Spiegel's Estate v. Commissioner of Internal Revenue (335 U.S. 632)/Opinion of the Court

by Hugo Black

United States Supreme Court

335 U.S. 632

Spiegel's Estate  v.  Commissioner of Internal Revenue

This case raises questions concerning the interpretation of that part of § 811(c) of the Internal Revenue Code, 26 U.S.C.A. § 811(c), which for estate tax purposes requires including in a decedent's gross estate the value of all the property the decedent had transferred by trust or otherwise before his death which was 'intended to take effect in possession or enjoyment at or after his death * * *.' Estate of Spiegel v. Commissioner, 335 U.S. 701, 69 S.Ct. 301, involves questions which also depend upon interpretation of that provision of § 811(c). After argument and consideration of the cases at the October 1947 Term, an order was entered restoring them to the docket and requesting counsel upon reargument particularly to discuss certain questions broader in scope than those originally presented and argued. Journal Supreme Court, 297-298, June 21, 1948. Those additional questions have now been fully treated in briefs and oral arguments.

This case involves a trust executed in 1924 by Francois Church, then twenty-one years of age, unmarried and childless. He executed the trust in New York in accordance with state law. Church and two brothers were named co-trustees. Certain corporate stocks were transferred to the trust with grant of power to the trustees to hold and sell the stocks and to reinvest the proceeds. Church reserved no power to alter, amend, or revoke, but required the trustees to pay him the income for life. This reservation of life income is the decisive factor here.

At Church's death (which occurred in 1939) the trust was to terminate and the trust agreement contained some directions for distribution of the trust assets when he died. These directions as to final distribution did not, however, provide for all possible contingencies. If Church died without children and without any of his brothers or sisters, or their children, surviving him, the trust instrument made no provision for disposal of the trust assets. Had this unlikely possibility come to pass (at his death there were living, five brothers, one sister, and ten of their children) the distribution of the trust assets would have been controlled by New York law. It has been the government's contention that under New York law had there been no such surviving trust beneficiaries the corpus would have reverted to the decedent's estate. This possibility of reverter plus the retention by the settlor of the trust income for life, the Government has argued, requires inclusion of the value of the trust property in the decedent's gross estate under our holding in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368.

The Hallock case held that where a person while living makes a transfer of property which provides for a reversion of the corpus to the donor upon a contingency terminable at death, the value of the corpus should be included in the decedent's gross estate under the 'possession or enjoyment' provision of § 811(c) of the Internal Revenue Code. ^[1] In this case, the Tax Court, relying upon its former holdings ^[2] declared that 'The mere possibility of reverter by operation of law upon a failure of the trust, due to the death of all the remaindermen prior to the death of decedent, is not such a possibility as to come within the Hallock case.' This holding made it unnecessary for the Tax Court to decide the disputed question as to whether New York law operated to create such a reversionary interest. The United States Court of Appeals for the Third Circuit, one judge dissenting, affirmed on the ground that it could not identify a clear-cut mistake of law in the Tax Court's decision. 161 F.2d 11. The United States Court of Appeals for the Seventh Circuit in the Spiegel case found that under Illinois law there was a possibility of reverter and reversed the Tax Court, holding that possible reversion by operation of law required inclusion of a trust corpus in a decedent's estate. Commissioner v. Spiegel's Estate, 159 F.2d 257. Other United States courts of appeal have held the same. ^[3] Because of this conflict we granted certiorari in this and the Spiegel case.

Counsel for the two estates have strongly contended in both arguments of these cases that the law of neither New York nor Illinois provides for a possibility of reverter under the circumstances presented. They argue further that even if under the law of those states a possibility of reverter did exist, it would be an unjustifiable extension of the Hallock rule to hold that such a possibility requires inclusion of the value of a trust corpus in a decedent's estate. The respondent in this case pointed out the extreme improbability that the decedent would have outlived all his brothers, his sister, and their ten children. He argues that the happening of such a contingency was so remote, the money value of such a reversionary interest was so infinitesimal, that it would be entirely unreasonable to hold that the Hallock rule requires an estate tax because of such a contingency. But see Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, 112, 65 S.Ct. 508, 510, 89 L.Ed. 783, 159 A.L.R. 227.

