Brief for the Respondent — Commissioner v. Estate of Field

cm,

IN THE

Supreme Court of the United States

OcToBER TERM, 1944

No. 578

COMMISSIONER OF INTERNAL REVENUE,

Petitioner,

against

ESTATE OF LESTER FIELD, DECEASED, BAR-

NETT HOLLANDER, TEMPORARY ADMINIS-

TRATOR AND EXECUTOR,

Respondent.

On PeTiTION FoR A WRIT OF CERTIORARI TO THE UNITED

STATES CirRCUIT Court OF APPEALS

FOR THE SECOND CIRCUIT.

BRIEF FOR RESPONDENT

EpGAR J. BERNHEIMER

Harry T. ZuCKER

Respondent's Counsel.

a

INDEX

. é PAGE

I ee 1

Fidelity-Philadelphia Trust Co. V. Rothensies..... 3

xa se he aig RR ee 2

ns, ya a 8

CITATIONS

Bankers Trust C ompany v. Higgins, 136 F.2d. 477.. 2

Central National Bank y. U. 5., 41 F. Supp. 239..7. 8

Commissioner v. Flanders. 11] le ft > a eee age

Commissioner v. K ellogg, 119 F. 2d 54 Bee ee cke 4,7,8

tdelity-Phila. Trust Co. y. Rothensies, 142 F. 2d

coud (Erne -Spuine tele ia ania 5, 4, 5,8

Helvering y. Hallock, 309 U. S.106........... 4,2,7,8

Helvering v. St. Louis Trust Co., 206 U.S AR ae

Lloyd's Estate y. Commissioner, 141 F, 24 7 Sea

Reinecke v. Northern Trust Company, 287 U.S. 339. a

Schultz v. U. §., 140 F. a ee aa Re a

IN THE

Supreme Court of the United States

OCTOBER TER M, 1944

COMMISSIONER OF INTERNAL REVENUE,

Petitioner,

against

ESTATE oF LESTER FIELD, DECEASED,

DARNETI HOLLANDER, TEMPORARY

Respondent.

reer ee

On Petition FOR A Writ or CERTIORARI TO THE UNITED

STATES Crrx CIT Court of APPEALS

FOR THE SECOND CIRCUIT.

BRIEF FOR RESPONDENT

| The facts sufficiently appear in the opinion of the learned

| court below (144 F. 2q 62). In its opinion the Circuit

Court, mindful of the language of this court in Helvering

V. Hallock,’ where it was said:

“The measure of the tax is the value of the trans-

ferred prope rty at the time when Ceath brings it int,

enjoyment,

held that the value of the transfer at decedent’s death con-

sisted of the value of the trust property minus the value of

the life expectancies of the two nieces of the decedent whi Ise

lives were to measure the life of the trust ( R. 42). Since the

tax Is concerned With a shitting #Af economic benetits

Woeneecenen

‘Helvering Vv. Hallock, 309 U. S. 106.

2

(Remecke v. Northern Trust Company*) it was properly

held that the measure of the benefit alone be subject to tax

(Commissioner v. Flanders,® Bankers Trust v. Higgins*)

By its decision in the Hallock case this court in effect

approved the minority opinion in Helvering v. St. Louis

Trust Company’ wherein Mr. Chief Justice Stone wrote (p.

40):

“T think that the value of that interest was

rightly subjected to the tax imposed by Section

302(¢)”; (Italics ours. )

and later the learned Chief Justice wrote:

“The section, in it® scope and purpose, is thus

similar to Section 302(d) which includes in the de-

cedent’s taxable estate the value of his interest held

as joint tenant or tenant by the entirety although

created by deed inter vivos. Tyler v. U. S., 2x1

8 ie? S. 497; Philips v. Dime Trust & S. D. Co., 284

"U.S. 160.” (Italics ours. )

In Commissioner v. Fianders, supra, the learned court

said (p. 121):

“In view of the decision of the Supreme Court

in Helvering v. Hallock, 309 U. S. 106, 60 S. Ct

444, 84 L. Ed. — , 125 A. L. R. 1368, handed down

January 29, 1940, we hold the settlor’s possibility ot

reverter a taxable interest under Section 302(c).”

In Bankers Trust Company v. Higgins, supra, the |

‘ learned Circuit Court wrote (p. 478):

“Reimecke v. Northern Trust ( Om pany, 287 U.S. 339, 346

“Commissioner Vv. Flanders, CCA 2, 111 F. 2d 117.

“Bankers Trust Company v. Higgins. CCA 2, 136 F. 2:

477.

“Helvering v. St. Louis Trust Company, 296 U. S. 39.

