Spiegel's Estate v. Commissioner of Internal Revenue (335 U.S. 632)/Dissent Burton

by Harold Hitz Burton

United States Supreme Court

335 U.S. 632

Spiegel's Estate  v.  Commissioner of Internal Revenue

Mr. Justice BURTON, dissenting.

Except for its important reservation to the settlor of a right to the net income of the trust during the settlor's life, the deed of trust in this case ^[1] is largely comparable to the trust instrument in the Spiegel case, 335 U.S. 701, 69 S.Ct. 301. Both speak for themselves as complete transfers in praesenti. Neither was made in contemplation of death.

The evidence of the factual intent of this settlor, likewise, is comparable to that of the settlor in the Spiegel case. In fact, the affirmative evidence that the settlor intended to make a transfer complete and absolute in praesenti is stronger here than in the Spiegel case. This settlor avowedly sought to protect not only his family but also himself against the possibility of his further disposal of his interest in the corpus of the trust. The remoteness of any possibility of a reverter, arising by operation of law, is comparable here to the remoteness of the alleged possibility of a reverter in the Spiegel case. Two other features of this case, however, require separate consideration.

First. It is the law of New York that must determine here whether the possibility of a reverter, either to the settlor or to his estate, arose by operation of law from the deed of trust. As this case came up from New Jersey, in the Third Circuit, we have no announcement of the law of New York from the United States Court of Appeals for the Second Circuit which includes New York. Furthermore, when the United States Court of Appeals for the Third Circuit rendered its judgment in favor of the taxpayer, it did so in express reliance upon the opinion of the Tax Court and the Tax Court, in turn, did not elucidate the law of New York.

While I rest my conclusion in favor of affirmance upon the absence of the factual intent which, as stated in my dissent in the Spiegel case, I believe is required by s 811(c) of the Internal Revenue Code, a substantial argument might be made for affirmance on the ground that, under the law of New York, no possibility of a reverter arose from this trust by operation of law. ^[2] A substantial argument might also be made for affirmance on the ground that the alleged possibility of a reverter, here and also in the Spiegel case, should be disregarded on the doctrine of de minimis non curat lex.

Second. In the opinion of the Court in the instant case, the judgment below is reversed, however, without facing any of the above grounds for its affirmance. This i done by overruling May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, and that action has carried with it the foundation for this Court's opinion in Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858. The effect of such reversal is to place this trust, which was executed in 1924, in the same position as though it had been executed after the Joint Resolution of March 3, 1931, 46 Stat. 1516, 1517. That Resolution made the federal estate tax applicable to property transferred thereafter by any deed of trust that reserved to the transferor a right to the possession or enjoyment of or the income from the trust property during his life. There is no doubt but that the transfer in the instant case would have been subject to the estate tax if the deed of trust had been executed after, instead of before, the Resolution of March 3, 1931. The legislative history of that Resolution demonstrates, however, that it was not intended to be retroactive. Its prospective character also carried with it at least a congressional recognition of the existence of some basis for making a distinction between prior and future transfers of the type described.

After the execution of the instant trust in 1924-and certainly between March 3, 1931 and the death of the settlor on December 11, 1939-there was little, if any, reason for him to consider making further disposition of his reserved rights in order to protect his estate from the federal estate tax. Between 1924 and 1939, there were handed down by this Court its decisions in May v. Heiner, supra, on April 14, 1930; Morsman v. Burnet, 283 U.S. 783, 51 S.Ct. 343, 75 L.Ed. 1412, and its two companion cases, on March 2, 1931; and Hassett v. Welch, supra, on February 28, 1938. In those of the above decisions which were rendered before March 3, 1931, this Court unanimously and unequivocally held that the federal estate tax was not to be applied to a trust merely because of the retention thereunder of a right in the settlor to receive the income of the trust during his life. The entry made by this Court in each of the companion cases decided March 2, 1931, expressly stated a doubt as to the constitutional authority of Congress to enact a law which would apply the estate tax retroactively to transfers that already had been made. The action of Congress on March 3, 1931, reflected that doubt. The seven Justices who participated in the case of Hassett v. Welch, supra, in 1938, refrained from expressing doubt as to the state of the law before March 3, 1931. In that case the Court reviewed carefully the legislative history that was material to the case and also the administrative interpretation which had been given to the statute. The Court concluded as follows (303 U.S. at pages 314, 315, 58 S.Ct. page 565, 82 L.Ed. 858):

'In view of other settled rules of statutory construction, which teach that a law is presumed, in the absence of clear expression to the contrary, to operate prospectively; that, if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer, we feel bound to hold that the Joint Resolution of 1931 and section 803(a) of the Act of 1932 apply only to transfers with reservation of life income made subsequent to the dates of their adoption respectively.

'Holding this view, we need not consider the contention that the statutes as applied to the transfers under consideration deprive the respondents of their property without due process in violation of the Fifth Amendment.'

