May v. Heiner

Background

Pauline May, wife of Barney May, transferred bonds, notes, stocks, and money into a written trust on October 1, 1917. The trustees were to pay income to Barney May during his life, then to Pauline during her life, and after her death to distribute the remaining property equally among the four children. Mrs. May died March 25, 1920. The Commissioner of Internal Revenue demanded additional taxes under the Revenue Act of 1918, and the executors paid the tax and sought a refund after the Commissioner denied it. Lower federal courts upheld the tax assessment, and the case reached this Court.

Reasoning

The central question was whether the 1917 trust was a transfer "in contemplation of" death or intended to take effect in possession or enjoyment at or after death, which would make it part of the taxable estate under Sections 401 and 402(c) of the Revenue Act of 1918. The Court concluded the transfer was not testamentary, was beyond the donor’s recall, and was not made in contemplation of death. Quoting earlier decisions, the Court explained the estate tax targets transfers at death and doubts about coverage must be resolved in favor of the taxpayer. The Court therefore reversed the judgment of the Circuit Court of Appeals.

Real world impact

The ruling means the particular form of lifetime trust in this record should not be treated as a taxable transfer at death, and the executors were entitled to relief. It clarifies that property irrevocably placed in a trust and not intended as a death gift will not automatically be included in the gross estate under the statutes cited. People and executors with similar trust arrangements can use this decision to challenge like tax assessments or seek refunds.