This is an appeal from a judgment in favor of the appellee in an action at law brought by the appellants to recover $94,-022.35 paid by them to the appellee under protest as estate taxes.
The facts, as to which there is virtually no dispute, are as follows:
William Evans Guy, on January 3, 1921, executed four separate written declarations of trust, one for each of his four children, who at that time had reached their majority. By each of the trust instruments he conveyed to himself, as trustee, certain securities of the par value of $72,000; the aggregate value of the securities at that time being $288,000. From time to time thereafter he made additions to these trusts, and at the time of his death on July 24, 1928, the total value of the trust property included in the four trusts was $994,195. This amount the Commissioner of Internal Revenue included as a part of the gross estate of the decedent, under Revenue Act of 1926, § 302 (26 U. S. C. § 1094 [26 USCA § 1094]), and.the appellants, his executors, after paying the additional estate tax which resulted, brought this action to recover it.
The four declarations of trust were identical, with the exception of the name of the beneficiary. The declaration of trust for Evelyn' S. Guy is typical of each of the trusts, and, so far as pertinent, is as follows :
“I, William Evans Guy, of the City of St. Louis, and State of Missouri, hereby declare, this third day of January, 1921, that I hold in trust for my daughter, Evelyn S. -Guy, the following property, to-wit:” (Here follows description of securities); “with the powers-and for the uses and purposes hereinafter set forth, as follows:
“1. I am to have the power at any time, and from time to time, to sell any of the *853 trust property or estate, for such price and prices as I may determine. Any money coming into my hands as the proceeds of any such sale or otherwise and forming a part of the principal of said trust estate shall as soon as practicable, be reinvested by me. In making such investments, I am to have full power to purchase any property, real or personal, which I may think desirable to acquire or hold as part of the said trust estate, and I am not to be restricted to the purchase of such property as is or-dinarilv deemed advisable for trust property. I am likewise to have the power to rent or lease any and all real estate which may be included in said trust property for terms of any duration, whether such terms shall extend to a time beyond the termination of this trust or not. I am likewise to have full power and authority in my discretion to borrow money and secure the sums so borrowed by pledge or mortgage of any and all portions of said trust estate and I may out of the corpus or income of said trust estate, or out of both such corpus and income repay the sums so borrowed. I am to have full authority to invest or reinvest any sums so borrowed; and to collect and receive the rents, income and profits arising from the trust estate therein created. It being my intention to retain as trustee (italics ours) such rights, power and authority in respect to the management, control and disposition of said trust estate for the use and benefit of the beneficiary, as I have with respect to property absolutely owned by me.
“2. Out of the income and revenue accruing from said trust estate I shall have power to pay all taxes, expenses necessarily or properly incident to its care, preservation and management; and all other reasonable or necessary charges incident to the administration of the trust created hereby, and out of the remaining income and revenue, I am to pay the beneficiary of this trust an allowance of $300.00 a month, with power in my discretion from time to time to increase or decrease the said allowance whenever I may deem it to be to the best interest of the said beneficiary, to have such allowance increased or decreased. I shall have the power, from time to time, out of the remainder of said income and revenue, to appropriate and pay such sums as I may deem reasonably necessary for the maintenance, support and education of said beneficiary. Any income not distributed as hereinabove provided shall be added to the principal of the,trust estate.
“3. In case of an emergency, or illness of said beneficiary, requiring a greater sum than that accruing as income or revenue, I shall have power to use as much of the principal of said trust estate as may be absolutely necessary.
“4. Any receipt given by the beneficiary of this trust to me for any sum paid to her by me, shall be a full acquittance and discharge for the payment mentioned in such receipt.
“5. The foregoing provisions for my said daughter, Evelyn S. Guy, shall be for her sole and separate use, free from all statutory and marital rights of her husband; and free from her debts and without the right on her part to assign, pledge, hy-pothecate, or anticipate, or in any way create a lien upon any of the income or corpus of the trust estate hereby created b.efore she shall receive the same, nor shall any of the said income or corpus be subject to any claims of any persons who may at any time be creditors of my said daughter.
