application Second Is for

II. Doctrine Clifford Case. apply Helvering Clifford, To supra, doctrine is, in effect, case before to substitute that doc- us Heretofore, case. the doctrine Reinecke for trine application no the doctrine this Court has made (c) any Sec- predecessor case to 811 or to its Clifford in- largely for That has been reserved tions. doctrine All the decision appropriate come tax cases. facts case have this case under doctrine of the Clifford facts from presented. not The absence of those been arguments from the record and the absence this issue emphasize the of a remand inappropriateness made below point to in proceeding. introduce such facts at this late this suggests practiced fraud, that has or Nothing this trustee tax a evasion, obligations or violated as has trustee. inception. The trust became irrevocable at its It thus with any testamentary contrasts instrument sharply which settlor might nothing have executed. There is in suggest it to a settlor, even as surviving sole trustee, would from accountability be free strict beneficiaries of an the trust or from to obligation use his in discretion their interest than in rather his own. There is no more of an express provision in trust for this possibility of a reverter the settlor than there was in the Reinecke case. The countless uncertainties which in would arise other cases from a application retroactive to this statute of the doctrine of case might Clifford nearly be great as as those which flow would from a of rеversal the Reinecke case.

Furthermore, there is 22 sharp contrast between § (a)3 (c) § and 811 of the Internal Code Revenue point starting application for the of the doctrine of the case. 22 Section (a), which the Clifford Clifford 3 “SEC. 22. GROSS INCOME.

“(a) gains, GENERAL profits, Definition. —'‘Gross income’ includes salaries, income wages, compensation personal derived from or service, of pro- whatever and in or paid, kind whatever form from fessions, trades, vocations, sales, businesses, commerce, dealings or in property, personal, growing ownership whether real out of

714 traditionally income of taxable expansion its

case rests in- permits at the broad taxpayer, invites or least hand, 811, on other terpretation given to it. Section of breadth sweeping no inclusions. Whatever contains (c) in 811 is (a), § it 811 whereas language § contains is of from broad field special exception in nature of transfers inter vivos. Section 811 apply (c) seeks such identifiable classifications of estate tax to certain that, spite has in experience transfers where indicated should be sub- Congress they of their believes form, development of jected tax. The historical to estate ex- interpretation. It has been (c) bears out this §811 specifically described only by tended the addition trans- classifications. The same is true of the revocable in- (d), joint community fers described 811§ powers appointment (f), in 811 (e), terests § § proceeds (g), of life insurance of transfers § insuffi- prior (h) interests transfers for (i). Congress If had in- cient consideration 811§ sweep tended to into the estate of the decedent gross vivos, contrary broad classifications of transfers inter Trust Reinecke v. Northern upheld the limitations Co., supra, or application as would result from the of Helvering Clifford, many fore- the doctrine of of the specific necessary. not going extensions would been have very specificity (c) The of the terms of 811 and of its § emphatically any in- negative related subsections broad terpretation language. language of their No of breadth in 22 comparable (a) appears anywhere to that used in the Section. apply

To the doctrine of Spiegel the case to the Clifford powers trust because of the which Spiegel the trust vested or use of or property; interest, rent, interest in such also from divi- dends, securities, any or the transaction of business carried on for gain profit, gains profits any or or and income from derived source (1940 (a). ed.) whatever. . . 26 C. Stat. U. S. §22 in the settlor as trustee conflicts with position the taken by this Court to the in the Reinecke case, “five trusts” supra. For example, powers the reserved directly settlor under Trust No. 4477 in Reinecke case only the not equal are but, to ways, in some are broader than those vested in the settlor, trustee, as a in the Spiegel trust. very The fact Trust No. the reservations were made to directly personal the settlor in capacity, his rather than to him as a trustee, removes from them tradi- tional equity places limitations which trustee the exercise of powers he which holds for the benefit of que cestui his infra, trust. In Appendix II, p. 737, Trust quoted No. 4477 is full from the Reinecke the record case and a number especially material clauses have been italicized. While the terms of that trust were quoted not opinion verbatim in the of this Court in the Reinecke case, this Court there summarized several of them4 and said:

“Nor did powers management the reserved the trusts save to decedent control over eco- nomic enjoyment benefits or the property. He would equally powers have reserved all these others had he made himself trustee, but the trans- fer not for that incomplete. would reason have been shifting the economic interest subject which was tax property was thus 4 ". . The power supervise . settlor reserved to himself to funds, require reinvestment of proxies to the trustee to execute nominee, to by trustee, to vote shares stock held by trustee, control appoint all leases executed successor respect power trustees. With five each these trusts a was also alter, change modify trust,’ reserved ‘to which be was to single exercised the case of four of them the settlor and the beneficiary trust, acting jointly, of each and in the case one the trusts, by majority named, acting the settlor and a of the beneficiaries jointly.” p. 278 U. at 344. S. power made. His trust was as the

complete soon as his it for over and of control property to recall not were trusts then ceased own benefit powers the reserved death, contemplation made gift other from them distinguish not do serve 346- (At pp. tax.” vivos not subject to the inter 347.) reserved powers all of the thus showed

This Court “others” coupled with the settlor, even directly to the estate trust to the subject that would not trusteе, now the issue significant because especially tax. This is Court before this brought squarely had been presented question following in the Reinecke case brief: Government’s Rev- (c) words of Section

“1. Do the purpose that, for the 1921, provide which Act enue included tax, there shall be the estate measuring intended gross estate trusts value of decedent’s enjoyment at or after possession to 'take effect death,’ embrace: date of “(b) Trusts created after the effective Act, where the settlor reserved and earlier similar property; vote power to sell and reinvest and, reappoint trustees; leases; control stock; beneficiaries, alter, amend, or jointly with Nos. (This applies to Trusts modify the trust. 4481, respectively, ap- 4477, 4478, 4479, 4480, and pp. 3, 25, 32, 40.)”5 at pearing the record case, we reargument Upon of the instant case and the Church particularity questions insofar as nine requested counsel to discuss The first respective cases. questions were relevant those quoted supra p. The rest are question quoted at 711. has been alternative and, these, 2, 6, 9 bore this numbers 8 and below solution: arose, law, applicable there that, state Assuming “2. under the applies For 811 (c) us to hold that here because of powers the which in have been vested the settlor-trustee Spiegel under the trust amount would, therefore, to over- by operation law, possible of of reverter favor the settlor’s estate, (c) require corpus, did section 811 the of value the in view case, gross of the record in the be included the settlor’s purposes estate for federal estate-tax ? (c) 1939,

