Smith v. United States

of New Bank and the P. SMITH Warren York, the Last Under as Executors L. West- of Clara and Testament Will inghouse MILLER, Deceased,

UNITED STATES.

No. 357-54. Court of Claims. States

United

Jan. Kassel, City, Mason G. New York

plaintiff. Harry Lord, J. Rudick and Day Lord, City, & New York were on briefs. Frazer, Detroit,

David Mich., R. Atty. whom was Asst. Gen. H. Brian Hol- land, for the B. defendant. Elizabeth Washing- Sharpe, Davis and Andrew D. ton, C.,D. were the brief. JONES, Judge, Before Chief LITTLETON, WHITAKER, MADDEN LARAMORE, Judges. Judge. MADDEN, plaintiffs sue to recover $221,047.53. The amount of taxes presented whether the primary issue within In- of section Code 26 U.S.C. Revenue § ternal 811(c), the Technical amended 1949, 7(a, b), 63 Stat. Act § the Revenue Act as amended 26 U.S.C. 65 Stat. § note.

value April ment pus not be house was shown pletely less income agreement taxes July 19, 1929, amendments cretion, the decedent at decedent retained her house revoked, Westinghouse. vember income make the Avenue There will. ed as ecuted grantor and while H. Herman grantor executed those be summarized duly qualified as executors except Herman dent, (2) H. The The appropriate least such amount above January grantor return at included in the than with and termination provide Herman Clara concerning payable was a On October principal filed a Federal estate plaintiffs by facts have any revoked, trust irrevocable at Bank of were and while $40,000. terminated a trust trustees, Westinghouse, net $20,000, remainders provided L. time and her (1) her death in 1950. trustee, he, in his for a trustee, annual the trust and the trust Westinghouse agreement Westinghouse Miller, died return, $254,518.08. effect instrument grantor and no further the trust. as as terminated agreement New during during property, in the event The value of the minimum might provision should use estate of decedent H. Herman been paid follows: that or modified yield primary the trust could then York, as life estate over. The complete the life the tax due the trust could the life of stipulated income also any year was $1,163,572.73. became thereto. husband, H. the decedent necessary to $742,599.46, annual H. died in No- or modified time. writing under significant trust, and The issue such Westing- Westing- plaintiffs provided trustees, sole Herman through as sub- amend- revoca- Fifth trust dece- suit followed. pay- part cor- The dis- her ex- On all be fer in trust the trustee modify was a transfer made before tion and the quoted fer ject for death and that section application. (B) as January 1, 1951, apply to— for his life or for alone or in his death or for The fer ascertainable property, person, shall March the case of a decedent the decedent shall or the income therefrom wise— any or the cedent has at does not in fact end before his death including The The defendant concedes (1) (B) (i) amended, provides: ^{[*] [******]} ****** refund was with “(1) “The value “The “(i) “(B) under which he has retained shall to the estate within death of all plaintiffs contend pertinent * * * by possess clause power to March 4, 1931; not made ^[*] to a transfer reversionary interests, has no provisions * * * of such designate the value at the time in 1923 reservation in the decedent apply therein to the income any conjunction (ii) ^[*] without reference filed, rejected, and this part 1931.” revoke, enjoy tax. A * * time made a code shall any period section be of section To or with the trust in his sole discre- of which the of section any period *(cid:127) “a with the contemplation of 811(c) determined dying prior right, *.” persons transfer made that of the above- terminate or timely or * * with 811(c) from, extent of prior ^[*] the trans- * the trans- March (2), (cid:127) not, 811(e) other- either 811(c), trustee * * any not de- claim *. of, by deal- ^[*] to (1) language upon statutory the per March statute. On contend that history legislative curiam to the same three decisions made effect as issued phrase “transfer v. Heiner were indicate prior the the Burnet v. Northern Court. 1931” refers actually Co., 342, 782, 75 property was 283 U.S. 51 S.Ct. on which the date 1412; Burnet, regardless 283 U. transferred, whether L.Ed. Morsman v. 783, 343, 1412; Mc at S. 51 S.Ct. 75 L.Ed. or irrevocable was revocable Burnet, 784, 51 S.Ct. contend Cormick v. 283 U.S. also that time. 1949, Changes 343, L.Ed. 1413. The reaction of Con Act of 75 Technical gress vigorous. and On supra, recover because was immediate them to entitles Congress give day passed designed Joint relief the next a Act was that flatly Heiner, Resolution, saying May 1516, 46 v. Stat. on the those who relied 826, 286, property transferred, 238, L.Ed. that but with a life 50 S.Ct. 281 U.S. donor, reserved life estates. estate was taxable did not release their rule make to his estate. did not trans a defendant contends retroactive, amendment Su the preme 811(c) meaning of section fer within