Arguments and consideration of this and the Spiegel case brought prominently into focus sharp divisions among courts, judges and legal commentators, as to the intended scope and effect of our Hallock decision, particularly whether our holding and opinion in that case are so incompatible with the holding and opinion in May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, that the latter can no longer be accepted as a controlling interpretation of the 'possession or enjoyment' provision of § 811(c). ^[4] May v. Heiner held that the corpus of a trust transfer need not be included in a settlor's estate, even though the settlor had retained for himself a life income from the corpus. We have concluded that confusion and doubt as to the effect of our Hallock case on May v. Heiner should be set at rest in the interest of sound tax and judicial administration. Furthermore, if May v. Heiner is no longer controlling, the value of the Church trust corpus was properly included in the gross estate, without regard to the much discussed state law question, since Church reserved a life estate for himself. For reasons which follow, we conclude that the Hall ck and May v. Heiner holdings and opinions are irreconcilable. Since we adhere to Hallock, the May v. Heiner interpretation of the 'possession or enjoyment' provisions of § 811(c) can no longer be accepted as correct.

The 'possession or enjoyment' provision appearing in § 811(c) seems to have originated in a Pennsylvania inheritance tax law in 1826. ^[5] As early as 1884 the Supreme Court of Pennsylvania held that where a legal transfer of property was made which carried with it a right of possession with a reservation by the grantor of income and profits from the property for his life, the transfer was not intended to take effect in enjoyment until the grantor's death: 'One certainly cannot be considered, as in the actual enjoyment of an estate, who has no right to the profits or incomes arising or accruing therefrom.' Reish, Adm'r v. Commonwealth, 106 Pa. 521, 526. That court further held that the Possession or enjoyment' clause did not involve a mere technical question of title, but that the law imposed the death tax unless one had parted during his life with his possession and his title and his enjoyment. It was further held in that case that the test of 'intended' was not a subjective one, that the question was not what the parties intended to do, but what the transaction actually effected as to title, possession and enjoyment.

Most of the states have included the Pennsylvania-originated 'possession or enjoyment' clause in death tax statutes, and with what appears to be complete unanimity, they have up to this day, despite May v. Heiner, substantially agreed with this 1884 Pennsylvania Supreme Court interpretation. ^[6] Congress used the 'possession or enjoyment' clause in death tax legislation in 1862, 1864, and 1898. ,12 Stat. 432, 485; 13 Stat. 223, 285; 30 Stat. 448, 464. In referring to the provision in the 1898 Act, this Court said that it made 'the liability for taxation depend, not upon the mere vesting, in a technical sense, of title to the gift, but upon the actual possession or enjoyment thereof.' Vanderbilt V. Eidman, 196 U.S. 480, 493, 25 S.Ct. 331, 334, 49 L.Ed. 563. And five years before the 1916 estate tax statute incorporated the 'possession or enjoyment' clause to frustrate estate tax evasions, 39 Stat. 756, 780, this Court had affirmed a judgment of the New York Court of Appeals sustaining the constitutionality of its state inheritance tax in an opinion which said: '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.' Matter of Keeney's Estate, 194 N.Y. 281, 287, 87 N.E. 428, 429; Keeney v. Comptroller of State of New York, 222 U.S. 525, 32 S.Ct. 105, 56 L.Ed. 299, 38 L.R.A.,N.S., 1139. And see Helvering v. Bullard, 303 U.S. 297, 302, 58 S.Ct. 565, 567, 82 L.Ed. 852, where the foregoing quotation was repeated with seeming approval.