“3. Code, Did section 811 of the Internal Revenue require gross inclusion in the the settlor’s estate of the value corpus settlor, by terms, 1924, had, the of a trust because the its right death, reserved to himself to the until income his being 3, the thus reservation made before the March amend- ment that section? joint (46 congressional

“4. 1516— Were the resolution of 1931 Stat. 1517), subsequent statutes, related to be a estate-tax intended 238) repudiation May (281 of this v. Heiner U. S. inter- Court’s pretation of the estate-tax statutes ? May interpretation

“5. Did Heiner the the v. estate-tax survive congressional holding opinion in resolution and Court’s this (309 Helvering 106) ? v. Hallock U. S. (c) ‘possession enjoyment’ of “6. Under section 811 is the * * * inter, corpus

the of an vivos ‘intended take effect trust to death, he himself as cotrustee at after’ the settlor’s where names powers corpus over with the broad control and administrative the corpus vested, is withheld from and income here and where the beneficiaries until the settlor’s death ? Helvering light opinion Hallock

“7. In the this v. Court’s 303) (303 interpretation of the does v. S. the Hassett Welch U. controlling in determin- congressional relevance resolution have ing applied properties Church tax shall be whether the estate 1931 but trust created before to beneficiaries under a transferred properties income from the in which Church retained net during life ? of the law Assuming the ‘refined technicalities

“8. that under enjoyment’ properties property’ ‘possession and of the trust when the trust passed the beneficiaries here be deemed to have testamentary dispo- creatеd, so much ‘akin to was are the transfers (See subject statutes? make them estate-tax sitions’ as to 112.) Helvering Hallock, p. (309 Helvering rulings v. Clifford “9. is the effect of What Term, Supreme Court, 331) upon Oct. trusts?” Journal U. S. these 1947, pp. 297-298.

ruling decision of this Court case Reinecke (c) corresponding language which held that the of 402§ apply Act of 1921 did not in that case.6 of the Revenue to remand determination The failure this case of further facts which would be material under the tests case not that has question does settle Clifford argued application been under those tests (c). does, however, 811 It show that this Court has not willing upon application been to rest its decision the doctrine of case on the basis of the terms Clifford of this by present trust and the facts shown record. Third,

Common Basis for Fourth and Fifth Proposals.

THE MATERIALFACTS. important facts this case are the terms of the trust instrument and the intent the settlor. The terms of the instrument are those to which law of Illinois applied must be to determine arose, by op- whether there comparable 6 A somewhat presented by but less direct conflict is States, v. substantially Goldstone United 325 U. S. 687. There com plete disposition proceeds control over the of the of insurance con placed by tracts was wife, the insured in the discretion of his who primary beneficiary. also minority sought was the A of this Court apply the doctrines of the Hallock case and the rationale which Clifjord inheres in the recognizing case to the extent of the transaction as, substance, completed gift insured, to the wife of the subject Court, however, therefore not to the estate tax. This did not, case, apply in that thе Clifford doctrine to the estate tax. But Commissioner, (C. see Cir.), Richardson v. 2d 1 F. A. 2d cert. denied, that, 314 U. S. where it was held under the Clifford case, trustee, power might any awith broad of revocation which at benefit, time be exercised for his own was himself liable the income also, Bunting Commissioner, tax on the income of the trust. See (C. Cir.), denied, 856; 164 F. 2d 443 A. 6th cert. 47 Mich. U. S. (1948). L. Rev. 137 of the in favor aof reverter any possibility law,

eration off or transferred, cut been might have which settlor In 1920 the settlor death. the settlor’s by obliterated trust, of cer- Illinois, by an irrevocable transfer, made the trustees directions to with corporate securities tain the set- life of trust, during of the pay the income chil- any of such children, but, named tlor, to his three go to were to payments predeceased the settlor, dren stirpes. per or children child the children of such deceased of deceased child surviving ‍​​‌‌​​​​​​​‌‌​​‌​‌‌‌‌‌‌​‌‌‌​‌​​​​‌​​‌‌‌​​‌‌‌‌​​‌‍If no child there were other children go settlor, payments were stirpes. Simi- per their descendants of the settlor and to death, trust fund larly, the settlor’s among were to be divided accumulated income thereon provided, with obvi- three children. It the settlor’s was had care, that, if settlor’s children ous surviving, then died, leaving any time child or children child of the the child or children such deceased settlor fund to was or were to receive the of the trust share Fur- or entitled. parent which its their would been have if with- thermore, any of the settlor’s three children died any out child leaving surviving, or children then the share go remaining of such child was to to the settlor’s deceased children and to the descendants of deceased child per stirpеs. express provision the settlor No further was disposition corpus made for of the income or of event, example, the trust that none of the settlor’s three children no descendants such chil- dren survived the settlor. The instrument contained no further intimation of intent thought or even on part of in any might the settlor that manner there arise in favor estate, any of the settlor or of his beneficial interest, to, or or right possession control over the enjoyment corpus of the income or of the trust. gift

The in contemplation was not made of death. At that a prescribing gift date there was no law federal applicable

tax to it. The trustees named trust person were the himself and settlor one other whose rela- tionship, any, if appear to the settlor does not powers record. Both were residents of Illinois. Their management commonly comparable were those a granted to trust consisting trustees handle estate of such as were originally securities transferred here. The power appointment trust mentioned no and no power alter, amend, revoke terminate trust. trust, At age the creation of the was settlor 47 and a only were, he was widower. His three children respectively, 22, years about 15 and 12 old. He then had no grandchildren. In died, when he he was were, his children respectively, 43, 36 and 33. He then had grandchildren, aged, three respectively, ten, four and two. Throughout his life income was distributed to and for the benefit of his three children his death the entire fund was equally distributed among them. Possibility aof Reverter to the Settlor.

In addition to his broader claims discussеd under the first and second proposals, the Commissioner pre- has a sented narrow claim. This is claim if, by opera- tion of law, there arises from the reversionary interest in the settlor or in his estate, or there exists even gossamer thread aof possibility of a reverter to the settlor or to estate, his and if such “string interest, or tie” were, by the terms of the trust, to be transferred, cut off or obliterated by death, then, under existing precedents, the entire trust property should be included in the gross estate of the settlor for federal estate tax purposes. There is no issue made here as to the amount of the tax if any is due. The petitioners’ claim simply is that no estate tax is applicable to the trust fund. Proposal.

