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282 U.S. 582
COOLIDGE et al.
LONG, Commissioner of Corporations and Taxation of Massachusetts.
Nos. 33, 34.
Argued Dec. 8-9, 1930.
Decided Feb. 24, 1931.
[282 U.S. 582, 584] Messrs. Robert G. Dodge and Harold S. Davis, both of Boston, Mass., for appellants.
[282 U.S. 582, 589] Messrs. James S. Eastham, of Lawrence, Mass., and Joseph E. Warner, of Boston, Mass., for appellee.
Mr. Justice BUTLER delivered the opinion of the Court.
Each of these appeals brings here for review a decree of the probate court of Norfolk county, Mass., entered in accordance with a rescript from the Supreme Judicial Court of the commonwealth. 167 N. E. 757, 758. In each appellants presented to the probate court an application for the abatement of an inheritance tax assessed under section 1, c. 65, General Laws. There was drawn in question the validity of the statute on the ground of its being repugnant to the contract clause of the Federal Constitution and the due process and equal protection clauses of the Fourteenth Amendment. The probate court reserved for the consideration of the Supreme Judicial Court all questions of law and the matter of what decrees should be entered. That court held the statute valid, and sustained the taxes.
The opinion states the facts as follows:
When the declaration of trust was excuted, on statute was in effect under which the succession to the trust property could have been subjected to this tax. The statutes then in force provided for the imposition of an excise only where the succession was to collateral relatives and strangers. The first relevant statute was approved June 27, 1907 (St. 1907, c. 563), and took effect September 1, about five weeks after the date of the declaration of the trust. It did not apply to property passing by deed, grant, sale, or gift made prior to its effective date. But by section 3, c. 678, St. 1912, it was made applicable 'to all property passing by deed, grant or gift ... made or intended to [282 U.S. 582, 595] take effect in possession or enjoyment after the death of the grantor or donor, if such death occurs subsequent to the passage hereof.' And see section 1, c. 563, St. 1914
Chapter 65, General Laws, effective since January 1, 1921, provides:
Section 1. 'All property within the jurisdiction of the commonwealth ... which shall pass by ... deed, grant or gift, except in cases of a bona fide purchase for full consideration in money or money's worth ... made or intended to take effect in possession or enjoyment after his (grantor's) death ... to any person, absolutely or in trust ... shall be subject to a tax. ...'
Section 36. 'This chapter shall apply only to property or interests therein passing or accruing upon the death of persons dying on or after May fourth, nineteen hundred and twenty. ...'
The Supreme Judicial Court sustained the exaction as an excise. It held that possession or enjoyment upon the death of the survivor of the settlors was a taxable commodity under the statute enacted after the creation of the trust.
The trust deeds are contracts within the meaning of the contract clause of the Federal Constitution. They were fully executed before the taking effect of the state law under which the excise is claimed. The commonwealth was without authority by subsequent legislation, whether enacted under the guise of its power to tax or otherwise, to alter their effect or to impair or destroy rights which had vested under them. Appleby v. City of New York, 271 U.S. 364 , 46 S. Ct. 569; Fletcher v. Peck, 6 Cranch, 87, 136; Dartmouth College v. Woodward, 4 Wheat. 518, 624, 656; Farrington v. Tennessee, 95 U.S. 679 , 683; Carondelet Canal Co. v. Louisiana, 233 U.S. 362, 373 , 378 S., 34 S. Ct. 627.
This Court has held that the Revenue Act of 1924, 319-324 (26 USCA 1131 note to 1133 note, 1134, 1135 note, 1136 note), in so far as it undertook to impose a tax on gifts fully consummated before its provisions came before [282 U.S. 582, 596] Congress (Blodgett v. Holden, 275 U.S. 142 , 48 S. Ct. 105) or before its passage (Untermyer v. Anderson, 276 U.S. 440 , 48 S. Ct. 353), was arbitrary and repugnant to the due process clause of the Fifth Amendment. In Nichols v. Coolidge, 274 U.S. 531 , 47 S. Ct. 710, 52 A. L. R. 1081, we considered the trust deed of Mrs. Coolidge that is now before us. The question in that case was whether the value of the property so conveyed prior to the enactment should be included in her estate for the purpose of ascertaining the federal estate tax thereon. We said (page 542 of 274 U. S., 47 S. Ct. 710, 714):
See Levy v. Wardell, 258 U.S. 542, 544 , 42 S. Ct. 395. The states are similarly restrained by the due process clause of the Fourteenth Amendment.