From the first estate tax law in 1916 until May v. H iner, supra, (281 U.S. 238, 50 S.Ct. 287) was decided in 1930, trust transfers which were designed to distribute the corpus at the settlor's death and which reserved a life income to the settlor had always been treated by the Treasury Department as transfers 'intended to take effect in possession or enjoyment at * * * his death'. The regulations had so provided and millions of dollars had been collected from taxpayers on this bases. See e.g., T.D. 2910, 21 Treas.Dec. 771 (1919); and see 74 Cong.Rec. 7078, 7198 7199 (March 3, 1931). This principle of estate tax law was so well settled in 1928, that the Circuit Court of Appeals decided May v. Heiner in favor of the Government in a one-sentence per curiam opinion. 3 Cir., 32 F.2d 1017. Nevertheless, March 2, 1931, this Court followed May v. Heiner in three cases in per curiam opinions, thus upsetting the century-old historic meaning and the long standing Treasury interpretation of the 'possession or enjoyment' clause. Burnet v. Northern Trust co., 283 U.S. 782, 51 S.Ct. 342, 75 L.Ed. 1412; Morsman v. Burnet, 283 U.S. 783, 51 S.Ct. 343, 75 L.Ed. 1412; McCormick v. Burnet, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413.

March 3, 1931, the next day after the three per curiam opinions were rendered, Acting Secretary of the Treasury Ogden Mills wrote a letter to the Speaker of the House explaining the holdings in May v. Heiner and the three cases decided the day before. He pointed out the disastrous effects they would have on the estate tax law and urged that Congress 'in order to prevent tax evasion,' immediately 'correct this situation' brought about by May v. Heiner and the other cases. 74 Cong.Rec. 7198, 7199 (1931). He expressed fear that without such action the Government would suffer 'a loss in excess of one-third of the revenue derived from the federal estate tax, with anticipated refunds of in excess of $25,000,000.' The Secretary's surprise at the decisions and his apprehensions as to their tax evasion consequences were repeated on the floor of the House and Senate. 74 Cong.Rec. supra. Senator Smoot, Chairman of the Senate Finance Committee, said on the floor of the Senate that this judicial interpretation of the statute 'came almost like a bombshell, because nobody ever anticipated such a decision.' 74 Cong.Rec. 7078. Both houses of Congress unanimously passed and the President signed the requested resolution that same day. ^[7]

February 28, 1938, this Court held that neither passage of the resolution nor its later inclusion in the 1932 Revenue Act was intended to apply to trusts created before its passage. Hassett v. Welch (Helvering v. Marshall), 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858. Accordingly, if the corpus of the Church trust executed in 1924 is to be included in the settlor's estate without this court's involvement in the intricacies of state property law, it must be done by virtue of the possession and enjoyment section as it stood without the language added by the joint resolution.

Crucial to the Court's holding in May v. Heiner was its finding that no interest in the corpus passed at the settlor's death because legal title had passed from the settlor irrevocably when the trust was executed; for this reason the grantor's reservation of the trust income for his life ^[8]-one of the chief bundle-of-ownership interests-was held not to bring the transfer within the category of transfers 'intended to take effect in * * * enjoyment at * * * his death'. This Court had never before so limited the possession or enjoyment section. ^[9] Thus was formal legal title rather than the substance of a transaction made the sole test of taxability under § 811(c). For from the viewpoint of the grantor the significant effect of this transaction was his continued enjoyment and retention of the income until his death; the important consequence to the remaindermen was the postponement of their right to this enjoyment of the income until the grantor's death.

The effect of the court's interpretation of this estate tax section was to permit a person to relieve his estate from the tax by conveying its legal title to trustees whom he selected, with an agreement that they manage the estate during his life, pay to him all income and profits from the property during his life, and deliver it to his chosen beneficiaries at death. Preparation of papers to defeat an estate tax thus became an easy chore for one skilled in the 'various niceties of the art of conveyancing.' Klein v. United States, 283 U.S. 231, 234, 51 S.Ct. 398, 399, 75 L.Ed. 996. And by this simple method one could, despite the 'possession or enjoyment' clause, retain and enjoy all the fruits of his property during life and direct its distribution at death, free from taxes that others less skilled in tax technique would have to pay. Regardless of these facts May v. Heiner held that such an instrument preserving the beneficial use of one's property during life and providing for its distribution and delivery at death was 'not testamentary in character.' May v. Heiner, supra, 281 U.S. at page 243, 50 S.Ct. at page 287, 74 L.Ed. 826, 67 A.L.R. 1244. Cf. Keeney v. New York, supra, 222 U.S. at pages 535, 536, 32 S.Ct. at page 107.