“6. (a) If the said beneficiary should die before my death, then this trust estate shall thereupon revert to me and become , mine immediately and absolutely, or (b) if I should die before her death, then this property shall thereupon become hers immediately and absolutely and be turned over to her and in either Gase this trust shall cease.”
“[Signed] William Evans Guy.
“Witness: Wm. Edwin Guy.”
In 1921, at the time these trusts were made, Mr. Guy was seventy-six years of age. Long prior to that time he had retired from the active' management of any corporations in which he was interested, but he conducted his own affairs, which were extensive, and continued as a director of the St. Louis Cold Storage Company, the Laclede Steel Company, and as trustee and director in several syndicates. He maintained a downtown office, where he went every business day when the weather was good, from September to June, which was the portion of the year that he _ spent in St. Louis. He took an active interest in all matters with which he was connected. He made a practice of consulting his physician on an average of about once in six months, and enjoyed almost perfect health for a man of his years. He had not consulted his physician for some time prior to *854 the date of the execution of the trusts, so far as the physician could remember. In June, 1928, about two months prior to his death,.he had had a physical examination, which disclosed no change in his condition. He was an optimistic and cheerful man, and exceptionally alert mentally. He came of a long-lived family, and frequently had made the statement that he expected to live to be at least ninety. It seefns that two of his immediate ancestors had lived beyond that age. None of his friends knew of any ailment which might have led him to suspect that his death was to be expected in the near future. He was careful of his health; but obviously not concerned 'about death. In fact, the evidence indicates that he was, at the time these trusts were executed, in as good physical and mental condition as possible for any man of his years. His purpose in making the four trusts, as expressed to his son (who drafted the instruments) and to at least one of his friends, was to make his children independent of him, to enable them to .know what they .might expect each year, in lieu of an allowance out of his own income, and to avoid the high' surtax which would be imposed upon his income if he retained his property for himself.
The action was tried to the court below without a jury. Two questions were presented :
(1) Was the transfer of the property included in these four trusts intended to take effect in possession or enjoyment at or after death?
(2) Were the transfers made in contemplation of death?
The court below found that none of the beneficiaries named in the trust instruments acquired custody, control, or title to the corpus of the trust prior to the death of the settlor; that the title of the beneficiaries was contingent upon their survival of the settlor; and that the motive for the creation of the trusts was to decrease the settlor’s income taxes by distributing the property and thus avoiding the high rate for large incomes, and at the same time to make provision for the distribution of the property included in the trusts at the settlor’s death. The court concluded that the corpus of the trusts was transferred in contemplation of death, that the transfers were intended to take effect in possession and enjoyment at and after death, and that the value of the trust property was therefore properly included in the gross estate.
It was the contention of the appellee, Collector of Internal Revenue, in the court below, and is his contention here, that the death of the settlor, rather than the trust instruments, constituted the generating source of title in the beneficiaries, since the final receipt and complete enjoyment of the trust property by them was contingent upon their surviving the settlor.
The pertinent provisions of the Revenue Act of 1926 are as follows:
Section 302, c. 27, 44 Stat. 9, 70 (26 U. S. C. § 1094 [26 USCA § 1094]). “The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — * * *
“(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration in money or money’s worth. Where within two years prior to his death but after the enactment of this Act [February 26, 1926], and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title [chapter]. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act [February 26, 1926], without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title [chapter]. * * * ’’
In considering the question whether the transfer of the corpus of these trusts was" intended to take effect in possession or enjoyment at or after death, it must be re
*855
membered that the federal estate tax is a tax on the transfer of property from the dead to the living, and not a tax upon the privilege of the living to succeed to the property of the dead. It is a transfer tax and not a succession tax. Young Men’s Christian Association of Columbus, Ohio et al. v. Davis et al.,
With that principle in mind, the Supreme Court has construed many trust instruments and has held that those absolutely and irrevocably vesting the corpus in a beneficiary prior to the death of the settlor, and not made in contemplation of death, were not subject to the tax imposed by section 302 (c) of the Revenue Act of 1926, and the similar provisions of other Revenue Acts, even though the benefits derived thereunder upon the death of the settlor would have been taxable under laws imposing a succession or inheritance tax such as those in force in some of the states.
