Cary v. Commissioner
The Court ruled that when heirs sell inherited securities, the tax basis is the value of those securities on the day the original owner died -- not their value years later when a trust finally distributed them.
The decision applies the same reasoning the Court used the same day in a companion case, Helvering v. Reynolds, rejecting the heirs' argument that their interests were only contingent at the time of death.
How it got here: A federal court of appeals ruled against the heirs on the tax basis question, and they asked the Supreme Court to review that judgment.
The Case in Depth
What happened
Henry Flagler died in 1913, leaving a will that created a ten-year trust for his heirs. When the trust ended in 1923, the trustees handed over securities to the heirs, some of whom later transferred them within the family. The heirs sold these securities in 1934 and 1936 and disputed how to calculate their taxable gain.
The question before the Court
When heirs later sold securities they'd inherited through a trust, should their taxable gain be measured from the securities' value when they died, or when the trust actually handed the securities over years later?
Why it matters
People who inherit property through a trust that pays out years after the original owner's death will calculate their taxable gain or loss using the value on the date of death, even if the property's value has changed substantially by the time they actually receive and sell it.
What changes now
This is a final merits decision. The lower court's judgment affirming the use of the date-of-death value as the tax basis stands, meaning the heirs' tax liability on the 1934 and 1936 sales is calculated using that valuation. The ruling relies on and applies the Court's reasoning from the same day's companion decision in Helvering v. Reynolds.
Concurrences and dissents
How the Justices voted
Majority (1). Justice Douglas (author).
Dissent — Unsigned
The Chief Justice and Justice Roberts dissented, adopting the reasoning of their dissent in the companion case, Helvering v. Reynolds. They would have used the securities' value at the time they were actually delivered to the heirs, rather than the value on the date of the original owner's death.
How the Court got there
The legal reasoning, step by step
- The Court applied its reasoning from the companion case Helvering v. Reynolds, decided the same day, which addressed the identical question under the same tax provision governing how to value inherited property for computing gain or loss on a later sale.
- The heirs argued that under Florida law they held only a contingent, not a vested, interest in the trust property as of the date of death, meaning their ownership wasn't fixed until later distribution.
- The Court found this distinction did not matter: even accepting that the heirs' interests were contingent at death, the tax law still measured value as of the date of death rather than the later delivery date.
- Because the reasoning in Helvering v. Reynolds controlled, the securities' value at the decedent's death -- not their value when handed over by the trustees -- set the basis for calculating gain or loss on the 1934 and 1936 sales.