One year after May v. Heiner, this Court decided Klein v. United States, supra. There the grantor made a deed conveying property to his wife for her life with provisions that if she survived him she should 'by virtue of this conveyance take, have, and hold the said lands in fee simple,' but the fee was to 'remain vested in' him should his wife die first. This Court pointed out that in general and under the law of Illinois where the deed was made, vesting of title in the grantee 'depended upon the condition precedent that the death of the grantor happen before that of the grantee.' Thus, since it was found that under Illinois law, legal title to the land had been retained by the husband, it was held that the value of the land should be included in his gross estate under the 'posse sion or enjoyment' section. The Court did not cite May v. Heiner.

In 1935, this Court decided Helvering v. St. Louis Union Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239, and Becker v. St. Louis Union Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35. In each of these cases the Court again, as in May v. Heiner, delved into the question of legal title under rather subtle property law concepts and decided that the legal title of the trust properties there, unlike the situation in the Klein transfer, had passed irrevocably from the grantor. This passage of bare legal title was held to be enough to render the possession or enjoyment section inapplicable. These cases were expressly overruled by Helvering v. Hallock.

Helvering v. Hallock was decided in 1940. Three separate trusts were considered in the Hallock case. These three trusts as those considered in the St. Louis Union Trust and Becker cases, had been executed with provisions for reversion of the trust properties to the grantors should the grantors outlive the beneficiaries. The trusts had been executed in 1917, 1919, and 1925. In the Hallock case this Court was again asked to limit the effect of § 811(c) by emphasis upon the formal passage of legal title. By such concentration on elusive legal title, the Court was invited to lose sight of the plain fact that complete enjoyment had been postponed. We declined to limit the effectiveness of the possession or enjoyment provision of § 811(c) by attempting to define the nature of the interest which the decedent retained after his inter vivos transfer. We called attention to the snares which inevitably await an attempt to restrict estate tax liability on the 'niceties of the art of conveyancing' 309 U.S. at page 117, 60 S.Ct. at page 450, 84 L.Ed. 604, 125 A.L.R. 1368. We declared that the statute now under consideration 'taxes not merely those interests which are deemed to pass at death according to refined technicalities of the law of property. It also taxes inter vivos transfers that are too much akin to testamentary dispositions not to be subjected to the same excise,' 309 U.S. page 112, 60 S.Ct. page 448, and inter vivos gifts 'resorted to, as a substitute for a will, in making dispositions of property operative at death.' 309 U.S. page 114, 60 S.Ct. page 449.

As pointed out by the dissent in Hallock, we there directly and unequivocally rejected the only support that could possibly suffice for the holdings in May v. Heiner. That support was the court's conclusion in May v. Heiner, that retention of possession or enjoyment of his property was not enough to require inclusion of its value in the gross estate if a trust grantor had succeeded in passing bare legal title out of himself before death. In Hallock we emphasized our removal of that support by declaring that § 811(c) 'deals with property not technically passing at death but with interests theretofore created. The taxable event is a transfer inter vivos. But the measure of the tax is the value of the transferred property at the time when death brings it into enjoyment.' 309 U.S. pages 110, 111, 60 S.Ct. page 447.

Moreover, the Hallock case, 309 U.S. page 114, 60 S.Ct. page 449, stands plainly for the principle that 'In determining whether a taxable transfer becomes complete only at death we look to substance, not to form. * * * However we label the device (if) it is but a means by which the gift is rendered incomplete until the donor's death' the 'possession or enjoyment' provision applies.

