Becker v. St. Louis Union Trust Co.
Headline: Court affirms that trusts created seven years before death were not gifts made in contemplation of death, allowing executors to recover estate tax paid and excluding those transfers from the decedent’s taxable estate.
Holding: The Court holds that the 1921 transfers into separate trusts were completed during the decedent’s life, were not made in contemplation of death, and therefore need not be included in the decedent’s 1928 gross estate.
- Allows executors to recover estate tax paid on the trusts.
- Treats completed inter vivos trusts as outside estate when motive is non-death.
- Limits tax commissioner’s inclusion of life transfers without evidence of death motive.
Summary
Background
A man in 1921 put securities into four separate declarations of trust, one for each of his grown children, naming himself as trustee and giving the trustee usual management powers and a monthly allowance to each child. He died in 1928, and the Commissioner of Internal Revenue included the nearly one‑million‑dollar trust estate in the decedent’s gross estate, assessing additional estate tax that the executors paid and then sued to recover in a federal court in Missouri.
Reasoning
The Court considered whether the transfers (1) were meant to take effect at or after death and (2) were made in contemplation of death under §302(c) of the Revenue Act of 1926. Relying on a companion decision, the Court concluded legal title, possession, and control passed to the trustee when the trusts were made, and the possibility that the property might revert if a beneficiary died did not make the transfer operate only at or after death. The Court then examined motive: it found that the decedent acted to make his children independent and to reduce income surtaxes, not out of a controlling thought of his own death. The record showed he was in good health and lived seven more years. The Court therefore held the transfers were not made in contemplation of death.
Real world impact
Because the transfers were completed during the donor’s life and were not driven by the thought of death, they were excluded from the decedent’s gross estate and the executors may recover the additional tax they paid. The decision limits inclusion of life transfers in an estate when the donor’s dominant motive relates to living concerns rather than death.
Dissents or concurrances
Four Justices dissented, referring to reasons stated in their dissent in the companion case, Helvering v. St. Louis Union Trust Co.
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