Robinette v. Helvering

Background

A daughter, her mother, and the mother’s husband created matching trusts to keep the family fortune in the family. The daughter put about $680,000 into a trust and the mother about $193,000. Each trust gave income to a life tenant and provided that, if the life tenants died, the property’s remainder would go to the daughter’s children when they turned 21. The secondary life-income gifts were taxed and paid; the dispute was whether the future remainder interests were also taxable gifts. The tax commissioner said yes; the Board of Tax Appeals said no; the Circuit Court of Appeals sided with the commissioner.

Reasoning

The Court asked whether these transfers of future inheritance interests should be treated as completed gifts. It relied on the gift-tax statute and Treasury Regulation 79, which says the donor’s tax liability attaches when the transfer is made even if the donee’s identity is not yet known. The Court held that transfers of future interests are taxable and that these trust instruments on their face divested the donors of dominion over the property. The Court also rejected the idea that the transfers were ordinary business sales or that the donors proved adequate money consideration. Finally, the Court denied a deduction for the donors’ contingent reversionary interest because its value could not be reliably determined.

Real world impact

People who put property into trusts to control future inheritances can be taxed on those transfers even if beneficiaries are not yet identified. Donors seeking to reduce gift tax must show a reasonably ascertainable value for any retained interest; otherwise, no deduction is allowed.

Dissents or concurrances

Justice Roberts dissented, referring to the reasons he gave in the companion Smith opinion, but the majority opinion controls here.