How is it possible to call this trust transfer 'complete' except by invoking a fiction? Church was sole owner of the stocks before the transfer. Probably their greatest property value to Church was his continuing right to get their income. After legal title to the stocks was transferred, somebody still owned a property right in the stock income. That property right did not pass to the trust beneficiaries when the trust was executed; it remained in Church until he died. He made no 'complete' gift ffective before that date, unless we view the trust transfer as a 'complete' gift to the trustees. But Church gave the trustees nothing, either partially or completely. He transferred no right to them to get and spend the stock income. And under the teaching of the Hallock case, quite in contrast to that of May v. Heiner, passage of the mere technical legal title to a trustee is not necessarily crucial in determining whether and when a gift becomes 'complete' for estate tax purposes. Looking to substance and not merely to form, as we must unless we depart from the teaching of Hallock, the inescapable fact is that Church retained for himself until death a most valuable property right in these stocks-the right to get and to spend their income. Thus Church did far more than attach a 'string' to a remotely possible reversionary interest in the property, a sufficient reservation under the Hallock rule to make the value of the corpus subject to an estate tax. Church did not even risk attaching an unbreakable cable to the most valuable property attribute of the stocks, their income. He simply retained this valuable property, the right to the income, for himself until death, when, for the first time the stock with all its property attributes 'passed' from Church to the trust beneficiaries. Even if the interest of Church was merely 'obliterated,' in May v. Heiner language, it is beyond all doubt that simultaneously with his death, Church no longer owned the right to the income; the beneficiaries did. It had then 'passed.' It never had before. For the first time, the gift had become 'complete.'

Thus, what we said in Hallock was not only a repudiation of the reasoning which was advanced to support the two cases (St. Louis Union Trust and Becker) that Hallock overruled, but also a complete rejection of the rationale of May v. Heiner on which the two former cases had relied. Hallock thereby returned to the interpretation of the 'possession or enjoyment' section under which an estate tax cannot be avoided by any trust transfer except by a bona fide transfer in which the settlor, absolutely, unequivocally, irrevocably, and without possible reservations, parts with all of his title and all of his possession and all of his enjoyment of the transferred property. After such a transfer has been made, the settlor must be left with no present legal title in the property, no possible reversionary interest in that title, and no right to possess or to enjoy the property then or thereafter. In other words such a transfer must be immediate and out and out, and must be unaffected by whether the grantor lives or dies. See Shukert v. Allen, 273 U.S. 545, 547, 47 S.Ct. 461, 71 L.Ed. 764, 49 A.L.R. 855; Smith v. Shaughnessy, 318 U.S. 176, 63 S.Ct. 545, 87 L.Ed 690. We declared this to be the effect of the Hallock case in Goldstone v. United States, 325 U.S. 687, 690, 691, 65 S.Ct. 1323, 1324, 1325, 89 L.Ed. 1871, 159 A.L.R. 1330. There we said with reference to § 811(c) in connection with our Hallock ruling: '* * * It thus sweeps into the gross estate all property the ultimate possession or enjoyment of which is held in suspense until the moment of the decedent's death or thereafter. * * * Testamentary dispositions of an inter vivos nature cannot escape the force of this section by hiding behind legal niceties contained in devices and forms created by conveyancers.' And see Fidelity-Philadelphia Trust Co. v. Rothensies, supra, and Commissioner v. Field's Estate, 324 U.S. 113, 65 S.Ct. 511, 89 L.Ed. 786, 159 A.L.R. 230.

It is strongly urged that we continue to regard May v. Heiner as controlling and leave its final repudiation to Congress. Little effort is made to defend the May v. Heiner interpretation of 'possession or enjoyment' on the ground that it truly reflects the congressional purpose, nor do we think it possible to attribute such a purpose to Congress. There is no persuasive argument, if any at all, that trusts reserving life estates with remainders over at grantors' eaths are not satisfactory and effective substitutes for wills. In fact, the purpose of this settlor as expressed in his trust papers was to make 'provision for any lawful issue' he might 'leave at the time of his death as well as provide an income for himself for life.' This paper, labeled a trust, but providing for all the substantial purposes of a will, was intended to and did postpone until the settlor's death the right of his relatives to possess and enjoy his property. There may be trust instruments that fall more clearly within the class intended to be treated as substitutes for wills by the 'possession or enjoyment' clause, but we doubt it.