3

“The remainders were therefore relieved of a

burden by his death; that relief was an ‘interest’

which ‘took effect’ at that moment by increasing the

remainders pro tanto, and it was proper to include

it in the estate under the doctrine of Helvering v.

Hallock, supra, 309 U. S. 106, 60 S. Ct., 444, 84 L.

Ed. 604, 125 A. L. R. 1368.”

The decision of the learned court below was therefore

clearly right.

The cases of Fidelity-Phila. Trust Co. v. Rothensies®

and Schultz v. U. 8S! are clearly distinguishable on their

jacts from the situation here presented.

Fidelity-Phila. Trust Co. y. Rothensies

It is quite true that in the above-mentioned case the

Court held that the reservation of a reversionary interest

rendered the corpus of the trust taxable to the extent of

its full value.

The reasoning of the opinion there, however, excludes

and exempts the similar taxation of the corpus of the trust

in the instant case. In the Fidelity-Phila. Trust Co. case.

the Court reached the conclusion that it had to deal with

a transter effective at or after death. This conclusion was

arrived at in view of the peculiar and special provisions of

that trust which resulted in the decision that the grantor

“selected to hold in suspense the ultimate disposition * * *

(the) property until the moment of * * * death.”

In the Fidelity-Phila. Trust Co. case the decedent had

created a trust reserving the income to herself for life and

upon her death in equal shares to her two daughters dur-

ing their respective lives with remainder to the descend-

"Fidelity-Phila Trust Co. v. Rethensies. CCA 3, 142 F. 2d

x38

i.

"Schultz v. U. S., CCA 8, 140 F. 2d 945.

4

ants ot the daughters and (importantly) in the event of

the death of the daughters without issue to such persons

as the Trustor should appoint by Will. In that case th:

daughters were without issue at the time of the making

of the trust (just as was the decedent in the instant case )

but in that case such issue survived the Trustor. The de.

cision was made expressly upon the ground as stated by

the Court (p. 841)

a

“Since the disposition of the estate was held in sus-’

pense until her death, that event compels the Imposi-

tion of the tax. The rights of the beneticiaries other

than those of the grantor’s daughters*could not. be-

come absolute until the death of the grantor and had

to remain contingent or conditional at least until the

happening of that event.”

The Court in the Fidelity-Phila. Trust Co. case in reac!

ing the conclusion that it did recognize the necessity «of

distinguishing the Kellogg case, 119 F. 2d gt. and by this

very necessity recognized the controlling effect of the

Kellogg decision when applied to appropriate facts. In the

Fidebity-Phila. Trust Co. case the Court said (p. &40)

“The case at bar is distinguishable from the Kellogy

case on which the appellant strongly relies for in tha:

case, as we have stated, 119 F. (2d) at ae

‘* * * the fact of importance * * * is that the grantor

during his lifetime disposed of his interests in the

corpus of the trust as well as any man could.’ Kel-

logg retained nothing. He had merely a possibilit,

ot reverter.”’

In the case at bar even in the absence of issue of the

decedent or upon the failure of such issue to survive, the

corpus of the trust is completely disposed of to the brother

and sister of the decedent. In the case at bar such brother

a

ae ee ee ee ee eee PD

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5

and sister at all times possessed a vested remainder subject

to be divested only by the birth of issue of the decedent

which in tact never occurred. In the case at bar it could

not be said that the disposition of the estate was held in sus-

pense until the donor’s death, but rather more nearly as

Was said in the decision in the Kellogg case (supra, p. 57),

the grantor during his lifetime disposed of his interests in

the corpus of the trust as well as any man could. Similarly

as was said in Kellogg’s decision (p. 56) :

“possible transmission to the next of kin was depend-

ent not upon the grantor’s death, bat upon the death

of various intermediary persons who were all living

at the date of the grantor’s death.”

and as was affirmed in the opinion of the Kellogg case (p.

56):

“The decedent's death had no effect on any specified

interest of his children. or on any potential interest

of his next of kin in the property sought to be taxed

as a part of his estate.”

In the Fidelity-Phila. Trust Co. case it was necessarily

the death of the donor which established finally and de.

finitively the disposition of the corpus of the trust, where

as in the instant case the death of the donor was not a

necessary tactor. In actuality it had no effect upon the

tinal disposition of the corpus other than to dispose of the

mere possibility of reverter which theretofore had been

vested in the decedent.

Schultz vy. U.S.