In Shukert et al., Executrices v. Allen,
“The transfer was immediate and out and out, leaving no interest remaining in the testator. The trust in its terms has no reference to his death but is the same and unaffected whether he lives or dies. Although the Circuit Court of Appeals [6 F.(2d) 551 ] seems to have thought otherwise, the interest of the children respectively was vested as soon as the instrument was executed, even though it might have been divested as to any one of them in favor of his issue if any, or of the surviving beneficiaries, if he died before the termination of the trust. * * * There certainly is no transfer taking effect after his [the testator’s] death to be taxed under section 401.
“It is not necessary to consider whether the petitioner goes too far in contending that section 402 (c) should be construed to refer only to transfers of property the possession or enjoyment of which does not pass from the grantor until his death. But it seems to us tolerably plain, that when the grantor parts with all his interest in the property to other persons in trust, with no thought of avoiding taxes, the fact that the income vested in the beneficiaries was to be accumulated for them instead of being handed to them to spend (italics ours), does not make the trust one intended to take effect in possession or enjoyment at or after the grantor’s death.”
In Nichols v. Coolidge et al., Executors, supra,
In Reinecke v. Northern Trust Company, supra,
“If it be assumed that the power to modify the trust was broad enough to authorize disposition of the trust property among new beneficiaries or to revoke the trusts, still it was not one vested in the settlor alone, as were the reserved powers in the case of the two trusts. He could not effect any change in the beneficial interest in the trusts without the consent, in the case of four of the trusts, of the person entitled to that interest, and in the case of one trust without the consent of a majority of those so entitled. Since the power to revoke or alter was dependent on the consent of the one entitled to the beneficial, and consequently adverse, interest, the trust, for all practical purposes, had passed as completely from any control by decedent which might inure to his own benefit as if the gift had been absolute.
“Nor did the reserved powers of management of the trusts save to decedent any control over the economic benefits or the enjoyment of the property. He would equally have reserved all these powers and others had he made himself the trustee, but the transfer would not for that reason have been incomplete. (Italics ours.) The shifting of the economic interest in the trust property which was the subject of the tax was thus complete as soon as the trust was made. His power to recall the property and of control over it for his own benefit then ceased and as the trusts were not made in contemplation of death, the reserved pozvers do not serve to distinguish them from any other gift inter vivos not subject to the tax. (Italics ours.)
“But the question much pressed upon us remains whether, the donor having part-,, ed both with the possession and his entire beneficial interest in the property when the trust was created, the mere passing of possession or enjoyment of the trust fund from the life tenants to the remaindermen after the testator’s death, as directed, and after the enactment of the statute, is included within its taxing provisions. * * *
“One may freely give his property to another by absolute gift without subjecting himself or his estate to a tax, but we are asked to say that this statute means that he may not make a gift inter vivos, equally absolute and complete, without subjecting it to a tax if the gift takes the form of a life estate in one with remainder over to another at or after the donor’s death. It would require plain and compelling language to justify so incongruous a result *857 and we think it is wanting in the present statute. * * *
“In the light of the general purpose of the statute and the language of section 401 explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in section 402 (c) ‘to take effect in possession or enjoyment at or after his death,’ include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under section 401. That doubt must be resolved in favor of the taxpayer.”