The argument for continuing the error of May v. Heiner is not on the merits but is advanced in the alleged interest of tax stability and certainty, stare decisis and a due deference to the just expectations of those who have relied on the May v. Heiner doctrine. Special stress is laid on Treasury regulations which since the Hassett v. Welch holding in 1938 have accepted the May v. Heiner doctrine and have not provided that the value of a trust corpus must be included in the decedent's gross estate where a grantor had reserved the trust income. It is even argued that Congress in some way ratified the May v. Heiner doctrine when it passed the joint resolution and that if not, the decision in the Hassett and Marshall cases set at rest all questions as to the soundness of the May v. Heiner interpretation. We find no merit in these contentions.

What was said in the Hallock opinion on the question of stare decisis would appear to be a sufficient answer to that contention here. The Hallock opinion also answers the argument as to recent Treasury regulations, all of which were made by the Treasury under compulsion of this court's cases. Furthermore, the history of the struggle of the Treasury to subject such transfers as this to the estate tax law, a history shown in part in the Hassett v. Welch opinion, has served to spotlight the abiding conviction of the Treasury that the May v. Heiner statutory interpretation should be rejected. In view of the struggle of the Treasury in this tax field, the variant judicial and Tax Court opinions, our opinion in the Hallock case and others which followed, it is not easy to believe that taxpayers who executed trusts prior to the 1931 joint resolution felt secure in a belief that May v. Heiner gave them a vested interest in protection from estate taxes under trust transfers such as this one. And so far as this trust is concerned, Treasury regulations required the value of its corpus to be included in the gross estate when it was made in 1924, and most of the period from then up to the settlor's death in 1939.

Moreover, the May v. Heiner doctrine has been repudiated by the Congress and repeatedly challenged by the Treasury. It certainly is not an overstatement to say that this Court's Hallock opinion and holding treated May v. Heiner with scant respect. We said Congress had 'displaced' the May v. Heiner construction of § 811(c); in overruling the St. Louis Union Trust cases we pointed out that those cases had relied in part on the 'Congressionally discarded May v. Heiner doctrine'; we thought Congress 'had in principle already rejected the general attitude underlying' the May v. Heiner and St. Louis Union Trust cases; and finally our Hallock opinion demolished the only reasoning ever advanced to support the May v. Heiner holding. And in the Hallock case, trusts created in 1917, 1919, and 1925 were held subject to the estate tax under the provisions included in § 811(c). What we said and did about May v. Heiner in the Hallock case took place in 1940, two years after Hassett v. Welch had held that the 1931 and 1932 amendments could not be applied to trusts created before 1931. Certainly, May v. Heiner cannot be granted the sanctuary of stare decisis on the ground that it has had a long and tranquil history free from troubles and challenges.

Nor does the joint resolution or the opinion in the Hassett v. Welch and Helvering v. Marshall cases, decided together, support an argument that the May v. Heiner doctrine be left undisturbed. It would be impossible to say that Congress in 1931 intended to accept and ratify decisions that hit the Congress like a 'bombshell.' ^[10] And in Hassett v. Welch the Government did not ask this Court to reexamine or overrule May v. Heiner or the three per curiam cases that relied on May v. Heiner. In fact, the government brief argued that May v. Heiner on its facts was distinguishable from Hassett v. Welch. The government brief also pointedly insisted that its position in Hassett v. Welch did 'not require a reexamination of the three per curiam decisions of March 2, 1931.' It was the Government's sole contention in the Hassett and Marshall cases that the 1932 reenactment of the joint resolution was not limited in application to trusts thereafter created, but was intended to make the new 1932 amendment applicable to past trust agreements. That contention was rejected. The holding was limited to that single question.

The plain implications of the Hallock opinion recognize that the Hassett and Marshall cases did not reaffirm the May v. Heiner doctrine. In the Marshall case the trust, created in 1920, contained a provision that should the settlor outlive the trust beneficiary, the trust corpus would revert to the settlor. That is the very type of provision which we held in Hallock would require inclusion of its value in the settlor's estate. Since the Hallock case did not overrule the Marshall case involving a trust created in 1920, it must have accepted the Marshall and Hassett cases as deciding no more than that the value of the trust properties there could not be included in the decedent's gross estate where the government's sole reliance was on a retroactive application of the 1931 and 1932 amendments to the estate tax law.