the it retro Court held that was not place became until the trust did not take past active “in irrevocable irrevocable, in 1933 when which was transfers with reservation of inter a life on The defendant relies died. trustee 303, Welch, est.” Hassett 307, v. by Burnet established rules 58 S.Ct. 82 L.Ed. 858. Guggenheim, 280, 53 S.Ct. v. 288 U.S. prop- What was then the status of the San and Estate of L.Ed. erty of the decedent in case? the instant S. v. 308 U.S. ford had, conveyed She it gift cases, 84 L.Ed. tax Ct. another, reserving her husband and points estate out that the estate, reserving herself a life pari materia and should be tax are in alone, husband herself, or to her husband and together. construed long trustee, so as he Congress, completely and termi- honor intended question, nate plaintiffs pose trust. Our as the expectations who had ar of those it, as we see legal rearrang ranged, or had refrained from ad- the decedent’s and tax up property affairs in reliance thought, visers would have and would placed upon interpretations certain her, have assured Supreme h¿ Court earlier statutes conveyed which she had in trust would States, particularly in the the United tax, free of estate because the Su- Heiner, May v. 281 U.S. decision preme May Court’s decision in Heiner. v. in 1930. seems to us unthinkable that It pertinent see becomes therefore legal petent or tax advisers would have decided in case. what any given such assurance. May Heiner, the Revenue Act The decision Section simple facts, Int.Rev.Aets, page came close to contra- own U.S.C.A. language dicting estate, required inclusion in one’s statute as purposes, was so of which read. dissatisfied then decision, simple toas had made a transfer “intended to take with the even he immediately it, involved in that it facts effect law, May But for the future. death.” In the amended Heiner after legal important in the mind of Supreme held that fact conveyed irrevocably, would have been adviser had or tax the decedent decided, Supreme had not had retained a inter- in which he but Heiner, May kind a trans- est, to his estate. This not taxable reserving estate, interpretation fer, would a life remove reversed decision taxing placed property from the transferor’s taxa- had authorities law, along then, only decided that went on the basis had It transfer, ble estate. fixing finally pre-1931 the of v. Heiner as to transac- irrevocable rights grantor- tions, present and on the Joint basis and future transactions, remaindermen, post-1931 would Resolution toas and the life-tenant accomplish decision Court’s that result. 1949 in of Internal Rev- Commissioner could, contended, ex- No have one Church, enue v. Estate of ample, 93 L.Ed. 288. In applied a case in which the case Court overruled and, addi- a life Heiner. That meant that even in simple tion, the entire to revoke an irre- case of a estate and life Supreme decided had action. The remainder, the vocable the law was that v. Northern in Reinecke subject tax. to the estate Co., 339, 49 persons meant had That who relied May L.Ed. 410. The rationale upon May approving the rights the the re- Heiner was that pre-1931 settlements, status of their irrevocably fixed maindermen had been rearrang- had therefore refrained from by transfer, had the the ing comply post- affairs to the their with powers ordinarily possessed none of the by disappointed 1931 expectations. law would be their an owner of the Congress pro- set about to In con- instant his death. the case the disap- they vide that should so not be veyance bywas no means irrevocable. It pointed, the and enacted section 7 of by completely revocable dece- the Changes which husband, dent’s who was one of trus- the provided (c) (1) (B) that subsection tees, by herself and her husband. section 811 of the Internal Revenue Code convey- remaindermen named apply of 1939 should not “a transfer by ance were no means certain made to March 1931.” That would ever come them under meant that the amendment had which conveyance. Supreme the held, Court had been embodied the Joint Resolution per opin- in one of the three curiam making an even irrevoca- May on ions issued March following ble remainder a life sub- gran- applicable Heiner was where the ject tax, apply should still not pow- had tor reserved a life estate and a pre-1931 transactions. er to revoke in with one of case, Congress plain In beneficiaries. the instant what it intended settlor, accomplish by husband who had the to section 7 of the Techni- revoke, only extremely Report cal ofAct 1949. In No. Committee, remote beneficial interest in trust. Senate Finance Cong. pp. appears 1st sess. the fol- which, then, have, a situation in We lowing language: dece- up the death time of only pre- joint 1933, the “In the resolution of March husband dent’s recovery requisite the decedent’s created a new es- disposition respect her further with tate rule to trans- obtaining pleased, was the after March 3. left fers It un- of it as she changed husband, had no rule