petent she would have desired that the sums named in the earlier decree be augmented, raised the allowances to the daughters and to the grandchildren collectively to $75,000, retroactive to the date of the original order. It was never claimed, and is not contended, that the next of kin needed any such allowances for their maintenance and support in their station in life. It is conceded that the brother and sisters to whom allowances were made were destitute and in need of maintenance.

At Mrs. Vail's death the allowances theretofore paid totaled $1.377,866.67. The Commissioner of Internal Revenue included the sum in the decedent's gross estate and determined a deficiency. The petitioner, as administrator, paid the sum demanded, claimed a refund and, on denial, instituted this action in the District Court. That court, upon consideration of the record of the proceedings in the Supreme Court of New York, found that the total of the allowances was properly included in the decedent's gross estate, except so much as represented annual payments to the daughter and the grandchildren's guardian of $6,000 each and $500 per annum of the gifts to collaterals, and entered judgment accordingly.2 The Circuit Court of Appeals, by a divided court, affirmed the judgment. We granted certiorari.

The Supreme Court of New York is empowered by statute to act as representative of the State, as parens patriae, in caring for the persons and the estates of its incompetent citizens. That court may grant allowances out of income only if it determines that the incompetent would probably have granted such allowances himself had he been sane. The court does not, in any proper sense, act as the incompetent's agent. In the exercise of the power the primary consideration is that the incompetent's property shall not be wasted but preserved against the possibility of restoration to sanity. On these propositions the parties are in accord.

The petitioner urges that the present case is not within the terms of the statute and that, in enacting § 302, Congress did not contemplate any such contingency as that here involved. It insists that Mrs. Vail made no transfer but, if any was made, the court made it; that she had and could have no motive in respect of the gift. In addition, it urges that, under the State law, the court's control over the estate ceases at the incompetent's death, and the court cannot make a will for her or in any wise interfere with the devolution of her estate. Hence, it concludes that to suggest the court sanctioned transfers of a testamentary character is to assume that it exceeded its powers. Such an assumption, so petitioner says, ought not to be indulged. On the contrary, it should be presumed that the court acted within its granted powers; that is, authorized transfers inter vivos, with no testamentary motive.

The Government, on the other hand, takes the position that nothing in the law of New York, and no authority cited by the petitioner, precludes the State court from making an allowance in contemplation of death if, upon the record made, the court, placing itself in the incompetent's position on the supposition that she were sane and competent, concludes that she would have made the transfers. And, it adds, that what was done by the Supreme Court in this case was not appealed and

2 43 F. Supp. 790.

3142 F. 2d 599.

is now beyond correction, if erroneous, and that the records and orders evince an understanding that the certainty of continuance of disability until death, the fact of intestacy, and the natural expectations of the distributees under the intestate laws were prevalent factors in moving the court to make the orders in question, and characterize the court's action as taken in contemplation of death. The Government says that, as the court was required to, and did, act as the decedent would have acted if competent, this case is not outside the terms of § 302 (c) but, on the contrary, in contemplation of law, the decedent did make the transfers in question.

The issue is a narrow one. Literally Mrs. Vail neither made the transfers nor did she have any motive with respect to them. But a court stood in her place and unquestionably had the function of effectuating a transfer of her property and of determining what motive or purpose would have actuated her had she been competent to act. It seems to us that it is sticking in the bark to say that, in the circumstances, the transfers are not within the section because Congress did not add a phrase to the effect that where a court made the transfer, acting in lieu of the incompetent owner, such a transfer should be governed by the statute.

We hold, therefore, that where, as in New York, the court is to substitute itself as nearly as may be for the incompetent, and to act upon the same motives and considerations as would have moved her, the transfer is, in legal effect, her act and the motive is hers.

This being so, the only remaining question is whether the proof was sufficient to overcome the presumption arising from the Commissioner's determination that the transfers were made in contemplation of death. The applicable test is that stated in United States v. Wells, 283 U. S. 102. This is whether the thought of death is the impelling cause of the transfer. As respects the descendants of Mrs. Vail, it would seem clear enough that there was no dominant motive for the transfer other than the thought that, as they would inherit her estate, and as there was a large accumulation of unneeded income, they might as well receive substantial portions now as await her death to enjoy their inheritance. The fact that these beneficiaries did not stand in need of the money, the fact that the increase granted at the second hearing was made retroactive, and that the past instalments were paid in a lump sum, the arguments of counsel in both hearings that the only reason for granting the allowances to Mrs. Vail's descendants was that they inevitably would divide her estate amongst them, and the recitals of the court orders, to which reference has been made, all go to confirm, rather than to undermine the Commissioner's determination. We think the District Court was right in holding that, to the extent of $6,000 per annum, which was the sum Mrs. Vail, when competent, had regularly allowed each of her daughters, the transfers fall without the terms of § 302 (c), but that the balance of the payments to her descendants falls within its sweep.