III. The ThiRD LAW THE OF A REVERTER. ILLINOIS PRECLUDES POSSIBILITY On be inquiry this branch of the case the first must appli- the law of as its Illinois and the second this A law cation to trust. determination of the Illinois application and of its would adversely taxpayers to the by be conclusive the rule against them, unless relieved of de minimis under finding proposal, by the fourth favorable to them of the settlor’s on issue factual hand, fifth On other proposal. intent under the taxpayers upon prin- either the finding favorable ciple application dispose or the of Illinois would of the law very of this case their favor. This conclusiveness proposal weighty the state law under this is considera- interpretation pre- statute tion favor complete A by proposal. policy sented the fifth federal dependence upon application state laws for the fairly Congress nationwide tax cannot be attributed expressiоn policy of such a than without a much clearer admin- appears (c). difficulty The inherent as be- inequality istration and the of taxation resulting governed by tween the laws different instruments strongly policy. states such a argue against Court, practice, places This as a settled much reliance by Appeals announcements Courts of as to the respective within Circuits.7 law of the states their are entitled will weight to which such announcements they under are made. vary with the circumstances which In an the Court this case we have announcement on the law of Illinois Appeals for the Seventh Circuit remainders contained in contingent as to the effect of MacGregor 163-164; v. Helvering Stuart, 317 U. S. See Co., State Mutual 315 U. S. 280.

a pointing that, trust and out Illinois, under the law of they create reversionary interests in the settlor. Our difficulty here is not with the law thus as stated but application with the made of it this case. The trouble is that this case contains not contingent remainders but remainders, vested and it is that, clear under law of Illinois, no reversions, reversionary inter- ests, resulting “possibilities trusts or of a reverter” of by operation kind can arise of law from a vested remainder. This is due to the essential difference be- tween contingent remainder and a vested remainder. If the law of Illinois is situation, to control the there is escape no from the determination of this clear-cut issue under the law of that State.

The failure of a precedent condition upon which contingent depends remainder under a trust results nat- urally enough a reversion undisposed-of beneficial interest to the settlor of the trust. On thе other hand, the failure aof condition subsequent attached to a vested remainder under a equally trust results naturally only in a failure of the divestiture contemplated by the condi- The tion. effect of such a failure of a condition subse- quent attached to vested remainder is not a reversion of an undisposed-of beneficial interest to the settlor of the trust. merely It relieves the holder of the vested re- mainder and his legatees and next of kin from possi- bility of the divestiture to which the remainder originally had subjected. been Appeals Court of in the instant case has made

no announcement of Illinois law contrary just to that In fact, stated. it made no announcement whatever on the subject of vested remainders because it treated the Spiegel remainders as contingent.8 The foregoing ele-

8"Applying this case, law to the instant we think it follows that the interests under this trust did not vest the execution of the mental the legal contingent statement effect of re- subject mainders and of remainders vested to conditions subsequent accepted conforms law generally trusts9 and to law of Illinois.10

This us brings near to the decisive whether' question the remainder interests written into the trust Spiegel contingent sug- were or vested. The has Commissioner gested that it makes little substantial difference whether a condition is precedent a condition or a sub- condition as sequent, long as it is a condition. many That is so for purposes where, here, tax, by but hypothesis, can trust, by taxpayer, only upon as contended and could vest happening precedent, namely, of the condition that the beneficiaries settlor, some them survive the and this was the 'event which brought larger being into estate for the’ beneficiaries.” Com Spiegel’s Estate, 257, v. 2d missioner 159 F. 259. 9 property given “Where beneficiary is in trust for one for life beneficiary and to remainder, another in and before the termination beneficiary the latter dies intestate and without heirs kin, or next of passes state, it would seem that his interest to the resulting that a trust will not arise in favor of the settlor or his case, interest, subject estate. In such a since the entire beneficial preceding beneficiary, life estate the other vested in the beneficiary absolutely entitled in remainder at the time the cre trust, ation of the it would seem that the trust does not fail on his death, give resulting trust, passes so as to rise to a but his interest hand, to the state as ultimus haeres. On the other the beneficial gift contingent, contingency occur, resulting over is and the does not will arise favor of the settlor or his estate.” 3 Scott On (1939). Trusts, §411.5 that, The Illinois cases establish the rule when a vested estate created, been the divestment of remainder has that estate beneficiary place only compli favor of some other can take literal by divesting Hen ance with the conditions set forth the settlor. Harness, 302, derson v. 176 Ill. 52 N. E. 68. See Illinois Land Co. McFarland, 208, 217, Bonner, 315; 75 Ill. McFarland v. 177 Ill. 281, 284; Kane, 52 N. E. Continental Illinois Nat. Bank v. 308 Ill. App. 110, also, 2d Ill. L. Rev. 564. This 31 N. E. 351. See by operation of law. does not leave room for reversion to the settlor arise possibility of a reverter can only attach if some death, his it is ines- in favor of the settlor before then opera- not, by whether or capably necessary to determinе reverter possibility such a of a Illinois, tion of the law say in such a situation arise under this trust. To can difference conveyance makes no language that the expressly possibility is is not beg question. spelled existence, Its like the existence out denied. trust, depend must other beneficial interest art upon by Illinois law to the words of given the effect problem is conveyance. analysis in the In the last settlor intended to determine whether or not the enjoyment prop- of his language possession that the express him failure erty were to return to dispositions interests in it. If the of the beneficial settlor in detail he have express had wished to himself could only customary he used Here, however, done so. and it remains to see what language conveyancing gives language. effect the Illinois law to that Gehlbach, helpful Lachenmyer In the v. 266 light of trust 11, 202, Spiegel Ill. 107 E. the remainders in N. remainders, carrying are shown to vested conditions be Stombaugh Morey, 392, v. Ill. subsequent. also, See 388 Westhoff, 545; Murphy 136, 58 N. E. 2d v. 386 Ill. 53 Dans, 2d 931; 482, N. E. 2d Danz v. 373 Ill. 26 N. E. 368; Smith N. E. 2d 872; Shepard, 491, v. 370 19 Ill. Howser, 328, 257; Boye Hoblit v. 338 Ill. 170 N. E. v. Clemons, Boye, 508, 382; N. v. 300 Ill. 133 E. McBride Klaholt, 383; 294 Hickox v. 251, Ill. 128 E. 291 Ill. N. Crowe, v. 544, 166; 244, 126 N. E. Welch 278 Ill. 115 Braden, N. E. v. Ill. 29, 859. Cf. Freudenstein 397 72 2d has N. E. 832. No distinction been drawn Illinois cases between interests created by inter vivos by testamentary deeds like interests created docu Dugger, ments. See Smith v. 310 Ill. 142 624, 625, N. E. 243, Supreme where relied 244, the Illinois Court Gehlbach, Lachenmyer supra, v. an inter construing Matthews, also, 548, vivos deed. See Harder v. 309 Ill. 141 N. E. 442.11 necessarily The basis of distinction rests with the form of the employed.