That the Hallock opinion did not treat the Hassett and Marshall cases as having reaffirmed this court's interpretation of the pre-1931 possession or enjoyment clause is further emphasized by the effect of the Hallock case on the type of trust in McCormick v. Burnet, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413, a trust created before 1931. The United States Court of Appeals in that case had held that the trust property should be included in the decedent's estate chiefly because of the trust provision that the corpus should revert to the settlor in the event that she outlived her three children. Commissioner v. McCormick, 7 Cir., 43 F.2d 277. This Court in its per curiam opinion reversed the Court of Appeals and held that the McCormick corpus need not be included in the decedent's estate. Our Hallock case held directly the contrary, for since Hallock, the McCormick corpus would have to be taxed under the pre-1931 language of § 811(c). In so interpreting the pre-1931 language in the Hallock case, we necessarily rejected the contention made there that th Congress by passage of the resolution and this Court by the Hassett and Marshall opinions had accepted as correct the May v. Heiner restrictive interpretation of § 811(c). It is plain that this Court in the Hallock case considered that the Hassett and Marshall cases held no more than that the 1931 and 1932 amendments were prospective, and that neither the congressional resolution nor the Hassett and Marshall cases were designed to give new life and vigor to the May v. Heiner doctrine. ^[11]

The reliance of respondent here on the Hassett and Marshall cases is misplaced. We hold that this trust agreement, because it reserved a life income in the trust property, was intended to take effect in possession or enjoyment at the settlor's death and that the Commissioner therefore properly included the value of its corpus in the estate.

Reversed.