effect for of her consent consequence before that date. It is the fers opinion adverse your caused him to have withhold committee which is no decision of old rule should There have been continued his consent. Court, or after in effect before to such trans- changed anyone legislation. by Heiner, have re- fers changed concluding by Since rule has been lied escape decedent would the Church opinion, your estate tax. committee believes decision. lief obvious. tions of had never before been ure, affairs in ous that the decision in pre-1931 1949. But cision your new which has terpretations titled to in some cases considerable From the these ^[*] ingly interpretation store the rendered Church case. 1931 had exempt “Some but the ^[*] proposed they prior to interpretation result intended to assure that committee persons who had years *» disappointment reliance Congress Section transactions from taxation rely upon the had from the time of the they persons relief which it quoted now v. Heiner in 1930 to that these amendment of the estate Congress not relied Estate upon 7 was a relief been Church tax law to meant application language is the might should persons presented exempt, overruled estates long property which after arranged did not Heiner, opinion. to restore opinion of gave have is accord- act to Church, tax status hardship standing it is are en- what is result. all expecta- after equally intend sur- meas- law re- obvi- de- re- of transfer from taxation. gift”. supra, place, not when the title the statute court pret court would be ocation tensive unintended held that a celled and surrendered the erty bly, arose after ance had been made before United atCl. does not turn with the the taxes cation that effected In Estate of Sanford v. subjected of the exercise of the There are fers.” “It was the exempt, occurred, said, page States, The 7 a word intent of * * * court 548: v. Heiner or 39 F.2d at word “transfer” conveyance adequate precedents imposing imposed “ though transfer, but ‘transfer obliged corpus freeing This court had for from the legislation in which when the Congress, grant which is consistent no one could conveyance the transfer thought a tax conveyance. page 753, rights if of the otherwise. hold such interpretation power question possibility in Means v. similar gift’ as used into an donor upon Ct.Cl. of revo- gifts immunity proper- convey- exempt of rev ” 69 Ct. possi- prop- “the took can- case giv The ex by made before the enactment of the stat- parties, there is In the briefs ute, power but it contained a of revoca- much discussion of power relinquished tion which not in section word “transfer” as used court, until after the enactment. The any urge plaintiffs it means The through Stone, Mr. Justice held that passes If transaction which title. contemplated by “transfer” the statute accomplish that, not what means it does occurred, passed, not when the title but did intended. when the title became irrevocable. every hold that transaction which not said, page 42, court 308 U.S. at passing title the effect out page 55: grantor accomplished an of es avoidance gift tax was enacted “When In Reinecke Northern tate taxes. essence was aware that the Co., supra, passage conveyance of con- transfer of a un had held 1929 that a the economic benefits over trol der had reserved which the than technical rather a life estate and a revocation * * * changes Since prevent its title. did the taxa in himself not relinquishment was the But as a trans- was taxed inter- would have us as the gift majority trust, opinion tax and not the fer retroactively ap- cases is ill-founded. not statute was plied.” First, pointed I believe it should be out the definition of contained supra, Guggenheim, In Burnet gift controlling or tax cases is not Justice opinion, Mr. delivered court’s similarly. even relevant to the consideration question Cardozo, treated the issue this case. The in- cases which fact that gift pari taxes are in materia in that happen to terpreted “transfer” word they closely gift related, are tax gift tax and not cases have been supplement serves the estate tax. prece- cases is irrelevant. What tax However, does not mean that a term prove “transfer” word dents is that meaning. used in both laws has the same language our words in like most other complete A transfer considered statute, will, bear when used purposes may consid- accomplishes rather terpretation which complete purposes, ered for estate tax Con- the intention than frustrates Shaughnessy, Smith v. gress. income prop conclude that the trust We purposes, Commissioner of Internal Rev- erty not relieved here in Estate, Cir., enue v. Beck’s taxes section 7 from estate 243, and the cases there cited. A suffi- We Act of 1949. example present purposes cient ais unnecessary consider therefore find it in trust alternative contention. the Government’s with a reservation of the plaintiffs’ petition designate persons dis- will be who shall possess enjoy property missed. It is so ordered. or or the in-