statement A classic definition of the distinction between contingent Gray, Against and vested remainders is that in The Rule Perpetuities, 108, quoted Lachenmyer Gеhlbach, follows in 11, 18-19, Ill. 107 N. E. 205: generally regarded

“A test which is as sufficient to determine the question generally adopted and which has been is stated as follows: incorporated description 'If the conditional element is into the gift to the remainder-man then the remainder into is con- tingent, if, giving interest, but after words a vested a clause is added divesting Thus, it the is on A for remainder vested. a devise to life, children, if remainder to his but child dies the lifetime go survive, Aof his share to to those the share of each child who vested, subject is divested its on devise to be death. But life, him, A for remainder to such of his children as survive ” contingent.’ remainder is language Spiegel Lachenmyer closely The in the and the trusts is comparable. gift In each case the to children of the settlor is a gift. Spiegel vested In the trust the children’s vested interest was a primary (subject subsequent) interest to conditions in the Lach- enmyer following the children’s interest was a vested remainder (and subject a life interest in favor of the testator’s wife in turn language making subsequent). to conditions In both cases the gifts comparable over is the form of a divestiture — example quoted classic above “but child dies in the lifetime (Italics go survive, supplied.) A his share to those who . .” . . trust, provision Spiegel supplied, material italics is as follows: Upon my death, Trustees, them,

“3. the said and the survivor of any Trustee, fund, any successor shall divide said trust and ac- Trustees, equally cumulated income thereon then the hands of said among my (3) children, any my said three and said children if of died, leaving any shall surviving, have child or children then the child or children of such deceased child of mine shall receive the share оf parent said trust entitled, fund to which its or their would have been Illinois, of law of by operation reasons, For these of a reverter to settlor possibility no existed there here it. estate tax cannot attach to the federal and, therefore, upon the law Commissioner relies extent that the To the possibility in this case the of of Illinois to establish operation law, Illinois settlor, by of the reverter to the petard.” with his own he has been “hoist Possibility Proposal That a Assumes IY. The Fourth That the Factual Intent Exists and of Reverter May Disregarded. Be Settlor foregoing if conclu- proposal only is reached This law Illinois are It is the disregarded. sions as to the of opinion of Court. If it is adopted solution possibility of in favor of the assumed that reverter may Illinois, settlor be said to have arisen law of under the (S) any my said three children shall have died without of child or children him or her leaving any surviving, then the share to which such deceased child of mine would have been entitled shall my go remaining children, any and the descendants deceased per stirpes per capita.” child mine and not corresponding provision Lachenmyer trust, of italics supplied, is as follows: my property

“Third —After the death of said wife all of said go my estate children, above mentioned and described to share and alike, any my die, share and shall children then the children of child, such surviving deceased should children be such deceased child, to parent deceased; take the share so and should my leaving issue, children die no then the share such deceased equally among child shall be my surviving divided children.” Lach enmyer Gehlbach, supra, v. p. at 13.

Contrasting provisions, specifically recognized by the court below examples contingent trust, remainders in an inter vivos are found in States, 231, Klein v. United 283 U. S. 232-233. The court Peavey, below also 430, cited Haward v. 503, 128 Ill. 21 N. E. Baley Strahan, 213, involving Ill. 145 N. E. wills and recognizing contingent character of the remainders in the Klein case. existing precedents,

then under we look no the further, applicable federal tax would and a estate be here decision is called for against taxpayers. proposal the fifth The presents the view that requires the statute us to look fur- ther and to the upon determine issue reliance factual intent of the However, settlor. even without a going that far, substantial can case made in favor be taxpayers even under this fourth proposal. That upon case is based the extreme possibil- remoteness ity of reverter which is relied by the Commissioner. The remoteness of it is from obvious the fact that, even at the time of the execution of the trust when the chances of its realization were at their highest point, possible reverter to the settlor was only conceivable if all three of children the settlor were die he did and before were to die without descendants of their own. Disregard- ing possibility of descendants of his children, the rec- ord shows an actuarial computation of the likelihood that the settlor would survive all three of his children only about chances out of 100. On the basis of such a 1% chance of realization, computation gave value of $4,000 about ato corpus $1,000,000. To tax the settlor’s estate more than $450,000, prоposed, as is here because $4,000 possible existence of this worth of a reverter is not the kind of taxation readily that court can imagine that Congress impose. meant proportion A of iy2 to 100 suggests appropriate application here of the maxim of de minimis non curat The difficulty lex. applying test as exemption is, the sole basis of however, obvious. hand, On the other this element of re- provides moteness reasonable consideration thoroughly may which be combined with other evidence to determine presence or absence of the factual part intent on the settlor which is discussed the fifth and final proposal. Proposal. Fifth

V. REQUIRED TO MAKE THE THE INTENT OF SETTLOR STATUTORY AND A TAX ABSENT CONTRARY THE ESTATE APPLICABLE IS INTENT IS PRESENT. that, at undisputed

The evidence shows the time an by trust, transfer there was absence of conscious intent part property, on the of the settlor that part it,of should ever return to him or to his estate. In fact, strong there is evidence that he showing intended affirmatively to a complete make and irrevocable transfer which would all a possibility exclude to him. reverter The trust a complete recited as any outright transfer as gift deed of would have recited if made to his directly children, except for the natural that, at their feature age, immature the transfer was made trustees and these trustees required by were the irrevocable terms the trust to complete deliver title to children, the settlor's or to their descendants, at a future date. The settlor’s intent and completeness of the transfer would have been no more complete if, instead of fixing the date the future distribution of the property trust at the date of his own death, he had fixed it arbitrarily at December 19, 1940, proved which later to be the date of his death. The intent completeness transfer, similarly, would have been no complete more had he fixed the date of termination of the trust to coincide with the death of a third person instead of with his own death. Finding Requires The Statute the Settlor’s Intent.