In May et al., Executors v. Heiner, supra,
Coolidge et al., Trustees v. Long, Commissioner of Corporations & Taxation of Massachusetts,
On page 599 of
And on pages 605 and 606 of
Mr. Justice Roberts, in an opinion concurred in by Mr. Justice Holmes, Mr. Justice Brandéis, and Mr. Justice Stone, dissented upon • the ground that the Massachusetts statute sought to tax the privilege to succeed and enjoy, rather than the privilege to transfer, and that such privilege of succession was not fully exercised until after the death of the surviving settlor, when the taxing statute was in force. On 'page 631 of
The case of Burnet v. Northern Trust Co., Executor,
Morsman, Administrator v. Burnet,
McCormick et al., Executors v. Burnet,
In Burnet v. Guggenheim,
In Helvering v. Duke et al.,
Klein v. United States,
The appellee is of the opinion that the case with which we are concerned falls within the rule of the Klein Case, upon the theory that Mr. Guy transferred to himself, as trustee, only a life interest in the corpus of each of the four trusts, for the purpose of providing income for his children, and that the provisions in the trust instruments that the beneficiaries should take the property only in the event they survived the settlor, had the effect of preventing the passage of title to them until the death of the settlor. This same contention was made in the case of Helvering v. St. Louis Union Trust Company et al. (C. C. A. 8)
It will be noted that in Reinecke v. Northern Trust Co., supra,
Hence, decisions relating to gifts inter vivos, even though such gifts are not in the form of trusts, are pertinent.
In Edson v. Lucas (C. C. A. 8)
We referred in that case to People’s Trust Co. v. Dickson,
We are advised by the opinion of Mr-Justice Stone in the case of Reinecke v. Northern Trust Co., supra, that the fact that
a
settlor makes himself a trustee under the trust instrument with the power of management of the trust, would not make the transfer incomplete. We are advised by the opinion of Mr. Justice Holmes, in the case of Shukert v. Allen, supra,
It seems,- then, that the question as to whether the transfer was one to take effect in possession or enjoyment at or after Mr. *861 Guy’s death depends entirely upon whether by the trust instruments he, as an individual, parted with 'every vestige of control over the beneficial enjoyment and possession of the property conveyed. In order to sustain the conclusion of the lower court that he, as an individual, retained some vestige of control over the beneficial enjoyment and possession of the trust property until his death, we would be obliged to point out what it was that he retained. It is clear that the legal title to the trust property passed from him upon the execution of the trust instruments. The possession of the trust property which he had formerly held as an individual he thereafter held as a trustee. The income from the trust property was no longer his. He was obliged either to pay the income over to the beneficiaries or to accumulate it for them. The powers with which he clothed himself as trustee were not to be exercised by him for his own benefit, but only for the benefit of those for whom he had constituted himself trustee. The only interest, then, which he retained was the right to have the trust property revert to him in case the beneficiaries should predecease him. That right to the reversion was not an interest which passed to the beneficiaries as the result of Mr. Guy’s death. It was merely an interest which was obliterated by his death. It passed not to the living, but entirely out of existence. So far as we can discern, the rights of the beneficiaries to the trust property were complete at the time the declarations of trust were executed. Thereafter, Mr. Guy as an individual had no interest in the property then or thereafter held by him as trustee, except the right to a reversion on certain conditions over which he had no control. Hence, nothing could have passed from him to the beneficiaries of the trust at the time of his death, although that event, by virtue of the terms of the declarations of trust, gave them the rights with respect to his property which the declarations of trust provided they should have if they survived him.
It is true, as the appellee says, that: “Taxation is not so much concerned with the refinements of title as it is with the actual command over the property taxed— the actual benefit for which the tax is paid.” Burnet v. Guggenheim,
The appellee also contends that the cases which we have referred to can be distinguished from the case at bar on the ground that the transfers in those cases were intended to take effect in possession or enjoyment after death, whereas here they were intended to take effect in possession or enjoyment at death. The statute, however, deals with transfers intended to take effect in possession or enjoyment “at or after” death. This precludes the drawing of any distinctions between trusts which terminate at death and those which terminate after death, where the transfers are complete and irrevocable during the life of the settlor.
We reach the conclusion, therefore, that the property transferred under these declarations of trust was not a part of the estate of Mr. Guy at the time of his death, unless the transfers were made in contemplation of death.