come therefrom. The reserved incomplete makes JONES, Judge, gift the transfer and WHITA- for Chief purposes tax proper- KER, Judge, but concur. nevertheless the ty is not included in the estate since prior Judge transfer (dissenting). was made to LARAMORE, March 1931. majori- agree with the I am unable play im- The word transfer does not as opinion majority opinion. portant a role in the tax law as estate primary plaintiffs’ con- ignores (1) the gift in the tax law. it does Under statutory use based tention statutory scheme of the tax law; estate sec- in tax transfer estate the word tions, emphasis placed rights, determining is on the approach of (2) the usual powers, in interests consequences date at death, at the date of his on dis- time rather than at the decedent’s positions contemplation made transfer, except transfers for death, dispositions intended take death; contemplation made effect in or at pow- only (3) effective fact that Property is after death. included in vested in the trustee to revoke er notwithstanding gross estate its actual long extinguished dece- and was legal is transfer someone else. This Further, to cite fails death. dent’s by express subsections, accomplished assuming authority that Con- subparagraphs. paragraphs Atten- meant, phrase gress when it used the present law, tion, under is directed 1931”, prior to March “transfer determining whether transfer must have been the transfer that provisions one of these falls within on March pletely irrevocable “completeness” of the trans- not on as a transfer than rather fer. ordinarily understood and is term statutory appears provi- use of rest of the estate tax in the used throughout transfer section also believe that the reliance the word I sions. designating Report, Rept. 1412, Cong., 1st H. from its use aside sess., Managers phrase in the and the such as its use Statement transfer Cong.Rec. controversy, part House, the on has reference here in majority (1949). it is can 14444-14446 actual transfer conveyance legisla- understood, support statute, (cid:127)ordinarily find no example history, legal tive or case law for its conclu- title. See (d) revoc- that is sion that a March which taxes a trust created 4, 1931, must in 4, able date of death. be irrevocable order to be a transfer I before March 1931. shaped whether thus is impose requirement no see need to such a Congress intended to use the word trans where has not fit do so. seen ordinary used in fer in its sense when It also be noted section 8 of as its to time of transfer such reference controversy, phrase use here note, supra, permitted U.S.C.A. 811 § 1931”, prior March “transfer made payment release without the of a intended to use of certain life estates inter and income completed irrevocable the sense of pri est retained subjected not have or to if June the release inclusion made in 1949 or 1950. This section also sec -estate under the revocable provided that inter of such release 811(d), predecessors the rule est, if made before would not be Co., 278 of Reinecke v. Northern Trust contemplation considered made 410, if apply death. This section did “if the the decedent had died on property transferred would been agree iden We grantor’s gross includible parts tical words in different of the same 811(d) [power under section of revoca statute, here the sub same section and tion section] of the Internal Revenue section, should be construed to mean the (1939) Code