Opinion — Helvering v. Grinnell

ABEL EE Ce r=

SUPREME COURT OF THE UNITED STATES.

No. 268.—OcToBER Term, 1934.

Guy T. Helvering, Commissioner of

Internal Revenue, Petitioner,

vs.

KE. Morgan Grinnell, as Executor of

the Estate of Annie Stone.

On Writ of Certiorari to

the United States Cir-

cuit Court of Appeals

for the Second Cireuit.

[February 4, 1935.]

Mr. Justice SuTHERLAND delivered the opinion of the Court.

In 1876, John O. Stone died a resident of New York. He left

a will by which he created for the benefit of his daughter, the de-

cedent, Annie Stone, a trust fund, the income from which was to

be paid to her during her life. The will provided that upon her

death her share of the estate should go and be applied to such

persons and such uses as she might appoint by last will and testa-

ment; but in default of such appointment, her share of the estate

should go and belong to her children or issue, respectively, by right

of representation; or, in default of such issue, to her next of kin.

Surviving John O. Stone, were his widow and three daughters

~—namely, this decedent, and Ellen J. Stone and Sarah J. Grinnell.

These constituted his only heirs at law and next of kin. The

widow died many years before the death of Annie Stone. Annie

Stone, the decedent, died September 24, 1927, unmarried, with-

out issue, and leaving as her sole next of kin her two sisters

just named. Her will provided “that what property or money

I am allowed to dispose of by will under the will of my dear

father, the late Dr. John O. Stone, of the city of New York,

I give, devise, and bequeath in equal shares to my dear sisters

Ellen J. Stone and Sarah J. Grinnell, . . .’ After the death

of Annie Stone, the two sisters in writing renounced their right

to receive the property under this paragraph of her will and

elected to take the property under the provisions of the will of

their father, John O. Stone.

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The Commissioner of Internal Revenue declared a tax deficiene

of several thousand dollars in the federal estate tax on the estat,

of Annie Stone, upon the theory that the property derived from

the estate of her father was required to be included in her gross

estate in virtue of the fact that she had exercised a power of ap-

pointment in respect thereof. The Board of Tax Appeals, on re-

view, sustained the commissioner. The order of the Board of Tax

Appeals based on this holding was reversed by the court of appeals,

70 F. (2d) 705, upon the ground that the property did not pass

under the exercise of the power; and consequently, an essential

condition of § 302 of the act of 1926 was not present.

See. 302, ¢. 27, 44 Stat. 9, 70, 71, provides:

**See. 302. The value of the gross estate of the decedent shall

be determined by including the value at the time of his death of

all property, real or personal, tangible or intangible, wherever

situated—

‘“(f) To the extent of any property passing under a general

power of appointment exercised hy the decedent (1) by will, or

(2) by deed executed in contemplation of, or intended to take

effect in possession or enjoyment at or after, his death, except in

ease of a bona fide sale for an adequate and full consideration in

money or money’s worth; —

The crucial words are ‘‘ property passing under a general power

of appointment exercised by the decedent by will.’’ Analysis of

this clause discloses three distinet requisites—(1) the existence

of a general power of appointment; (2) an exercise of that power

by the decedent by will; and (3) the passing of the property in

virtue of such exercise. Clearly, the general power existed and

was exercised; and this is not disputed. But it is equally clear

that no property passed under the power or as a result of its exer-

cise since that result was definitely rejected by the beneficiaries.

If they had wholly refused to take the property, it could not well

be said that the property had, passed under the power, for in that

event it would not have passed at all. Can it properly be said

that because the beneficiaries elected to take the property under

a distinet and separate title, the property nevertheless passed

under the power? Plainly enough, we think, the answer must be

in the negative.

The contention of the government is that the tax is imposed

‘upon the power to transmit or the transmission of property by

Ti live rid Vs Grit Mi dle /} 3

death; the shifting of the eeonomie benefits in property is the real

subject of the tax... . the property in question passed to

the sisters under the general power of appointment exercised by

the decedent by will within the meaning of the statute.’’ But this

involves the obviously self-destructive conclusion that an unsue-

cessful attempt to effectuate a thing required by the statute is

the same as its consummation. The tax here does not fall upon

the mere shifting of the economie benefits in property, but upon

the shifting of those benefits by a particular method—namely, by

their ‘* passing under a general power of appointment’’, and not

otherwise. Acceptance of the government’s contention would

strip the italicized word of all meaning.

The government relies upon Chase Nat. Bank v. United States,

278 U. 8S. 327, and Tyler v. United States, 281 U. S. 497. In

neither of these cases was the court concerned with the meaning

of the act. In the first case (p. 334) the court said the tax was

plainly imposed by the explicit language of the statute, and that

there was no question as to its construction. The sole question for

determination was as to the constitutional validity of the act. The

same is true in respect of the second case. Neither case sheds any

light upon the question here involved, namely, the meaning and

application of the statutory provision.

The court below leaned confidently upon the decision of the

New York Court of Appeals in the Matter of Lansing, 182 N. Y.

238. That well considered case and this in principle cannot be

distinguished. We think the reas@ning of the New York court

as to the meaning and application of the State law equally applies

to the federal statute here in question. There, as here, the con-

tention of the taxing authorities (there under the state act, here

under the federal act) was that the appointee named in the will

of the donee of the power took her property thereunder and not

under the will of the creator of the power, notwithstanding the

property had been given to her by the will of the former subject

to the power of appointment. But the state court answered that

the power gave the appointee nothing and took nothing away from

her; that she had the right of election and could refuse to take

under the appointment and still hold the property, since her title

without was as good as it was with the power; that she treated

the exercise of the power as a mere attempt and not as an effective

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4 Helvering vs. Grinnell,

execution of it; and that it sufficiently appeared that she elected

to reject title from that source.

‘*Her rights were fixed by the will of her grandfather, and un-

less changed pursuant to its provisions her estate in expectancy

would become an estate in possession upon the death of her

mother. . . . Although the power was exercised in form, her

title was perfect without it and she derived no benefit from it,

The power was to ‘dispose of the remainder’ and the remainder

was not disposed of but continued where it was. The attempt

to execute the power was not effective, because it did nothing. The

exercise of a power which leaves everything as it was before is a

mere form, with no substance.’’

The opinion, p. 244, points out that the power might have been

exercised so as to have left the appointee with no title at all; but

that in fact it was exercised so as to leave her the same title that

she would have had if the power had not been exercised. The

same is true here.

‘*An appointee under a power’’, the court continued, ‘‘has the

right of election, the same as a grantee under a deed. . . . He

can accept the title tendered or reject it in his discretion. It can-

not be forced upon him against his will. He cannot be compelled

to receive additional evidence of title when he does not want it,

and does not need it because his title is perfect without it. His

consent is necessary before the attempt to exercise the power be-

comes binding upon him the same as consent is necessary in making

a contract or agreement. Declining or refusing to take has the

same effect as incapacity to take, as in the ease of a devise to a

corporation which has no power to hold any more property because

the statutory limit has been exceeded. The title is not affected,

but remains where it was before.”’

We granted the writ of certiorari in this case because of an al-

leged conflict with Wear v. Commissioner, 65 F. (2d) 665, and

Lee v. Commissioner, 57 F. (2d) 399. The reasoning and conclu-

sions of those courts and of the court below cannot be reconciled.

We are of opinion that, to the extent of the conflict, the view of

the former is wrong and that of the court below is right, and we

hold accordingly.

Judgment affirmed.

A true copy.

Test:

Clerk, Supreme Court, U. S.