In its opinion, the state court suggests that the federal estate tax was upon property of the deceased transferred at his death, and that it was levied upon a subject 'quite different from the succession to property by a beneficiary, which is the subject of the present excise.' Undoubtedly the state has power to lay such an excise upon property so passing after the taking effect of the taxing act. The fundamental question here is whether rights had so vested prior to the taking effect of the tax statute that there was thereafter no occasion in respect of which the excise might constitutionally be imposed. The state court held that [282 U.S. 582, 597] the succession was not complete until the death of the survivor of the grantors, and that therefore the tax is valid. It is well understood that, when the jurisdiction of this court is invoked to determine whether a state law impairs the rights of the litigant under a prior contract, or whether the state is depriving him of his property without due process of law in violation of the Fourteenth Amendment, and the question turns upon the existence or terms of a contract, this court is bound to determine for itself whether there is a contract and to ascertain its true meaning and effect. That rule is necessary in order that this court may properly enforce these provisions of the Constitution. Railroad Commission v. Eastern Texas R. R., 264 U.S. 79, 86 , 44 S. Ct. 247, and cases cited.
By the deed of each grantor one-fifth of the remainder was immediately vested in each of the sons, subject to be divested only by his death before the death of the survivor of the settlors. It was a grant in praesenti, to be possessed and enjoyed by the sons upon the death of such survivor. Blanchard v. Blanchard, 1 Allen (Mass.) 223; Clarke v. Fay, 205 Mass. 228, 91 N. E. 328, 27 L. R. A. (N. S.) 454; McArthur v. Scott, 113 U.S. 340, 379 , 5 S. Ct. 652, and cases cited. And see United States v. Fidelity Trust Co., 222 U.S. 158 , 32 S. Ct. 59; Henry v. United States, 251 U.S. 393 , 40 S. Ct. 185. The provision for the payment of income to the settlors during their lives did not operate to postpone the vesting in the sons of the right of possession or enjoyment. The settlors divested themselves of all control over the principal; they had no power to revoke or modify the trust. Coolidge v. Loring, supra, page 223 of 235 Mass., 126 N. E. 276. Upon the happening of the event specified without more, the trustees were bound to hand over the property to the beneficiaries. Neither the death of Mrs. Coolidge nor of her husband was a generating source of any right in the remaindermen. Knowlton v. Moore, 178 U.S. 41, 56 , 20 S. Ct. 747. Nothing moed from her or him or from the estates of either when she or he died. There was no transmission [282 U.S. 582, 598] then. The rights of the remaindermen, including possession and enjoyment upon the termination of the trusts, were derived solely from the deeds. The situation would have been precisely the same if the possibility of divestment had been made to cease upon the death of a third person instead of upon the death of the survivor of the settlors. The succession, when the time came, did not depend upon any permission or grant of the commonwealth. While the sons, if occasion should arise, might by appropriate suit require the trustees to account, it is to be borne in mind that the property was never in the custody of the law or of any court. Resort might be had to the law to enforce the rights that had vested. But the commonwealth was powerless to condition possession or enjoyment of what had been conveyed to them by the deeds. Barnitz v. Beverly, 163 U.S. 118 , 16 S. Ct. 1042, and cases cited.