had he died on October thing, contrary legislative same unless proviso 1949.” This indicates Con clearly Helvering intent shown. See gress was aware trans fact Bank, v. Stockholms Enskilda 293 U.S. 1931, 4, may fer made March 84, 50, 211, 55 S.Ct. 79 L.Ed. and United been revocable. do? What did . Olympic Television, v. States Radio & say property It did not that the auto Inc., 733, 349 U.S. 75 99 S.Ct. matically gross included in be the estate 1024, amply support L.Ed. proposition. which cause the transfer was revocable 4, Rather, provided March if the transfer was still on Oc revocable history purpose legislative and of The power the of tober release the Changes Act of 1949 leads the Technical subject of revocation would ato the intended me believe tax templation con and be considered made in phrase con in the here in word transfer Thus, power of death. if the troversy the actual transfer to mean and was was released not released regardless of the the contemplation death, and no other at the time the transferor retained ground inclusion, proper existed congres Reference transfer. "the clearly be excluded from always to date was debates sional gross proviso This has mean no was transferred majority opinion, because date of creation and trust could be included in the interest retained at date and trust regardless of estate debate on amend the Senate See -death. power contemplation was released lan and clarification of bill ments death. Rept. 831, guage 81st used in S. sess.; Cong.Rec. Cong., 95 12990- I that the with- believe decedent falls purposes (1949). act, also the 12994 See Conference one of the of this 312 give enjoyment alia, relief control designed, session or inter was v. laid donor ground death. This taxpayers at his relied on to those Heiner, su- work for v. Heiner, supra, not release and did pra, question was decision. trust estates. life 302(d) in 1923. Section created Supreme v. Court decided 304, 253, 1924, Stat. Act 43 Revenue Heiner, supra, in 1930. that case In Int.Rev.Acts, page 67, for 26 U.S.C.A. property in trust settlor had provided that specifically the first time payable to was under which the income the settlor under which a transfer during upon his his and her husband life power or in alone either remain- for life with to herself decease alter, amend, re any person with was to her children. The der over being would result voke date and irrevocable at time pro gross estate. This included his reten- of death. The Court held Helver Cf. not retroactive. vision was contingent until the tion of a life estate Co., 296 ing City Farmers Trust Bank v. did not result in the date 62; Hel 70, 85, L.Ed. 56 80 S.Ct. U.S. corpus in her clusion of the 93, Helmholz, S. vering U.S. 56 v. Act of the Revenue under section 76; Poor, 296 68, White L.Ed. Ct. 1057, 1918, title 40 Stat. because 66, L.Ed. 80. S.Ct. U.S. fixed the trust deed decided Reinecke passed there- under that deed Co., supra, in 1929. v. Northern Trust pass fore did not In that case held the Court a her death. life under which the settlor a retained On power estate and an absolute revoke Curiam, opinions Per af- rendered three until date his death taxable firming May Heiner, supra. Two of posses- take effect as one intended to cases, Co., Burnet Northern Trust death, sion or at or after 75 L.Ed. 1921, 42 Revenue Burnet, 283 U.S. Morsman v. applied retroactively Stat. was not ir- involved S.Ct. incomplete