Thus, up to the time of the settlor's death in 1939, he never was given reason, at least by this Court, to suspect that the property which he had included in his 1924 deed of trust would be added to his gross estate for federal estate tax purposes. ^[3]

The issue as originally presented in May v. Heiner was solely one of statutory interpretation and there were persuasive arguments for deciding the case either way. However, the unanimous decision of this Court in that case changed the status of that issue. Thereafter, the statute carried the meaning ascribed to it by this Court. Such an acceptance of the effect of May v. Heiner was expressly stated in the three per curiam companion decisions of March 2, 1931. This acceptance also has been evidenced in some degree by the failure of Congress, at any time, to set forth a contrary view on its part as to the meaning of its original language. Congress merely added new language to change the effect of that interpretation for the future. The Treasury Department conformed its regulations and practices to the reasoning of May v. Heiner. This Court further acceded to this view in 1938 in Hassett v. Welch and in the companion case of Helvering v. Marshall, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858, when it affirmed the respective lower court judgments in those cases. The lower courts had held that certain pre-1931 comparable trusts, executed in 1920 and 1924, were not subject to the federal estate tax. ^[4] Today, with ten additional years of administrative practice in conformity with it, the rule of May v. Heiner should be substantially less subject to reversal than in 1938. The doctrine of stare decisis, with full recognition of its appropriate limitations as expressed in Helvering v. Hallock, 309 U.S. 106, 119-122, 60 S.Ct. 444, 451 453, 84 L.Ed. 604, 125 A.L.R. 1368, weighs strongly against a reversal of May v. Heiner now. The problem presented here is just such a one as was said not to exist in the Hallock case. The problem here is one of rejecting a settled statutory construction. This Court's reversal of the May v. Heiner construction of the estate tax statute as to pre-March 3, 1931-trusts does retroactively, in 1948, what this Court and Congress respectively, declined to attempt in 1931. Since 1931, countless taxpayers doubtless have relied upon and benefited by the interpretation announced in May v. Heiner. They had no more right to such benefits than has the taxpayer in this case. If the Government, after this reversal, issues regulations to relieve, in all fairness, settlors who, in demonstrated reliance upon the decisions of this Court and upon the practice of the Treasury Department, have not disposed of their reserved rights under pre-March 3, 1931-trusts like the present one, such special regulations will further emphasize the unique unfairness of enforcing the present decision against the taxpayer in the instant case.

By reversing May v. Heiner this Court repudiates the finality of its 1930 and 1931 decisions interpreting the pre-1931 legislation. It holds that the statutory interpretation then announced by this Court of final resort is not final, except as to the parties to the respective cases in which the original judgments are res judicata. After reliance by the Judicial, Legislative and Executive branches of the Government for 18 years upon this authoritative statutory construction, a reversal of it can be justified only by extraordinary circumstances. I fail to find such circumstances, either in the merits of the decision, in the nature of the issue or in the relative importance to the general public of a reversal as against an affirmance of the original interpretation of this tax statute. The statutory interpretation established in May v. Heiner has a peculiarly limited application because its interpretation of the statute in relation to future trusts was cut off on March 3, 1931. Passage of time will soon eliminate transfers made prior to that date by settlors who are yet to die or who have died and whose estates may still be forced to include such transfers for federal estate tax purposes. The 1931 legislation plus the passage of time would thus have disposed of May v. Heiner without the injustices that will now arise from its reversal.

Value is added to the fully considered decisions of this Court by our own respect for them. Faith is justifiable that this Court will exercise extreme self-restraint in using its power of self-reversal. While that power is essential in appropriate cases and is an inherent part of this Court's finality of jurisdiction, each case that suggests its use should be scrutinized with the utmost care. In the instant case I find arguments to suggest and support, but not to require, a construction of the statute contrary to that originally given in May v. Heiner. I find nothing sufficient to justify the reversal of this Court's original construction 18 years after this Court approved it unanimously and 17 years after this Court unanimously reaffirmed that approval. Likewise, I find nothing in the intervening decisions of this Court that force this reversal upon us. ^[5] For these reasons, I believe that the judgment of the Court of Appeals should have been affirmed on the authority of May v. Heiner and Hassett v. Welch, and upon the principles stated in my dissent in the Spiegel case.