A different question is presented respecting the allowances to collaterals. It appears that they were in need of funds for their maintenance and support, and it is obvious that no payments to them could be on account of any share of their sister's intestate estate. The allowances have the color of current payments for support and they

were authorized because the court concluded that, if sane and cognizant of the situation, Mrs. Vail would have made them. These considerations lead to the conclusion that the Commissioner's determination concerning them is rebutted and that they should not have been included in the decedent's gross estate. To the extent indicated the judgment of the Circuit Court of Appeals is reversed.

C. GIFT TAX

So ordered.

1. SMITH v. SHAUGHNESSY, COLLECTOR OF INTERNAL

REVENUE

(318 U. S. 176. No. 429-Decided February 15, 1943)

1. Under an irrevocable transfer of property in trust, the income was to be paid to the grantor's wife for life; upon her death, the corpus was to go to the grantor if living or, if not, to the wife's heirs. Concededly, the wife's life interest was subject to the federal gift tax. Held that the remainder interest, less the value of the grantor's reversionary interest, was subject to the gift tax imposed by §§ 501, 506 of the Revenue Act of 1932. P. 180.

2. The gift tax under the Revenue Act of 1932 amounts in some instances to a security for the payment eventually of the federal estate tax; it is in no sense double taxation. P. 179.

3. The language of the provision of the Revenue Act of 1932 imposing a tax upon every transfer of property by gift, whether the property is "real or personal, tangible or intangible," is broad enough to include a contingent remainder; and the provisions of the Treasury regulations for application of the tax to, and determination of the [177] value of, "a remainder . . . subject to an outstanding life estate" are consistent with the purpose of the Act. P. 180. 4. In a case such as this, where the grantor has neither the form nor substance of control over the trust property, and never will have unless he outlives his wife, it must be concluded that the grantor has relinquished economic control over the trust property and that the gift was complete except for the value of his reversionary interest. P. 181.

128 F. 2d 742, affirmed.

CERTIORARI, 317 U. S. 617, to review the reversal of a judgment, 40 F. Supp. 19, ordering a refund of a federal gift tax.

MR. JUSTICE BLACK delivered the opinion of the Court.

The question here is the extent of the petitioner's liability for a tax under §§ 501, 506 of the Revenue Act of 1932, 47 Stat. 169, which imposes a tax upon every transfer of property by gift, "whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible;

The petitioner, age 72, made an irrevocable transfer in trust of 3,000 shares of stock worth $571,000. The trust income was payable to his wife, age 44, for life; upon her death, the stock was to be returned to the petitioner, if he was living; if he was not living, it was to go to such persons as his wife might designate by will, or in default of a will [178] by her, to her intestate successors under applicable New York law. The petitioner, under protest, paid a gift tax of $71,674.22, assessed on the total value of the trust principal, and brought suit for refund in the district court. Holding that the petitioner had, within the meaning of the Act, executed a completed gift of a life estate to his wife, the court sustained the Commissioner's assessment on $322,423, the determined value of her life interest; but

the remainder was held not to be completely transferred and hence not subject to the gift tax. 40 F. Supp. 19. The government appealed and the Circuit Court of Appeals reversed, ordering dismissal of the petitioner's complaint on the authority of its previous decision in Herzog v. Commissioner, 116 F. 2d 591. We granted certiorari because of alleged conflict with our decisions in Helvering v. Hallock, 309 U. S. 106, and Sanford v. Commissioner, 308 U. S. 39. In these decisions, and in Burnet v. Guggenheim, 288 U. S. 280, we have considered the problems raised here in some detail, and it will therefore be unnecessary to make any elaborate re-survey of the law.

Three interests are involved here: The life estate, the remainder, and the reversion. The taxpayer concedes that the life estate is subject to the gift tax. The government concedes that the right of reversion to the donor in case he outlives his wife is an interest having value which can be calculated by an actuarial device, and that it is immune from the gift tax. The controversy, then, reduces itself to the question of the taxability of the remainder.

The taxpayer's principal argument here is that under our decision in the Hallock case, the value of the remainder will be included in the grantor's gross estate for estate tax purposes; and that in the Sanford case we intimated a general policy against allowing the same property to be taxed both as an estate and as a gift.

[179] This view, we think, misunderstands our position in the Sanford case. As we said there, the gift and estate tax laws are closely related and the gift tax serves to supplement the estate tax.1 We said that the taxes are not "always mutually exclusive," and called attention to § 322 of the 1924 Act there involved (reenacted with amendments in § 801 of the 1932 Act) which charts the course for granting credits on estate taxes by reason of previous payment of gift taxes on the same property. The scope of that provision we need not now determine.. It is sufficient to note here that Congress plainly pointed out that "some" of the "total gifts subject to gift taxes... may be included for estate tax purposes and some not." House Report No. 708, 72d Cong., 1st Sess., p. 45. Under the statute the gift tax amounts in some instances to a security, a form of down-payment on the estate tax which secures the eventual payment of the latter; it is in no sense double taxation as the taxpayer suggests.

