Handy v. Delaware Trust Co.

Background

An estate’s executor challenged a tax assessment after the federal tax commissioner included gifts the decedent made during life in the decedent’s gross estate. The opinion explains that the decedent, within two years before death, had made complete and irrevocable transfers without receiving consideration. After the commissioner denied a refund, the executor sued. The trial court found the transfers were not made in contemplation of death and held that the second sentence of section 302(c) of the Revenue Act of 1926 violated the Fifth Amendment’s due-process clause. The case came to the Court on a certificate from the Third Circuit.

Reasoning

The central question was whether that specific sentence of section 302(c) violated the Fifth Amendment’s due process protection. The Court stated that its decision in Heiner v. Donnan required an affirmative answer to the submitted question and therefore concluded that the second sentence does violate due process. Applying that result to the facts here, the Court’s action means the statute could not be used to justify including those complete, uncompensated transfers in the decedent’s gross estate, and the executor prevailed on the constitutional claim.

Real world impact

The ruling affects estates, executors, and federal tax officials because it prevents using that sentence of section 302(c) to tax certain gifts made within two years of death and supports recovery of taxes assessed under that rule. The opinion implements the Court’s holding in Heiner v. Donnan for this case and resolves the certified question in the executor’s favor.

Dissents or concurrances

Justices Brandeis and Stone dissented, and Justice Cardozo took no part in the consideration or decision.