Section -811 (c) requires us to find the settlor’s intent as a condition of application of that Section to this case. Accordingly, if the settlor had used language in his trust instrument which expressly, or even impliedly, had created or recognized a possible reverter in favor of the settlor, language itself would have been evidence that the had settlor intended the reverter include favor his and that property, intended the trust he had in the event of realization reverter, pass of that from him estate, to his under the 1920 trust, upon expira- tion of that trust at his death. is,

It however, complete language absence of such in the trust instrument that the Government now claims possible that a by operation reverter has arisen of law. a reverter, accordingly, may may existence such not have been intended in fact, may not been have thought even about say the settlor. To that the set- tlor must- have all legal consequences intended acts begs question. construed, So the Section would meaning have the same as if the word “intended” had been omitted. given normal,

“Intended” should be its factual mean- ing. To intend in a design means to “have or mind purpose.”12 question fact, of intent is diffi- one determine, cult to determinable, but nevertheless. Sec- (c) tion 811 merely determining involves more than a whether transfer a effect, law, took as matter of at or after death or whether a “string tie,” a or as matter of law, until for was retained death. remains deter- There mination actually the fact whether the settlor did intend the 1920 in possession enjoy- transfer effect or take ment expiration trust at his death. “in

Section 811 (c) expressly transfers either covers contemplation in possession intended take or effect enjoyment at or after . . . death.” (Italics supplied.) ‍​​‌‌​​​​​​​‌‌​​‌​‌‌‌‌‌‌​‌‌‌​‌​​​​‌​​‌‌‌​​‌‌‌‌​​‌‍We have held that the settlor-decedent’s motive must be determined before it can be held that a transfer Wells, United States v. contemplation was in death. trust, 283 U. S. 102. That case included a transfer 12 (1938). Webster’s New Dictionary, International 2d ed.

730 made in vivos, held not have been which was

inter in- Similarly, factual “contemplation of . . . death.” whether a in order to determine tent should be found or en- possession to take transfer was effect “intended v. death.” In United States at or after . . . joyment Wells, Court, for the said Hughes, speaking Chief Justice 116-117): (pp. within brings quality which the transfer

“The manifest pur- the context and statute is indicated contemplation in- pose. of death are Transfers purpose for the category, within the same cluded effect at or taxation, with transfers intended to take The dominant after the death of the transferor. testamentary purpose to reach dis- is substitutes positions prevent and thus to the evasion the es- may tate tax. transfer otherwise have ... As the vivos, gift the differ- all the indicia of a valid inter entiating must be found in the transferor’s factor motive.” “contemplation

In cases of . . . death” un- involving (c) motive required impelling der transfer “is § (Italics supplied.) question each case.” See of fact Georgia, also, Allen Trust Co. S. 636. So U. (c), whether “the question each case under transfer, by has made decedent at time trust or otherwise, possession . . intended to take . effect death, at his be one of enjoyment or after . . .” should fact. intent

In determining the issue to the settlor’s vivos, present case, making transfer, inter his 1920 persuasive: are following material and considerations no Language 1. trust instrument. —There was even af- language expressed which or this instrument an a transfer to take firmatively implied intent make possession enjoyment or at or the death of effect after praesenti. the settlor rather than in If the instru- trust im- express affirmatively ment had contained such an plied declaration of it intent, might the settlor’s have been descrip- conclusive of the If there had been even a issue. of, to, possible settlor, tion a reverter reference strong that would have been evidence of the intent required by (c). descrip- The absence of such tion or intent reference was consistent with a lack of that there be such a It evidence negative reverter. was to the effect that such a was intended and reverter not by not desired the settlor.

In an instrument of kind it natural for this the set- is tlor to give expression affirmative to each beneficial use to which he intends property put. or desires the trust to be It cannot be argued effectively this case that the com- a plete subject silence instrument on the possible property of the trust or to reverter the settlor expression his estate amounted to an of intent by opera- that a permitted settlor such reverter be to arise fact, tion of law. As matter of extrinsic evidence presented in opposite this case tended to establish an intent and desire. present improbability

In the case, overwhelming complete complete failure of beneficiaries was so that it supplied provisions a natural reason for further omitting property. for distribution of the trust The likelihood that 47-year-old settlor would outlive his three children also,his was prospective grandchildren obviously small. pre- out, As it turned none of the settlor’s three children him, property deceased the distribution of was made to them without reaching grandchildren. they presented The facts of this case as existed in 1920 quite problem to the settlor a different from that which presented if, would have been at he had named time, only beneficiary person as the of the trust a with a life expectancy obviously shorter than his own. simple a instrument evidences alone, the

Standing in Beinecke comparable to that praesenti, in transfer Co., the in- language of supra. v. Northern Trust itself, require in therefore, certainly not, did strument, in in- transferred, 1920, to be which property the was for federal gross in the settlor’s estate cluded, itself, language If the purposes. anything, tax estate in the law as stated above of Illinois light read the by the regarded proposal of the third discussion counsel, is legal of his light in the advice settlor aof possibility an be no expressive of intent that there an absolute and com- and of an intent tо make reverter, in praesenti. trustees plete transfer remote- possible reverter. —The 2. Remoteness of a reverter possible suggested ness of the realization of express provision from of a trust or (whether arising establishing operation law) important is an factor probable make, intent of the settlor of enjoy- thereby, possession a transfer to take effect If ment at or after his death. the 1920 trust instrument beneficiary person having had named as its sole a com- paratively expectancy, assuming life rever- short then, law, pos- sion favor of the settlor under Illinois sibility of its would have occurrence been substantial. It would if great that, have been so the settlor had ex- pressly mentioned such a reversion instru- ment, substantially mention of it have dem- would onstrated required by (c). the existence the intent §811 express Even the settlor had made no mention such a reversion and thus had wholly left its effectiveness operation law Illinois, the circumstances themselves, including high probability of the realiza- tion of reversion, would supplied important have evi- dence which to base finding required intent part on the settlor. However, with the inclusion trust, the beneficiary of the youthful of additional each to estab- intended settlor that the for a conclusion basis postpone and to or to his estate a to himself reversion lish prop- of the enjoyment possession the transfer of the death was weakened. until at after his erty to evidence, reduced undisputed Court, upon Tax The by the presented possibility basis a mathematical were computations in reverter this case. suggested table and mortality upon based a been stated to have Treasury Regu- in prescribed interest an rate of assumed The com- estate taxes. to federal applicable lations as upon based to have been were stated putations also correspond- and of beneficiaries of a settlor ages assumed this facts of in the with those stated substantially ing probability that computations showed case. The survive would age of this settlor person that a of the bene- primary ages of the respective of the persons three of date of the creation at the living who were ficiaries out chances 0.01612, or about only was this trust 1% of person, right of Similarly, the value of 100. death $1 to receive on the 1920, age of the settlor primary of the persons ages of three the last $0.00390. beneficiaries was would thus computation favorable 1920,

