U.S. Supreme Court HELVERING v. BULLARD, 303 U.S. 297 (1938)

[Page 303 U.S. 297, 299]

In 1931 dissatisfaction with the administration of the trust impelled the decedent to seek its abrogation. Examination of the instrument disclosed violation of the rule against perpetuities. A bill was accordingly filed in an Illinois state court to have the trust declared void. The son's widow answered denying invalidity. A guardian ad litem representing the interests of infant beneficiaries in remainder also opposed the prayer of the bill. Subsequently, to avoid family discord and amicably to settle the pending litigation, a compromise agreement was made by the decedent and all the adult beneficiaries consenting to the entry of a decree on condition that the decedent would declare a new trust of approximately one-third of the securities in the existing trust whereby Edward's widow should enjoy a life interest identical to that given her by the 1927 trust and, upon her death, the remainder should be equally divided between the decedent's daughters. The agreement further required the making of testamentary provision for the decedent's daughters and grandchildren, and certain outright gifts to the latter. In pursuance of the agreement, the decedent, on February 17, 1932, executed a new irrevocable deed of trust conveying approximately one-third of the corpus of the former trust and reserving to herself a life interest in the income, and executed a new will. A consent decree was then entered in the equity suit, the guardian ad litem representing to the court that the settlement would be advantageous to the minor beneficiaries.

The Commissioner's inclusion of the corpus of the trust of February 17, 1932, in the gross estate was sustained by the Board of Tax Appeals. [Footnote 3] The Circuit Court of Appeals reversed the Board's decision. [Footnote 4] We are of opinion that the action of the Commissioner and the Board should have been affirmed.

[Page 303 U.S. 297, 302]

power or an interest in the donor. The legislative history of the Joint Resolution, to which reference is made in Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, decided this day, demonstrates that the purpose of the legislation was to prevent avoidance of estate taxes. As has been said by the Court of Appeals of New York:6 'It is true that an ingenious mind may devise other means of avoiding an inheritance tax, but the one commonly used is a transfer with reservation of a life estate.'

We have recently sustained the prospective operation of a provision including in the gross estate property which a decedent has transferred retaining power alone, or in conjunction with any other person, to alter, amend, or revoke. 7 We held the purpose of the clause was to prevent avoidance of tax and the measure was reasonably calculated to that end. As applied to a trust created after its enactment the Joint Resolution does not violate the Fifth Amendment.

The judgment is reversed and the cause is remanded for further proceedings in conformity with this opinion. So ordered.

Reversed and remanded.

Mr. Justice CARDOZO and Mr. Justice REED took no part in the consideration or decision of this case. Footnotes

Footnote 1 Chapter 27, 44 Stat. 9, 70; U.S.C. tit. 26, 411(c).

Footnote 2 Chapter 454, 46 Stat. 1516; U.S.C. tit. 26, 411(c).

Footnote 3 34 B.T.A. 243.

Footnote 4 7 Cir., 90 F.2d 144.

Footnote 5 Chapter 209, 47 Stat. 169, 279; U.S.C., tit. 26, 411(c), 26 U.S.C. A. 411(c).

Footnote 6 In the Matter of Keeney's Estate, 194 N.Y. 281, 287, 87 N.E. 428, 429; affirmed Keeney v. Comptroller of State of New York, 222 U.S. 525, 32 S.Ct. 105, 38 L.R.A.,N.S., 1139.

Footnote 7 Helvering v. City Bank, 296 U.S. 85, 90, 56 S.Ct. 70, 73. Compare Milliken v. United States, , 51 S.Ct. 324; Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 69 A.L.R. 758.