The appellee’s theory is that the actual transfer of the corpus of these trusts to the beneficiaries was accomplished by the death of the settlor, and that any motive he may have had in transferring the property to himself as trustee, to distribute the income to his children, is disconnected with the ultimate transfer, which was subject to the presumption that it was made in contemplation of death, under section 302 (c), Revenue Act 1926 (26 USCA § 1094 (c). Since we have held that the transfer was complete at the time of the execution of the trust instruments, more than seven years prior to the death of the settlor, that theory is, of course, untenable, and the statutory presumption respecting transfers made within two years prior to death is not applicable.
Whether a transfer is made in contemplation of death must obviously be determined from the facts of each particular case.
In Milliken et al., Executors, v. United States,
In United States v. Wells et al., Executors,
“Death must be ‘contemplated,’ that is, the motive which induces the transfer must be of the sort which leads to testamentary disposition. As a condition of body and mind that naturally gives rise to the feeling that death is near, that the donor is about to reach the moment of inevitable surrender of ownership, is most likely to prompt such a disposition to those who are deemed to be the proper objects of his bounty, the evidence of- the existence or nonexistence of such a condition at the time of the gift is obviously of great importance in determining whether it is made in contemplation of death. * * *
“Ás the test, despite varying circumstances, is always to be found in motive, it cannot be said that the determinative motive is lacking merely because of the absence of a consciousness that death is imminent. It is contemplation of death, not necessarily contemplation of imminent death, to which the statute refers. It is conceivable that the idea of death may possess the mind so as to furnish a controlling motive for the disposition of property, although death is not thought to be close at hand. Old age may give premonitions and promptings independent of mortal disease. Yet age in itself cannot be regarded as furnishing a decisive test, for sound health and purposes associated with life, rather than with death, may motivate the transfer. The words ‘in contemplation of death’ mean that the thought of death is the impelling cause of the transfer, and while the belief in the imminence of death may afford convincing evidence, the statute is not to be limited, and its purpose thwarted, by a rule of construction which in place of contemplation of death makes the final criterion to be an apprehension that death is ‘near at hand;’
“If it is the thought of death, as a controlling motive prompting the disposition of property, that affords the test, it follows that the statute does not embrace gifts inter vivos which spring from a different motive. * * * The purposes which may be served by gifts are of great variety. It is common knowledge that a frequent inducement is not only the desire to be relieved of responsibilities, but to have children, or others who may be the appropriate objects of the donor’s bounty, independently established with competencies of their own, without being compelled to await the death of the donor and without particular consideration of that event. There may be the desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death.
“It is apparent that there can be no precise delimitation of the transactions embraced within the. conception of transfers in ‘contemplation of death,’ as there can be none in relation to fraud, undue influence, due process of law, or other familiar legal concepts which are applicable to many varying circumstances. There is no escape from the necessity of carefully scrutinizing the circumstances of each case to detect the dominant motive of the donor in the light of his bodily and mental condition, and thus to give effect to the manifest purpose of the statute.”
In Willcuts v. Stoltze (C. C. A. 8)
In the case of Flannery v. Willcuts (C. C. A. 8)
According to the evidence, Mr. Guy, in making these trusts, was actuated by two motives: (1) To make his children independent; (2) to avoid high surtaxes upon his income. Both of these motives were intimately associated with life. United States v. Wells et al., Executors, supra,
The suggestion of the appellee, that the determination by the Commissioner that the transfers were made in contemplation of death would support the lower court’s finding to that effect, is obviously unsound. Any presumption as to the correctness of the Commissioner’s determination is a rebuttable one and would only support such a finding in the absence of any substantial evidence to the contrary. Willcuts v. Stoltze (C. C. A.) supra,
Because of the feeling of uncertainty occasioned by the equal division of the justices of the Supreme Court in Helvering v. Duke, supra, we have in this opinion reviewed and quoted from the authorities at far greater length than would otherwise be justified. We must, of course, follow the applicable law as it has thus far been established. If there are to be modifications or changes in the law relative to the taxation of such transfers as are here involved, this court is not the proper tribunal to make them.
The judgment is reversed and the case remanded for further proceedings not inconsistent with this opinion.