Schlesinger v. Wisconsin

1926-03-01

Headline: Court strikes down Wisconsin rule that automatically taxes large gifts made within six years of a person’s death, blocking states from treating such gifts as inheritances without proof.

Holding: The Court ruled that a Wisconsin law which conclusively treats sizable gifts made within six years of a person's death as inheritances and taxes them without regard to actual intent violates the Fourteenth Amendment and cannot be enforced.

Real World Impact:

Prevents states from automatically taxing large gifts within six years as inheritances without proof.
Protects heirs and executors from conclusive-presumption inheritance taxes on inter vivos gifts.
Limits states’ power to impose graduated inheritance taxes based solely on timing of gifts.

Topics: estate taxes, gifts before death, constitutional protection, heirs' rights

Summary

Background

A wealthy man made several large gifts to his wife and three children in the years before he died. Wisconsin tax officials treated those gifts as part of his estate under a law that says large gifts given within six years of death are conclusively presumed to have been made in contemplation of death and therefore taxable as inheritances. The man’s executors and children challenged the tax after state courts upheld the assessment.

Reasoning

The central question was whether the State may conclusively assume that all substantial gifts made within six years before death are effectively inheritances and tax them without allowing proof of actual intent. The Court held that this absolute presumption and the resulting graduated tax are arbitrary because they treat identical gifts differently based only on timing and impose heavier inheritance-style taxes without regard to the giver’s real intent. The majority said the law violates the Fourteenth Amendment’s protections and cannot be enforced in that form.

Real world impact

The decision protects people who make inter vivos gifts shortly before death from being automatically converted into taxable inheritances by a conclusive statutory rule. It limits state power to collect inheritance-style taxes through blanket presumptions and requires more careful, less arbitrary distinctions in tax laws. The case was reversed and sent back for further proceedings consistent with the opinion.

Dissents or concurrances

Justice Holmes, joined by Justices Brandeis and Stone, dissented, arguing legislatures may reasonably adopt such presumptions to prevent tax evasion and that six years could be a permissible line; Justice Sanford only joined the judgment.