Notes

1. This Indenture made the 17th day of May, 1924, between Francois L. Church, of the Borough of Brooklyn, City and State of New York (hereinafter sometimes called the 'Settlor'), party of the first part, and Francois L. Church and E. Dwight Church, of the Borough of Brooklyn, city and State of New York, and Charles T. Church of New Rochelle, New York (hereinafter sometimes called the 'Trustees'), parties of the second part.
2. The respondent cites particularly Fulton Trust Co. v. Phillips, 218 N.Y. 573, 581, 113 N.E. 558, 559, L.R.A.1918E 1070; and Matter of Bowers' Estate, 195 App.Div. 548, 186 N.Y.S. 912, affirmed 231 N.Y. 613, 132 N.E. 910; and, as presenting analogous situations in testamentary trusts or dispositions, Matter of Elting's Will, 268 App.Div. 74, 48 N.Y.S.2d 892, affirmed 294 N.Y. 941, 63 N.E.2d 123; Matter of McCombs' Estate, 261 App.Div. 449, 25 N.Y.S.2d 894, affirmed 287 N.Y. 557, 38 N.E.2d 226.
3. It appears in the record that the settlor, in 1924, relied upon the advice of his family attorney and, assuming the continuance of such a relationship, such attorney in subsequent consulatations may well have couns led the settlor's further policy in express reliance upon May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244. With comparable situations evidently in mind, it has been suggested in opinions which recently have considered the possibility of overruling May v. Heiner, supra, that no judgment overruling that case should be rendered by this Court without remanding the case to the District Court to ascertain whether or not the parties had in fact placed reliance upon the authority of that case and making special provision to avoid an unfair result if such reliance were found in fact to have existed. See dissenting opinions in Helvering v. Proctor, 2 Cir., 140 F.2d 87, 91, 155 A.L.R. 845; and Commissioner v. Hall's Estate, 2 Cir., 153 F.2d 172, 175.
4. The discussion in the opinion in Hassett v. Welch, supra, was limited to the claimed effect of the 1931 and 1932 Amendments. This Court's judgment in that case and in Helvering v. Marshall, supra, however, affirmed the judgments of the respective Courts of Appeals for the First and Second Circuits. (In Welch v. Hassett, 1 Cir., 90 F.2d 833, the Court of Appeals discussed and relied upon McCormick v. Burnet, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413; Morsman v. Burnet, 283 U.S. 783, 51 S.Ct. 343, 75 L.Ed. 1412; Burnet v. Northern Trust Co., 283 U.S. 782, 51 S.Ct. 342, 75 L.Ed. 1412; May v. Heiner, supra, and Reinecke v. Northern Trust Co., 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397. In Commissioner v. Marshall, 2 Cir., 91 F.2d 1010, the Court of Appeals relied primarily upon the Welch decision in the First Circuit.) Those respective Courts of Appeals accordingly had held that the 1931 and 1932 Amendments were inapplicable to a trust which was executed in 1924 (and reaffirmed in 1926) by a settlor who died in 1932, and to another which was executed in 1920 by a settlor who died in 1933. They also held that, under § 302(c) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 70, the Commissioner could not lawfully require the trusteed property to be included for federal estate tax purposes in the gross estates of the respective settlor-decedents. This Court's affirmance of those judgments was, therefore, a confirmation of its original holding that, before the 1931 and 1932 Amendments, this statute did not render trust property subject to the federal estate tax merely because the settlor in transferring the property to his trustees had reserved for himself a right to the income of that property during his life and had provided for the distribution of the corpus of the trust at his death in the manner stated in those cases. The prospective language of the 1931 and 1932 Amendments left the meaning of the statute unchanged as to trusts executed before March 3, 1931. It is that unchanged meaning which is applicable in the instant case.
5. The status of May v. Heiner has been mentioned by this Court from time t time without calling forth any repudiation of its authority by a majority of the Court. See Helvering v. Hallock, 309 U.S. 106, 120, Note 7, and dissenting opinions at pages 123, 126 et seq., 60 S.Ct. 444, 451, 453, 454, 84 L.Ed. 604, 125 A.L.R. 1368; Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, concurring opinion at page 113, 65 S.Ct. 508, at page 510, 89 L.Ed. 783, 159 A.L.R. 227. The effect upon it of the Hallock case has been considered many times by federal courts with a resulting adherence to both cases. 'The opinion of the majority in Helvering v. Hallock, supra, did not explicitly, or by inference from anything said, declare that May v. Heiner, supra, * * * was no longer law.' Circuit Judge L. Hand in Helvering v. Proctor, 2 Cir., 140 F.2d 87, 88, 155 A.L.R. 845. See also, Commissioner v. Hall's Estate, 2 Cir., 153 F.2d 172; Commissioner v. Singer's Estate, 2 Cir., 161 F.2d 15; Commissioner v. Kellogg, 3 Cir., 119 F.2d 54; Schultz v. United States, 8 Cir., 140 F.2d 945; United States v. Brown, 9 Cir., 134 F.2d 372; New York Trust Co. v. United States, 51 F.Supp. 733, 100 Ct.Cl. 311; Estate of Matthews, 3 T.C. 525. While these decisions are not binding upon this Court as precedents, they are decisions which those courts properly reached in determining the binding force, upon them, of our decisions in May v. Heiner and Helvering v. Hallock. They have an appropriate bearing upon the exercise of our discretion to overrule May v. Heiner at this late date.