Spiegel's Estate v. Commissioner of Internal Revenue (335 U.S. 632)/Dissent Burton

Mr. Justice BURTON, dissenting.

Except for its important reservation to the settlor of a right to the net income of the trust during the settlor's life, the deed of trust in this case is largely comparable to the trust instrument in the Spiegel case, 335 U.S. 701, 69 S.Ct. 301. Both speak for themselves as complete transfers in praesenti. Neither was made in contemplation of death.

The evidence of the factual intent of this settlor, likewise, is comparable to that of the settlor in the Spiegel case. In fact, the affirmative evidence that the settlor intended to make a transfer complete and absolute in praesenti is stronger here than in the Spiegel case. This settlor avowedly sought to protect not only his family but also himself against the possibility of his further disposal of his interest in the corpus of the trust. The remoteness of any possibility of a reverter, arising by operation of law, is comparable here to the remoteness of the alleged possibility of a reverter in the Spiegel case. Two other features of this case, however, require separate consideration.

First. It is the law of New York that must determine here whether the possibility of a reverter, either to the settlor or to his estate, arose by operation of law from the deed of trust. As this case came up from New Jersey, in the Third Circuit, we have no announcement of the law of New York from the United States Court of Appeals for the Second Circuit which includes New York. Furthermore, when the United States Court of Appeals for the Third Circuit rendered its judgment in favor of the taxpayer, it did so in express reliance upon the opinion of the Tax Court and the Tax Court, in turn, did not elucidate the law of New York.

While I rest my conclusion in favor of affirmance upon the absence of the factual intent which, as stated in my dissent in the Spiegel case, I believe is required by s 811(c) of the Internal Revenue Code, a substantial argument might be made for affirmance on the ground that, under the law of New York, no possibility of a reverter arose from this trust by operation of law. A substantial argument might also be made for affirmance on the ground that the alleged possibility of a reverter, here and also in the Spiegel case, should be disregarded on the doctrine of de minimis non curat lex.

Second. In the opinion of the Court in the instant case, the judgment below is reversed, however, without facing any of the above grounds for its affirmance. This i done by overruling May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, and that action has carried with it the foundation for this Court's opinion in Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858. The effect of such reversal is to place this trust, which was executed in 1924, in the same position as though it had been executed after the Joint Resolution of March 3, 1931, 46 Stat. 1516, 1517. That Resolution made the federal estate tax applicable to property transferred thereafter by any deed of trust that reserved to the transferor a right to the possession or enjoyment of or the income from the trust property during his life. There is no doubt but that the transfer in the instant case would have been subject to the estate tax if the deed of trust had been executed after, instead of before, the Resolution of March 3, 1931. The legislative history of that Resolution demonstrates, however, that it was not intended to be retroactive. Its prospective character also carried with it at least a congressional recognition of the existence of some basis for making a distinction between prior and future transfers of the type described.

After the execution of the instant trust in 1924-and certainly between March 3, 1931 and the death of the settlor on December 11, 1939-there was little, if any, reason for him to consider making further disposition of his reserved rights in order to protect his estate from the federal estate tax. Between 1924 and 1939, there were handed down by this Court its decisions in May v. Heiner, supra, on April 14, 1930; Morsman v. Burnet, 283 U.S. 783, 51 S.Ct. 343, 75 L.Ed. 1412, and its two companion cases, on March 2, 1931; and Hassett v. Welch, supra, on February 28, 1938. In those of the above decisions which were rendered before March 3, 1931, this Court unanimously and unequivocally held that the federal estate tax was not to be applied to a trust merely because of the retention thereunder of a right in the settlor to receive the income of the trust during his life. The entry made by this Court in each of the companion cases decided March 2, 1931, expressly stated a doubt as to the constitutional authority of Congress to enact a law which would apply the estate tax retroactively to transfers that already had been made. The action of Congress on March 3, 1931, reflected that doubt. The seven Justices who participated in the case of Hassett v. Welch, supra, in 1938, refrained from expressing doubt as to the state of the law before March 3, 1931. In that case the Court reviewed carefully the legislative history that was material to the case and also the administrative interpretation which had been given to the statute. The Court concluded as follows (303 U.S. at pages 314, 315, 58 S.Ct. page 565, 82 L.Ed. 858):

'In view of other settled rules of statutory construction, which teach that a law is presumed, in the absence of clear expression to the contrary, to operate prospectively; that, if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer, we feel bound to hold that the Joint Resolution of 1931 and section 803(a) of the Act of 1932 apply only to transfers with reservation of life income made subsequent to the dates of their adoption respectively.