In the most upon the settlor’s $4,000 a value of less than placed have relating $1,000,000 to a suggested in the reverter interest into con- computations do not fund. These take trust many possibility grand- that additional sideration the as qualify in time to might children have been born trust, and further reduce beneficiaries of this thus grandchildren In fact, three such possibility reverter. value to qualify reducing to were born time —thus on a reverter, settlor, suggested of the $70 $1,000,000 $70. to about The relation fund, would be de minimis and cer- $1,000,000 to ordinarily permit Congress which would induce tainly not one because of its $450,000 the assessment of a tax of over existence. possible

This demonstration the remoteness at least show- reverter, any, persuasive this case is settlor, establishing ing the fact have been than trust, probably nothing this intended it to be other a completed gift to those of children or their descend- might ants who survive him.

In 1920 the gift, such, gift tax-free. Such a was today subject a gift would be tax. The assessment tax gift emphasizes impro- such transaction priety, propriety, rather than the of an applying also to it estate tax at the death of settlor. 1920 the the In char- acter of gift the was the today same as it would be and the fact it not subject gift was to a tax then does any not make it subject more to the estate tax than if a gift tax had paid upon been it.

3. Direct evidence the intent the settlor. —Sub- of of stantial evidence confirmed the absence of the factual intent necessary in order to make (c) applicable. 811§ There was no direct indicating evidence the of existence an actual intent on part of the settlor provide to for a reverter to himself or to his or, any estate other man- ner, to cause his 1920 transfer to trustees the benefit of his descendants to in possession take effect enjoy- ment at or after his death.

On hand, the other there undisputed was evidence indi- cating the absence of such an intent. In fact, it indicated probable existence of a contrary Illi- intent. nois who attorney drew the trust that, instrument testified prior to drafting of the instrument, the settlor had stated that he desired and intended the property trust to be transferred to trustees for the of benefit his children and that he wanted at no time to retain any in it. interest The attorney added that, in drafting trust, had he and his client out the instructions сarry endeavored a mem- attorney That is that he believed he had done so. of the settlor- representing ber of firm the estate estate attorneys for the in the case. As decedent instant law of under the they argue that, decedent, they advised they it and as Illinois, as understood possibility has not arisen their client there operation to the under this reverter settlor opinion by the receipt of that otherwise. The law or instrument executing time of settlor at then that the settlor contention supports petitioners’ purpose his into Illinois trust intended to translate this subject of the complete transfer make an absolute pro- irrevocable thereby to make trust, matter future distribution. vision for its convincing evidence

In view of the uncontroverted part of on the factual intent of the such absence within 1920 transfer bring required settlor is judgment and in view of the (c), of 811§ the terms executors, in favor of the settlor-decedent’s Tax Court for a to that court remand the case is no need to there support judgment. of its finding further discussion foregoing in the reasons stated For the in the the reasons stated also for proposal, and the fifth no effect that proposal third discussion of the by of the settlor in favor a reverter arose possibility of judg- that Illinois, I believe law of operation of the be Appeals should of States Court the United ment of reversed. dissent. Burton’s

Appendixes to MR. Justice Appendix I. Spiegel subject decision of the which is the

The trust instrument Commissioner, ante, p. is as follows: Spiegel, Sidney I, M. Presents, By All Men These “Know Illinois, in of State Chicago, County of Cook and City of thе of ($1.00) good valuable of Dollar and other and consideration One delivered, sold, transferred, assigned, considerations, set over and have sell, transfer, assign, deliver by presents set over and and these do Sidney Spiegel, the survivor of Spiegel to and M. and Modie J. (625) twenty-five them, Trustees, shares as six hundred Furnishing Company and seven capital Spiegel’s of House stock May fifty (750) capital Spiegel Stern shares of the stock hundred purposes, Trust, nevertheless, following Company, In for the uses and following and terms and conditions:— any Trustees, them, the survivor of or successor “1: The said and complete power hold, manage trustee, full, to shall have absolute and sell, exchange, every part thereof; said shares and and control same, any part thereof, dispose of or and transfer or otherwise any or proceeds derived from such sale to invest and reinvest the during shares, any part thereof, sales, disposition of said or or other stock, any or of this trust. While said shares continuance by Trustees, therefor, held said or the survivor substitutes are any Trustee, any corporation or them, or if whose stock successor require any held said Trustees should action other securities are any any taken, Trustees, kind be said and the survivor and trustee, right any shall have the same to take action which successor any any may required of stockholder or holder of securities of be any Trustees, any corporation if said and such and survivor or said in their own individual successor held such shares securities names and were the sole owners thereof. any Trustees, them, successor

“2: Thе and the survivor of and trustee, therefrom, receive all income derived shall collect and during myself, any therefor, from substitutes and shall the life (3) Sidney Spiegel, equal said M. divide said net income into three parts, pay parts or for the and or use one of said of said income to maintenance, my (3) children, support education of three Kath- Spiegel, Sidney Spiegel, Spiegel, erine J. M. Jr. and Julia K. —such year. income to be convenient intervals each In the distributed at any (3) my my prior three shall die event that said children death, then the share of such income to which such deceased one of (3) go said three children would have been entitled shall mine, equal parts, child or children of such deceased child of any be no such child or children of such deceased child there mine, equally among then such shall be divided the survivors income (3) mine, descendants, per stirpes of said three children of and their capita. per and not them, death, Trustees, Upon my said survivor of

“3: and the fund, Trustee, successor shall divide said trust accu- Trustees, equally mulated income thereon then in the hands of said (3) among my children, any my if said three and of said children died, leaving any surviving, shall have child or children then the child or children of such deceased child of mine shall receive the parent of share said trust fund to which its or their would have entitled, my (3) any been of shall have said three children leaving any surviving, died without child or children him or her of have then the share to which such deceased child mine would go my remaining children, been entitled shall and the descendants any per stirpes per capita. of of deceased child mine and not during any in-