We conclude that under the present statute, Congress has provided as its plan for integrating the estate and gift taxes this system of secured payment on gifts which will later be subject to the estate tax.2

[180] Unencumbered by any notion of policy against subjecting this transaction to both estate and gift taxes, we turn to the basic question of whether there was a gift of the remainder. The government argues that for gift tax purposes the taxpayer has abandoned control of the remainder and that it is therefore taxable, while the taxpayer con

1 The gift tax was passed not only to prevent estate tax avoidance, but also to prevent income tax avoidance through reducing yearly income and thereby escaping the effect of progressive surtax rates. House Report No. 708, 72d Cong., 1st Sess., p. 28; Brandeis, J., dissenting in Untermyer v. Anderson, 276 U. S., 440, 450; Stone, J., dissenting in Heiner v. Donnan, 285 U. S. 312, 333.

2 It has been suggested that the congressional plan relating the estate and gift taxes may still be incomplete. See e. g., Griswold, A Plan for the Coordination of the Income, Estate, and Gift Tax Provisions, etc., 56 Harv. L. Rev. 337; Magill, The Federal Gift Tax, 40 Col. L. Rev. 773, 792; Kauper, The Revenue Act of 1942: Estate and Gift Tax Amendments, 41 Mich. L. Rev. 369, 388; and see Commissioner v. Prouty, 115 F. 2d 331, 337; Higgins v. Commissioner, 129 F. 2d 237, 239.

tends that no realistic value can be placed on the contingent remainder and that it therefore should not be classed as a gift.

We cannot accept any suggestion that the complexity of a property interest created by a trust can serve to defeat a tax. For many years Congress has sought vigorously to close tax loopholes against ingenious trust instruments. Even though these concepts of property and value may be slippery and elusive they can not escape taxation so long as they are used in the world of business. The language of the gift tax statute, “property .. real or personal, tangible or intangible,” is broad enough to include property, however conceptual or contingent. And lest there be any doubt as to the amplitude of their purpose, the Senate and House Committees, reporting the bill, spelled out their meaning as follows:

"The terms 'property,' 'transfer,' 'gift,' and ‘indirectly' [in § 501] are used in the broadest and most comprehensive sense; the term 'property' reaching every species of right or interest protected by law and having an exchangeable value." +

The Treasury regulations, which we think carry out the Act's purpose, made specific provisions for application of [181] the tax to, and determination of the value of, "a remainder . . subject to an outstanding life estate.” 5

The essence of a gift by trust is the abandonment of control over the property put in trust. The separable interests transferred are not gifts to the extent that power remains to revoke the trust or recapture the property represented by any of them, Burnet v. Guggenheim, supra, or to modify the terms of the arrangement so as to make other disposition of the property, Sanford v. Commissioner, supra. In the Sanford case the grantor could, by modification of the trust. extinguish the donee's interest at any instant he chose. In cases such as this, where the grantor has neither the form nor substance of control and never will have unless he outlives his wife, we must conclude that he has lost all "economic control" and that the gift is complete except for the value of his reversionary interest.*

The judgment of the Circuit Court of Appeals is affirmed with leave to the petitioner to apply for modification of its mandate in order that the value of the petitioner's reversionary interest may be determined and excluded.

MR. JUSTICE ROBERTS:

It is so ordered.

I dissent. I am of opinion that, except for the life estate in the wife, the gift qua the donor was incomplete and not within the sweep of §§ 501 and 506. A contrary conclusion might well be reached were it not for Helvering [182] v. Hallock, 309 U. S. 106. But the decisions

32 Paul. Federal Estate & Gift Taxation, Chap. 17: Schuyler, Powers of Appointment and Especially Special Powers: The Estate Taxpayer's Last Stand, 33 Ill. L. Rev. 771; Leaphart. The Use of the Trust to Escape the Imposition of Federal Income & Estate Taxes, 15 Corn. L. Q. 587.

Senate Report No. 665, 724 Cong., 1st Sess., p. 39; House Report No. 708, supra, p. 27. 5 Treas. Regulations 79 (1936 Ed.), Arts. 2, 3, 17, 19. Cf. Commissioner v. Marshall, 125 F.2d 943, 945.

The conclusion reached here is in accord with that of the several Circuit Courts of Appeals which have considered the problem: Commissioner v. Marshall, 125 F. 2d 943 (C. C. A. 2d): Commissioner v. Beck's Estate. 129 F. 2d 243 (C. C. A. 2d); Commissioner v. McLean, 127 F. 2d 942 (C. C. A. 5th); Helvering v. Robinette, 129 F. 2d 832 (C. C. A. 3d), affirmed, post, p. 184: Hughes v. Commissioner, 104 F. 2d 144 (C. C. A. 9th); and see the cases cited in Note 2, supra.