The fact that each son was liable to be divested of the remainder by his own death before that of the survivor of the grantors does not render the succession incomplete. The vesting of actual possession and enjoyment depended upon an event which must inevitably happen by the efflux of time, and nothing but his failure to survive the settlors could prevent it. Blanchard v. Blanchard, supra; Moore v. Lyons, 25 Wend. (N. Y.) 119, 144. Succession is effected as completely by a transfer of a life estate to one and remainder over to another as by a transfer in fee. Reinecke v. Trust Co., 278 U.S. 339, 347 , 348 S., 49 S. Ct. 123, 66 A. L. R. 397. The recent case of Saltonstall v. Saltonstall, 276 U.S. 260 , 48 S. Ct. 225, furnishes a good illustration of incomplete succession. There the remainder was liable at any time during the settlor's life to be divested through the exertion of the power of alteration and revocation that was reserved in the instrument creating the trust. The decision sustaining a transfer tax went upon the ground that 'the gift taxed is ... one which never passed to the beneficiaries beyond recall until the death of the donor. ... A [282 U.S. 582, 599] power of appointment reserved by the donor leaves the transfer, as to him, incomplete and subject to tax. ... The beneficiary's acquisition of the property is equally incomplete whether the power be reserved to the donor or another.' Page 271 of 276 U. S., 48 S. Ct. 225, 227. See, also, Chase Nat. Bank v. United States, 278 U.S. 327, 335 , 338 S., 49 S. Ct. 126, 63 A. L. R. 388.
No act of Congress has been held by this court to impose a tax upon possession and enjoyment, the right to which had fully vested prior to the enactment.
Tyler v. United States, 281 U.S. 497 , 50 S. Ct. 356, 69 A. L. R. 758, held constitutional sections 201 and 202 of the Revenue Acts of 1916, 39 Stat. 756, 777, 778, and of 1921, 401, 402, 42 Stat. 227, 277, 278, which included in the gross estate the value of an interest held by decedent and any other person as tenants by the entirety. In each case, the estate was created after the passage of the applicable act; and none of the property constituting it had prior to its creation ever belonged to the surviving spouse. The court held that the acts did not impose a direct tax, because, putting aside a common-law fiction, and having regard to substance, the death of one of the parties was in fact the generating source of important and definite accessions to the property rights of the other. It held that the provisions were intended to prevent an avoidance of the estate tax by the creation of such tenancies, and were obviously neither arbitrary nor capricious, and so not violative of the Fifth Amendment.
Clapp v. Mason, 94 U.S. 589 , and Mason v. Sargent, 104 U.S. 689 , arose under the Succession Tax Act of June 30, 1864, 124 et seq., 13 Stat. 285. Vanderbilt v. Eidman, 196 U.S. 480 , 25 S. Ct. 331, and Hertzv. Woodman, 218 U.S. 205 , 30 S. Ct. 621, arose under a similar act of June 13, 1898, 29 and 30, 30 Stat. 464. In all these cases, the property vested in interest after the acts took effect, and the decisions went on the ground that the right to impose the excises did not accrue until the subsequent vesting in possession and enjoyment. Under these acts, the mere [282 U.S. 582, 600] passage of title was not sufficient; possession and enjoyment were also required. Wright v. Blakeslee, 101 U.S. 174 , 177, went upon the ground that, up to the moment of the life tenant's death, 'her children had no interest in the land except a bare contingent remainder expectant upon her death and their surviving her. At her death it came to them as an estate in fee in possession absolute.'
This court has not sustained any state law imposing an excise upon mere entry into possession and enjoyment of property, where the right to such possession and enjoyment upon the happening of a specified event had fully vested before the enactment.
In Cahen v. Brewster, 203 U.S. 543 , 27 S. Ct. 174, 8 Ann. Cas. 215, the testator died May 26, 1904, the will was probated May 30, and a special inheritance tax law was passed June 28. It imposed a tax upon all inheritances and legacies, and provided that the tax should not be enforced when the property had borne its just proportion of taxes prior to the time of the inheritance, and that the tax should be collected on all successions not finally closed. The enactment was assailed as repugnant to the due process and equal protection clauses of the Fourteenth Amendment. This court held that the state, without unconstitutional deprivation, could exercise its power to impose inheritance taxes at any time while it holds the property from the legatee, page 551 of 203 U. S., 27 S. Ct. 174; and, dealing with the contention that taxing successions not closed, and exemption those that had been closed, operated to deny equal protection, the court said (page 552 of 203 U. S., 27 S. Ct. 174, 177): 'It was certainly not improper classification to make the tax depend upon a fact without which it would not have been valid.' As the court said in United States v. Jones, 236 U.S. 106, 112 , 35 S. Ct. 261, 263, Ann. Cas. 1916A, 316, 'It hardly needs statement that personal property does not pass directly from a decedent to legatees or distributees, but goes primarily to the executor or administrator, who is to apply it, so far as may be necessary, in paying debts [282 U.S. 582, 601] of the deceased and expenses of administration, and is then to pass the residue, if any, to legatees or distributees.' See, also, Carpenter v. Pennsylvania, 17 How, 456, 462.