because where settlor retain- revocable trusts the settlor reserved the since sole an third ed immediate life estate. The death, revoke until aft- case, Burnet, McCormick passage er the act. also That case L.Ed. involved involved five other trusts wherein the trust where the settlor retained gave settlor estate to the bene- the date of his death immediate life ficiaries remainders over at or after conjunc- settlor’s death. In four of he the trusts of the with one beneficiaries. power conjunc- the to revoke in beneficiary 1931, Congress tion with the individual passed On March a each of the four trusts. In the fifth Resolution, Joint Stat. amend power trust he reserved to in revoke the Revenue Act conjunction majority with a 9, 70, ben- Stat. include in to “ * * * gross eficiaries. The Court held as to these a transfer un power five trusts that since the to re- der transferor has retained dependent any period ending voke was on the consent of his life or having ones (1) possession enjoy one or beneficial there- death or interest, of, proper fore adverse from, trusts had ment or the income * * passed his control were This *.” amendment was plete. only. prospective sess., Cong., Court stated that clause 3d possession enjoy- Cong.Rec. effect in (1931). “to take or The Su preme or after death” did ment at not include held that it was not retro property respect or past interest therein unless such “in active irrevocable passed pos- or interest from the with reservation transfers of a inter- life Welch, pus est.” Hassett v. in trust the instant case would gross 82 L.Ed. 858. have been included in decedent’s estate had she died on March Thus it is seen from the above-cited cases that at or about There is no indication in the Technical passage history a of the 1931 Joint Resolution Act of 1949 in- or to power subject to the absolute dicate that a intended to affix in the settlor to revoke considered an different word transfer incomplete pur- ordinary meaning. than its Had Con- poses. gress It is also seen that a transfer intended to restrict the relief subject power made before 1924 this act to irrevocable transfers conjunction beneficiary, prior with a to March I believe person having interest, they specifically an adverse would have done so complete pur- guide considered for estate tax furnished some as to how irrevoca- poses. In the instant trustee case the ble a transfer had to be. On con- power trary, who had the May revoke had a ben- reinstated although eficial interest it the trust Heiner rule with to trusts creat- Also, prior was remote. is, order to be taxable ed to March 1931. That dece- “possession enjoyment” dying possessed clause dents of a life estate pass had interest from decedent’s prior to March death, 1931, at his should not in- have the giving legal emphasis gross thus transfer of cluded in their estate unless the title before death. otherwise includible. At years date of decedent’s and for 17 power The trustee had the sole to re- time, only before that she had a life es- voke, revoke, power and the decedent’s corpus tate and the in- to have the terminate, modify provide vaded to a minimum income of trustee, superfluous. Hel- Cf. $40,000 year. This in- interest was vering Helmholz, supra. In Commis- corpus in sufficient include entire Irving sioner of Internal Revenue v. estate. Co., Cir., decided trustee, did not have seems to me that decedent interest, adverse reasonably had its have relied v. Heiner sole unrestricted discretion to return and did not be- release life estate corpus prior of trusts created cause of that decision. Since 1, 1931, to the death, pos- settlor. The re- only settlor the date of her she part served a life sessed a estate in come. The court held that 4,1931. ferred to March falls This governed by pre-1931 squarely law and that within the de- since the settlor majority could not enforce cision. The seems to find com- corpus return of was not fort in the fact the trust includible in his In Den- Heiner was irrevocable when created. Cir., niston v. This, course, F.2d is irrevelant. decided in completely could have been revocable ap- reserved a life estate important and a creation. fact is that pointment by pre-1931 will in a trust. was irrevocable at the time of decedent’s appointment was released as death was the trust instant pre-1931 in 1932. The court held the case. applicable law since the transfer in trust The defendant’s alternative contention under reserved her life $280,- to the inclusion of appointment estate and be- corpus 563.61 of fore March 1931. right because of the decedent’s to a min- yield Thus is it seen $40,000 there would be imum annual is without considerable doubt as to Smith, cor- D.C., Blakeslee merit. See 26

314 Cir., F.2d affirmed,

F.Supp. Routzahn, Cir., F.2d 364; Brown v. Hughes Beggs 914; of Eleanor Estate The value as 131. T.C. min to a her of decedent’s computed yield $40,000,

imum annual by tables, in use of actuarial Helver cluded ing Hallock, applied Bankers Cir., Higgins,

Trust Co. v. however, defendant, does

957. The value, any, if should

contend that gross in decedent’s be included recover.

I would allow the

LITTLETON, joins Judge, the fore-

going dissent. COMPANY,

ATEX MANUFACTURING Plaintiff, LONDON,” “Non-Marine

“LLOYD’S OF Lloyd’s London,” Underwriters Service, Inc., and Insurance Research Defendants. A.

Civ. No. 536. United States District Court Arkansas,

D.W. Texarkana Division.

Nov.

Case Details

Case Name: Smith v. United States

Court Name: United States Court of Claims

Date Published: Jan 31, 1956

Citation: 139 F. Supp. 305

Docket Number: 357-54

Court Abbreviation: Ct. Cl.