In this case the proceeds of certain life insurance policies

Which were retained by the insurance company and upon

>» *

6

which interest was paid to the insured for life with re-

mainder over 6n his death, were held to be included in

insured’s gross estate in computing estate tax under the

Revenue Act of 1926, Section 302’ (c) as amended. As its

controlling reason the court held and declared ( p. 948):

“Here, as in the Hallock and Klein cases. the in

terests granted decedent's wite and daughter by the

settlement provision incorporated in the policies were

contingent upon their survival of decedent. Only

decedent's death gave those interests ‘definitive meas

ure.” The death of the decedent was the ‘indispens

able and intended event’ which brought the interest

of the wife and daughter into being and ‘effected its

transmission from the dead to the living’. Klein v.

United States, supra, 283 U. S. at page 234, 5]

S. Ct. at page 399, 75 L. Ed. 996."

At page 949 the court said that it would “regard the pro

ceeds of the policies‘involved in the case at bar as c ming

to the beneficiary through the death of the insured”. ( Italics

ours. )

In its discussion of the tacts in the Schultz Case, the

court declared at page 947:

“It the policies matured as endowments. th

amounts payable under them were to be retained by

the company and interest thereon at the rate

$2.47 per thousand dollars was to be paid to Herman

I. Schultz, Jr.. for life, as beneficiary, and then 1

his wite as contingeit beneficiary for her life if shi

survived the insured.” (Italies ours. )

These facts and the enunciated reasons for the conclusior

of the court based upon the facts in the Schultz case, dit

terentiate it diametrically from the case here. In the cast

PS Nod

SO. eee orn

7

at bar it was not, to paraphrase the decision in the Schult:

case (p. 948), only decedent's death that “gave those inter-

ests definitive measure’, and to continue the paraphrase, the

death of the decedent was not “the indispensable znd in-

tended event” which brought the interest of the remairder-

men into being. On the contrary in the case at bar, as de

clared in the Reinecke case, supra, at page 346, “the shift-

ing of the economic interest in the trust pre iperty which was

the subject of the tax was thus complete as soon as the

trust was made”, and as said in Commissioner of Internal

Kevenue v. Kellogg, supra, at page 56:

“Hence, the decedent's death had no effect on any

specified interest of his children or on any beneficial

interest of his next of kin in the pri perty sought to

be taxed as a part of his estate”:

and later, at page 37,

“We think that the fact of importance in the

case is that the grantor during his lifetime disposed

ot his interests in the corpus of the trust as well as

any man could.

In fact. the case at bar would seem to come expressly

within the theory declared by the court in the Schuliz case

(p. 948) in its discussion of Helvering v. Hallock. supra:

“The court held the transfers complete as of the

execution of the trusts on the ground that there wa-

no shifting of economic interests in the trust prop-

erty taking effect at or after the death of the settlor.

The interests of the beneficiaries were c mplete

upon the execution of the trusts. The Seftlor’s death

determined only the time of enjoyment of those in-

8

terests by the beneficiaries. It could not diminish

nor increase the interest transferred.”

Under the trust instrument in question (R. 6-17) the

death of the decedent donor was not and could not be the

generating cause of the transfer. Only the death of the

two measuring lives could have been the generating cause

of any such transfer.

Although Fidelity-Phila. Trust Co. v. Rothensics, supra,

and Schultz v. U. S., supra, cited by petitioner are readily

distinguishable on their facts as stated from the situation

here presented, we feel that in the light of the court’s lan

guage in Helvering v. Hallock, supra, and the dissenting

opinion in Helvering v. St. Louis Trust Company, supra,

we must perforce register our accord with the view of the

Solicitor General that conflict exists between the /ideli/\

and Schultz cases and the decision in this case. The Fideli!;

and Schulte cases appear also to contlict with Comutssioner

v. Flanders, supra, Bankers Trust Company v. Higguis

supra, Commissioner Vv. Kellogg, Lloyds Estate v. Coni

missioner’ and Central National Bank of Cleveland vy.

eo.

jt may be that the court will, therefore, grant the Com-

missioner’s petition for certiorari. If the court be »

minded, it is prayed that the cause be set down for argu

ment immediately after Fidelity-Philadelphia Trust Co.

Rothensies, No. 263 October 1944 Term, in which certo

rari was granted.

‘Commissioner v. Kellogg, CCX 3, 119 FF. 2d 54.

*Lilovds Estate v. Commissioner, CCN 3, 141 FF. 2d 758

“Central National Bank of Cleveland v. U. S., Ct. Cls. 41

Supp. 239.

Or

NRT NED

APPR: ot ees Deill canny re

9

We are permitted to say that the Solicitor General has

indicated that he has no objection to the foregoing pro-

cedure.

Respectfully submitted,

EDGAR ]. BERNHEIMER

Harry T. ZUCKER

Respondent's Counsel.

Sd)