“4: If the continuance of this trust there shall be principal by of the declaration crease of said trust estate reason any in- of stock dividends or other increases or emoluments all such part shall be creases shall be and remain a of said trust estate and by held said Trustees terms and conditions as are same herein set forth. death, refusal, inability, any In of or failure for

“5: the event during any continu- reason to act of both said Trustees at time trust, Chicago Company ance of this then The Title & Trust shall Trustee, rights, powers, with the same duties become the successor Trustees, obligations imposed upon as are herein vested thereof, and the survivor hereinbefore named. estate shall at time

“6: None the beneficiaries may permitted anticipate payments of them be to which any order, assignment by or otherwise. be entitled ‍​​‌‌​​​​​​​‌‌​​‌​‌‌‌‌‌‌​‌‌‌​‌​​​​‌​​‌‌‌​​‌‌‌‌​​‌‍hereunder seal, my at “In I have hereunto set hand and Witness Whereof Chicago, Illinois, day January, 1920. as of the 2nd (Seal)

Sidney Spiegel. M. agree to hereby accept shares of stock and “We above-named above-mentioned, 2nd subject as of the hold the same to the terms day January, 1920. (Seal) Spiegel. Modie J. (Seal)” Spiegel.

Sidney M. Appendix II. 4477, which Company instrument No. Trust

The Northern Trust in Reinecke v. Northern trusts” considered is one of the “five (italics supplied): Co., is as follows 278 U. S. year March, of our indenture, day in the this first

“This made (A. 1919), D. nineteen nine hundred and Lord one thousand county Chicago, Bartlett, city of Adolphus C. and between part, and Illinois, party of the first Cook, and State Company (hereinafter ‘trustee’), the Northern Trust termed the Chicago, corporation organized doing of and business under the Illinois, party part, laws of the of the second State witnesseth: First

“Article being establishing party part, first desirous of “That the. mentioned, creating purposes for and the trust hereinafter and upon forth, premises terms set of the and consideration by influenced love and affection for the beneficiaries hereinafter transfer, named, hereby sell, assign, set over unto the does and securities, following to trustee the wit: 1,000 Company. of the Trust shares stock the Northern Company. of the Commonwealth Edison 784 shares stock Company. of the stock of the Illinois Central Railroad 300 shares Chicago 300 shares of the common stock of the & Northwestern Company. Railroad preferred Chicago shares of the stock of the & Northwestern Company.

Railroad Company. of the stock of the Pullman 100 shares Company, $1,000 5 bonds of Armour for each. & Company, $1,000 of Morris each. 15 bonds & following-described by mortgage notes secured on real “Also the Phoenix, estate in Arizona: Amount

Maker: 5,000.00 Rollin Howard. S. 5,000.00 S. Dorman. W. 22,500.00 Edgar Faucett. O. 5,000.00 Elisha T. Waters. 40,000.00 Roy S. Goodrich. 7,000.00 Wilson W. Dobson. 20,000.00 Company. Redwell Music 25,000.00 Pauline M. O’Neil. 5,000.00 Pauline M. O’Neil. pursuance indenture. disposed of this to be held and of under and “Article Second authority any time, power and shall have and at “The trustee from time to time— upon paid

“(1) dividends declared and To receive and collect all agreement, any subject of this any time to the terms shares of stock at bonds, moneys, obligations any and the interest all and at hereunder, by time held it all rents and also other income which payable shall or become aсcrue due and on or from trust estate hereunder.

“(2) sell, transfer, assign, convey any stocks, To all bonds, obligations, securities, estate, property real or other held at by instrument, said trustee time under this invest and proceeds personal property, reinvest the thereof in either real or including dividend-paying however, corporations; provided, stocks during party part said said trustee shall life of first governed by any writing given he instructions or directions party regard sale, it part management, said of first any part estate, or investment the said trust said trustee and of of by any liability any responsibility shall be or action free from any pursuance it in or done under or such written direction of trustee, any purchaser In no event or instruction. shall from the any corporation dealing person trustee, required or with the be to authority any sale, power and ascertain the of the trustee to make hereunder, conveyance, any part or of of the trust held transfer estate every purchaser parties but to such and all other shall be entitled conveyance rely delivery transfer, assignment, upon the of or by any having in all of or all trust estate as been the trustee of said authorized, by any respects fully notice and shall not be affected contrary, application of the required or be to see to the purchase money. held

“(3) voting power upon all of stock To exercise the shares every election, by hereunder, power, and and to exercise the trustee every every évery demand, do discretion, give notice, and make bonds, respect аny stock or or other thing in of shares of act and hereunder, it by which obligations securities held the trustee and thereof; provided, might owner do if it were the absolute or could request party it shall upon the said however, that written first of executed, execute, duty or cause to be be the trustee to of entitling proxy, him person requests a persons named in such or any substitution) respect vote (with power in or them of of full men- proxy and request or in such written shares stock defined of any cor- any meeting meetings the stockholders tioned, or at of of request proxy. corporations specified in such and poration or any declared, and any stock dividends “(4) and all To receive any of by any corporation, may be made which other distribution part principal of the at time constitute of stock whose shares paid on or may estate, proceeds which be and also all of the trust respect any liquidation such shares stock on the of the com- pany issuing same, upon (whether voluntary or the sale or involuntary) assets, any part thereof, may of its or which be paid capital otherwise out of principal any or on account of the bond, stock, security; may join or other and its discretion any plan reorganization readjustment any corporation, or of any stock, bonds, obliga- whose shares of or other securities may part principal tions at time constitute a of the trust estate, accept by plan and the substituted securities in and said respect obligations by allotted to the securities and so held trustee.

“(5) To part еxecute leases of real estate which form shall any time, rental, terms, the said trust at at such such (not length exceeding (200) and for years) such of time two hundred may best; buildings, change, alter, as it deem to erect or to or make any existing buildings upon any may additions to real estate which part estate; form a of said trust and to do all other acts relation judgment to the said real estate which in the of said trustee shall proper advantageous management be needful or desirable to the thereof, protect productive; so as to the same and make the same every (cid:127)provided, however, that in case the said trustee shall observe governed by any requests and be instructions or relation thereto writing, signed by party. made an instrument in said first application

“Article Third —Distribution and of income “(1) joint During party part lives of the said of the first wife, Abby Bartlett, pay his H. the said trustee shall to the said Abby ($2,000.00) H. Bartlett the sum of two thousand dollars on day month, the last of each and the residue of said net income shall kept be accumulated the hands of the said trustee and invested prin- in the same manner as said trustee is authorized to invest the cipal of said trust. payments Abby

“The said to the said H. Bartlett are lieu monthly being existing payments now made her under an to agreements [sic], and not addition thereto.

