Reinecke v. Northern Trust Co., 278 U.S. 339 (1929)
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Reinecke v. Northern Trust Company
No. 90
Argued December 4, 5, 1928
Decided January 2, 1929
278 U.S. 339
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Syllabus
1. Respondent’s testator in his lifetime conveyed property in trust to pay the income to himself and, on his death, to pay it to designated persons until termination of the respective trusts, with remainders over. Each trust instrument reserved to the settlor alone the power to revoke the trust created by it, and provided that, upon the exercise of that power, the corpus of the trust must be returned to him by the trustee. The trusts were not in contemplation of death, and were created before the date of the Revenue Act of 1921, but the settlor died after that date without having revoked them. Held: subject to transfer tax under the Act. P. 345.
2. A transfer in trust subject to a power of revocation in the transferor alone, terminable at his death, is not complete until his death, and hence a transfer tax applied to it, as in Revenue Act, 1921, § 422, is not retroactive where his death follows the date of the taxing statute, though the creation of the trust preceded that date. Chase Nat’l Bank v. United States, ante, p. 327. Saltonstall v. Saltonstall, 276 U.S. 260. P. 345.
3. The testator in his lifetime established several other trusts by deeds, creating life interests in income. In one, the life interest was to terminate five years after his death, or on the death of the designated beneficiary should she survive that date, with remainder over. In the others, the life interests were to terminate five years after his death or on the death of the respective life tenants, whichever should happen first, with remainders over. He reserved to himself power to supervise reinvestment of trust funds, to require the trustee to execute proxies to his nominee, to vote shares of stock held by the trustee, and to control leases executed by the trustee, and he also reserved power to "alter, change or modify" each trust, which was to be exercised, in the case of some of them, by himself and the single beneficiary of each trust, acting jointly, and, in the case of the remaining trust, by himself and a majority of the beneficiaries, acting jointly. The trusts were not in contemplation of death, and were created before the passage of the Revenue Act of 1921, but after the passage of the Revenue Act of 1918, which contained similar estate tax provisions, and the settlor died after the date of the 1921 Act without having modified any of them in any manner here material. Held not subject to the transfer tax, because:
(1) Section 402(c) of the Revenue Act of 1921 is inapplicable to a trust created by a decedent in his lifetime, not in contemplation of death, which vested beneficial interests in others and which he was without power to modify or revoke except with the consent of all or a majority of the beneficiaries. P. 346.
(2) Since the shifting of the economic interest under such a trust was complete when the trust was made, a reservation to the settlor of power to manage the trust will not render the transfer taxable under the statute upon his death. P. 346.
(3) The donor having parted with the possession and his entire beneficial interest in the property when the trusts were created, the mere passing of possession and enjoyment from the life tenants to the remaindermen after his death, as directed, and after the enactment of the statute, was not within the taxing provision. The clause of § 402(c) respecting trusts intended to take effect in possession and enjoyment at or after the donor’s death should be construed as limited to interests passing from his possession, enjoyment, or control at his death and so taxable as transfers at death under § 401. P. 347.
(4) The statute should be construed in favor of the taxpayer, and to avoid doubts as to constitutionality. P. 348.
24 F.2d 91 reversed in part; affirmed in part.
Certiorari, 277 U.S. 579, to a judgment of the circuit court of appeals which affirmed the district court in dismissing a suit to recover the amount of an estate tax alleged to have been illegally assessed and collected.