Notes

1. The Hallock case considered the 'possession or enjoyment' language of § 811(c) which appeared in § 302(c) of the 1926 Revenue Act, 44 Stat. 9, 70, as amended by § 803(a) of the Revenue Act of 1932, 47 Stat. 169, 279, 26 U.S.C. § 811(c), 26 U.S.C.A. § 811(c).
2. Estate of Cass, 3 T.C. 562; Commissioner v. Kellogg, 3 Cir., 119 F.2d 54, affirming 40 B.T.A. 916; Estate of Downe, 2 T.C. 967; Estate of Houghton, 2 T.C. 871; Estate of Goodyear, 2 T.C. 885; Estate of Delany, 1 T.C. 781.
3. Commissioner v. Bayne's Estate, 2 Cir., 155 F.2d 475, 167 A.L.R. 436; Commissioner v. Bank of California, 9 Cir., 155 F.2d 1 Thomas v. Graham, 5 Cir., 158 F.2d 561; Beach v. Busey, 6 Cir., 156 F.2d 496.
4. Cf. Estate of Hughes, 44 B.T.A. 1196, with Estate of Bradley, 1 T.C. 518, affirmed sub. nom. Helvering v. Washington Trust Co., 2 Cir., 140 F.2d 87, 155 A.L.R. 845. See New York Trust Co. v. United States, 51 F.Supp. 733, 100 Ct.Cl. 311. Cf. Montgomery, Federal Taxes-Estates, Trusts and Gifts, 461-462, 480 482 (1946) with Paul, Federal Estate and Gift Taxation, 1946 Supp. §§ 7.15, 7.23. See also note, Inter Vivos Transfers and the Federal Estate Tax, 49 Yale L.J. 1118 (1940); Eisenstein, Estate Taxes and the Higher Learning of the Supreme Court, 3 Tax L.Rev. 395 (1948).
5. Note, Origin of the Phrase, 'Intended To Take Effect in Possession or Enjoyment At or After * * * Death' (§ 811(c), Internal Revenue Code), 56 Yale L.J. 176 (1946).
6. See cases collected in 49 A.L.R. 878-892; 67 A.L.R. 1250 1254; 100 A.L.R. 1246-1254. See also Rottschaefer, Taxation of Transfers Taking Effect in Possession at Grantor's Death, 26 Iowa L.Rev. 514 (1941); Oliver, Property Rationalism and Tax Pragmatism, 20 Tex.L.Rev. 675, 704-709 (1942).
7. '(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, including a transfer under which the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property or (2) the right to designate the persons who shall possess or enjoy the property or the income therefrom * * *.' The italics are added to indicate the additions made by the amendments to § 302(c) of the Revenue Act of 1926. Joint Resolution of March 3, 1931, 46 Stat. 1516, 1517.
8. The May v. Heiner trust provided for the income to go to Barney May during his lifetime, after his death to his wife, Pauline May, the grantor, and upon her death the corpus was to be distributed to the grantor's four children. The Court said that the record failed clearly to disclose whether Mrs. May survived her husband, but held this was of no special importance.
9. The Court also quoted from and relied heavily on Reinecke v. Northern Trust Co., 278 U.S. 339, 345, 49 S.Ct. 123, 124, 73 L.Ed. 410, 66 A.L.R. 397. This Court there held that the corpus of two trusts that reserved a life income to the grantor plus a power to revoke should have been included in the decedent's estate. The corpus of five other trusts were held not includable. These five trusts did not reserve a power in the grantor alone to revoke, nor did they reserve a life estate to the grantor, but they provided for accumulation of that income during the settlor's life, and at his death it was to go to the beneficiaries, subject to prior use by the beneficiaries as directed by the settlor. Thus, this case did not directly support the May v. Heiner holding. Nor is May v. Heiner supported by Shukert v. Allen, 273 U.S. 545, 47 S.Ct. 461, 71 L.Ed. 764, 49 A.L.R. 855, as shown by reference to Shukert v. Allen in the Reinecke opinion, 278 U.S. at page 347, 49 S.Ct. at page 125.
10. A May 22, 1931, bulletin of the Treasury Department indicates a strong reason for the Treasury Department's construction of the resolution as inapplicable to pre-1931 trust transfers. T.D. 4314, X-1, Cum. Bull. 450-451 (1931). That reason was obviously a fear that this Court might hold that the tax could not constitutionally be applied to trusts previously created under the Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184, 52 A.L.R. 1081, line of cases. This same apprehension may well have been the underlying reason for a statement, relied on by the dissent, made on the floor of the House that the resolution was not made 'retroactive for the reason that we were afraid that the Senate would not agree to it.' 74 Cong.Rec. 7199 (1931). Recent cases have indicated that the fear of such a constitutional interpretation is not a valid one. Central Hanover Bank & Trust Co. v. Kelly, 319 U.S. 94, 97, 98, 63 S.Ct. 645, 947, 87 L.Ed. 1282; Fernandez v. Wiener, 326 U.S. 340, 355, 66 S.Ct. 178, 186, 90 L.Ed. 116.
11. A dissent filed in this case has an appendix citing 'Decisions During the Past Decade in Which Legislative History Was Decisive of Construction of a Particular Statutory Provision.' Many other decisions of less recent date could also be cited to establish this well known fact which nobody disputes. But we think here, in the language of our opinion in the Hallock case, which opinion was written by the author of today's dissent, that the actions of Congress relied on in the dissent have not 'under any rational canons of legislative significance * * * impliedly enacted into law a particular decision which, in the light of later experience, is seen to create confusion and conflict in the application of a settled principle of internal revenue legislation.' Helvering v. Hallock, 309 U.S. 106, 120, 121, Note 7, 60 S.Ct. 444, 451, 452, 84 L.Ed. 604, 125 A.L.R. 1368. The basic 'settled principle' now as when Hallock was written is that where a trust agreement reserves the settlor's possession or enjoyment of part or all of the trust property until death, the value of the trust should be included in the settlor's gross estate.

The arguments in dissent here based on stare decisis, legislative history, and possible consequences of this Court's holding, are strikingly like the forceful arguments made in the Hallock dissent. But the persuasive and sound arguments advanced by the Court's spokesman in Hallock were there considered by the majority of this Court to be a sufficient answer to what was said in the Hallock dissent. Particularly forceful was this Court's statement in the Hallock opinion that 'we walk on quicksand when we try to find in the absence of corrective legislation a controlling legal principle.'