Commissioner v. Estate of Field

Background

On June 8, 1922 a person transferred assets into a trust. At his death in 1937 those assets were worth $157,452.82. The trust paid income to him for life and was to last for the joint lives of two nieces, then to their issue or other relatives. If both nieces died before him the trust said the corpus would return to him, and he retained the right to reduce or cancel gifts by will or written instrument. He was survived by the two nieces (then aged 18 and 25), a widow, a sister, and the children of a deceased brother. The Tax Court included the whole amount in the gross estate; the appeals court instructed the Tax Court to include only the present value of the remainder.

Reasoning

The central question was whether the full trust property must be counted in the creator’s estate when he kept a reserved power that could bring the property back at or after his death. The Court held that because the creator retained a possibility of reversion until his death, that uncertainty brought the entire corpus into his gross estate. The Court rejected reducing the taxable value by measuring the nieces’ life expectancies and emphasized that estate tax is based on the value of the property to which the reversionary interest relates.

Real world impact

People who put assets into living trusts but keep powers that could return the property to themselves risk having the entire trust counted for estate tax. Executors and heirs may face larger estate tax bills when the trust creator retains control that survives until death. Tax decisions will turn on whether any possibility of reversion remains at the creator’s death.

Dissents or concurrances

Justice Douglas concurred separately, noting that a different trust design — giving the creator only a life income and leaving a fixed remainder to children without reservation — might produce a different tax result.