'Holding this view, we need not consider the contention that the statutes as applied to the transfers under consideration deprive the respondents of their property without due process in violation of the Fifth Amendment.'

Thus, up to the time of the settlor's death in 1939, he never was given reason, at least by this Court, to suspect that the property which he had included in his 1924 deed of trust would be added to his gross estate for federal estate tax purposes.

The issue as originally presented in May v. Heiner was solely one of statutory interpretation and there were persuasive arguments for deciding the case either way. However, the unanimous decision of this Court in that case changed the status of that issue. Thereafter, the statute carried the meaning ascribed to it by this Court. Such an acceptance of the effect of May v. Heiner was expressly stated in the three per curiam companion decisions of March 2, 1931. This acceptance also has been evidenced in some degree by the failure of Congress, at any time, to set forth a contrary view on its part as to the meaning of its original language. Congress merely added new language to change the effect of that interpretation for the future. The Treasury Department conformed its regulations and practices to the reasoning of May v. Heiner. This Court further acceded to this view in 1938 in Hassett v. Welch and in the companion case of Helvering v. Marshall, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858, when it affirmed the respective lower court judgments in those cases. The lower courts had held that certain pre-1931 comparable trusts, executed in 1920 and 1924, were not subject to the federal estate tax. Today, with ten additional years of administrative practice in conformity with it, the rule of May v. Heiner should be substantially less subject to reversal than in 1938. The doctrine of stare decisis, with full recognition of its appropriate limitations as expressed in Helvering v. Hallock, 309 U.S. 106, 119-122, 60 S.Ct. 444, 451 453, 84 L.Ed. 604, 125 A.L.R. 1368, weighs strongly against a reversal of May v. Heiner now. The problem presented here is just such a one as was said not to exist in the Hallock case. The problem here is one of rejecting a settled statutory construction. This Court's reversal of the May v. Heiner construction of the estate tax statute as to pre-March 3, 1931-trusts does retroactively, in 1948, what this Court and Congress respectively, declined to attempt in 1931. Since 1931, countless taxpayers doubtless have relied upon and benefited by the interpretation announced in May v. Heiner. They had no more right to such benefits than has the taxpayer in this case. If the Government, after this reversal, issues regulations to relieve, in all fairness, settlors who, in demonstrated reliance upon the decisions of this Court and upon the practice of the Treasury Department, have not disposed of their reserved rights under pre-March 3, 1931-trusts like the present one, such special regulations will further emphasize the unique unfairness of enforcing the present decision against the taxpayer in the instant case.

By reversing May v. Heiner this Court repudiates the finality of its 1930 and 1931 decisions interpreting the pre-1931 legislation. It holds that the statutory interpretation then announced by this Court of final resort is not final, except as to the parties to the respective cases in which the original judgments are res judicata. After reliance by the Judicial, Legislative and Executive branches of the Government for 18 years upon this authoritative statutory construction, a reversal of it can be justified only by extraordinary circumstances. I fail to find such circumstances, either in the merits of the decision, in the nature of the issue or in the relative importance to the general public of a reversal as against an affirmance of the original interpretation of this tax statute. The statutory interpretation established in May v. Heiner has a peculiarly limited application because its interpretation of the statute in relation to future trusts was cut off on March 3, 1931. Passage of time will soon eliminate transfers made prior to that date by settlors who are yet to die or who have died and whose estates may still be forced to include such transfers for federal estate tax purposes. The 1931 legislation plus the passage of time would thus have disposed of May v. Heiner without the injustices that will now arise from its reversal.

Value is added to the fully considered decisions of this Court by our own respect for them. Faith is justifiable that this Court will exercise extreme self-restraint in using its power of self-reversal. While that power is essential in appropriate cases and is an inherent part of this Court's finality of jurisdiction, each case that suggests its use should be scrutinized with the utmost care. In the instant case I find arguments to suggest and support, but not to require, a construction of the statute contrary to that originally given in May v. Heiner. I find nothing sufficient to justify the reversal of this Court's original construction 18 years after this Court approved it unanimously and 17 years after this Court unanimously reaffirmed that approval. Likewise, I find nothing in the intervening decisions of this Court that force this reversal upon us. For these reasons, I believe that the judgment of the Court of Appeals should have been affirmed on the authority of May v. Heiner and Hassett v. Welch, and upon the principles stated in my dissent in the Spiegel case.