“(2) party part, From and after the death of the said of the first ($2,000.00) payment of two in each month said thousand dollars Bartlett, Abby until she shall continue to be made to the said H. party’s shall either die or become entitled to a share of said first herewith; will, bearing estate otherwise than under his even dаte year paid the residue of said income shall in each be and net (4) party part, first said to the four children of said of the trustee viz, Heard, Clay Bartlett, Bartlett Frederic Maie Florence Dibell Bartlett, Perdue, them, and Eleanor Bartlett or the survivors of shares; however, in equal provided, event of that the death party part leaving of either of said children of said first issue surviving, surviving place such shall in the issue stand of such deceased child and the share of net income such receive said which being living; child would deceased have received it intention party payments wife, part Abbey said of the all his first to [sic] Bartlett, H. under this trust shall cease be at an end her becoming portion entitled share or of his estate otherwise will, herewith, subject bearing that, date than under even Abby payments hereinbefore directed made to said H. to be paid Bartlett, net said trust be income of estate shall (and party part children of said of the first the issue of deceased child) specified during in the shares the continuance of the above hereby created. principal Fourth —Distribution of of trust

“Article estate hereby expiration of shall “The trust created terminate at part (5) years party first unless from the death of the of the five Abby living be H. shall then be entitled the said Bartlett monthly payments of said trust estate out net income receive indenture, provisions case this trust shall of this in which under Abby Bartlett, and then of said shall continue until death H. terminate. created, expiration hereby of the trust

“Upon the termination paid shall be over estate then in the hands said trustee the trust as follows: and distributed (4) (%) four children “(a) thereof to each of the One-fourth viz, named, Bartlett part Maie party of the first hereinbefore of said Bartlett, Clay Bartlett, and Eleanor Heard, Florence Dibell Frederic Perdue; Bartlett living, (4) then shall not be “(b) four children If either said paid over (%) shall be of said trust estate her one-fourth his or surviving child of such deceased to the then issue and distributed issue, sur- surviving then to the of such per stirpes; and default part per stirpes. party of the first viving of said issue Concerning the trustee “Article Fifth — indenture, by this accepts hereby trustee created “The provisions. The with and agrees act in its terms to accordance fully protected in and shall be may counsel consult with trustee any taken, permitted by good action or nonaction or suffered it opinion faith and in accordance with the of counsel selected or provided by it; legal proceedings involving and in case of the trustee principal estate, may or the of the trust trustee defend such proceedings may, upon being by or advised such counsel that such necessary protection is action or advisable for the of the interests trustee, beneficiaries, any legal proceedings. of the or of the institute against any “The trustee shall be reimbursed and indemnified liability, loss, expense holding any all or because of the of shares of properties constituting part principal stock or other of the of the estate, nominee, trust either its own name or in the name of a upon principal shall have a lien of the trust estate and any liability, loss, expense income therefrom for the amount of or may by it, including expense defending which be so incurred of any proceeding against by action or instituted it or such nominee any holding. of reason such principal of

“Out the income of the of the estate trust the trustee pay taxes, assessments, governmental charges shall all or other which may required pay respect any it be to or to retain because or in of part principal of the of the trust estate or the income therefrom or therein, any beneficiary the interest of the trustee or the interest any person therein, present or other under or future law of the States, any State, county, taxing municipality, United or of or other authority therein, any taxes, assessments, and all or other such governmental charges lawfully being charged imposed upon as a lien income, deficiency the said and in case of of said income principal of the estate. payments

“All in this or distribution income to beneficiaries provided income, indenture for shall be made out of net current accumulated, or then in the hands of trustee. trustee, trust, may resign any

“The said successor in at writing by giving resignation party to time notice of such said first live, by giving writing while he shall notice in and after death resignation of such either one of the beneficiaries hereinbefore named. resignation acting hereunder, or “In case trustee disability incapacity trustee, party its act as the said further (5) part, living, majority and after his death a of the five first (4) named, viz,

beneficiaries hereinbefore the wife and four children them, party part, majority survivors of said of the first or a рower appoint shall have a successor in trust an instrument trustee, writing duly signed by said him or them and delivered to appointment in and of such successor trust the said trustee convey, assign, transfer, to such in trust shall and deliver successor thereupon hands, in all of estate then and and thereafter ‍​​‌‌​​​​​​​‌‌​​‌​‌‌‌‌‌‌​‌‌‌​‌​​​​‌​​‌‌‌​​‌‌‌‌​​‌‍its rights, duties, powers, in and such successor trust shall have all the granted imposed original authority on said trustee which are to or provisions under of this indenture. provisions

“Article Sixth —Miscellaneous “(1) grantor foregoing provide has created the trusts to Said to share support and maintenance entitled beneficiaries of estate, in the the said shall have income said and beneficiaries of power anticipate, assign, dispose no otherwise or encumber or of estate, and shall not respective their interests said trust the same subject process be to be taken them law. from of “(2) Any altered, may provisions this trust deed be of of any any any time changed, respect and to extent at or modified delivery part by during party said the life of first writing signed by party said to said trustee an instrument (5) by majority here- part five beneficiaries first by majority named, the survivors said five inbefore beneficiaries. them, through “(3) may beneficiaries, act or either delivered to attorney signing any and all instruments an fact signed though indenture, like effect as this with the trustee under may as such beneficiaries act person, or either of said do. attorney when authorized so to in fact instru- parties have executed this “In whereof the hereto witness day ment, seal, year first above written. under Bartlett,

Adolphus C. [seal.] Company, Trust The Northern By A. Smith, President. Solomon “Attest: Rockwell,

H. H. Secretary.”

Assistant

Case Details

Case Name: Estate of Spiegel v. Commissioner

Court Name: Supreme Court of the United States

Date Published: Jan 17, 1949

Citation: 335 U.S. 701

Docket Number: 3

Court Abbreviation: SCOTUS