In Moffitt v. Kelly, 218 U.S. 400 , 31 S. Ct. 79, 30 L. R. A. (N. S.) 1179, Moffitt married in California in 1863, and resided there with his wife until his death in 1906. By his will, he gave to her and their children as if he had died intestate. A state law passed in 1905 imposed a tax upon property so descending. The state court sustained the tax upon the wife's share in the community property. This court held that the nature and character of her right was a local question, and that the tax was not violative of the contract clause of the Constitution or the due process or equal protection clause of the Fourteenth Amendment. In United States v. Robbins, 269 U.S. 315, 326 , 46 S. Ct. 148, 149, this court considered the character of the wife's estate during the existence of the community, and said: 'We can see no sufficient reason to doubt that the settled opinion of the Supreme Court of California, at least with reference to the time before the later statutes, is that the wife had a mere expectancy while living with her husband. The latest decision that we have seen dealing directly with the matter explicitly takes that view, says that it is a rule of property that has been settled for more than 60 years. ...' See, also, Poe v. Seaborn, 282 U.S. 101, 116 , 51 S. Ct . 58. Cf. Nickel v. Cole, 256 U.S. 222, 225 , 41 S. Ct. 467.
Chanler v. Kelsey, 205 U.S. 466 , 27 S. Ct. 550, arose under the New York inheritance tax law of 1897 (Laws N. Y. 1897, c. 284). Prior to its enactment, a father conveyed property to trustees to pay the income to his daughter for life, with remainder to her issue in fee, or, in default of issue, to her heirs in fee, and gave her power by will to appoint the remainder among her issue or heirs is such manner and proportions as she might determine. She died in 1902, and by her will exercised the power. The tax law deemed such appointment a transfer, and made it taxable. It was attacked as repugnant to the [282 U.S. 582, 602] due process clause of the Fourteenth Amendment and the contract clause. This court held that without such appointment the estates in remainder would have gone to all in the class named in the deeds, that, by the exercise of the power, some were divested of their estates and the same were vested in others, and that it was only on the exercise of the power that the estates of the appointees became complete. And it sustained the tax. Justice Holmes and Moody, dissenting, insisted that the succession was complete when the father's deeds took effect, and that 'the execution of the power did not depend in any way upon the continued cooperation of the laws of New York by way of permission or grant.' Page 481 of 205 U. S., 27 S. Ct. 550, 555.
The overwhelming weight of authority sustains the conclusion that the succession in the present case was complete when the deed took effect.
In Matter of Pell, 171 N. Y. 48, 63 N. E. 789, 57 L. R. A. 540, 89 Am. St. Rep. 791, the testator's will gave a life estate in his property to his widow, with remainders over at her death to his nephews and nieces and the issue of any deceased nephew or niece, together with a share to his sister. He died in 1863. The life tenant died December 20, 1899, and at that time all the estates in remainder came into actual possession and enjoyment of the beneficiaries. The Act of March 14, 1899 (chapter 76, Laws of that year), provided:
The court said (page 55 of 171 N. Y., 63 N. E. 789, 791):
Matter of Craig, 97 App. Div. 289, 89 N. Y. S. 971 (affirmed 181 N. Y. 551, 74 N. E. 1116). involved a similar state of facts. The court said ( page 296 of 97 App. Div., 89 N. Y. S. 971, 975):
In Hunt v. Wicht, 174 Cal. 205, 162 P. 639, L. R. A. 1917C, 961, the court held that a deed delivered by grantor to a third person in escrow, to be delivered to grantee on the death of the grantor, passed a present title to the grantee, the grantor retaining only a life estate; and that the Legislature was without power subsequently to impose a succession tax accruing at the termination of the grantor's life estate simply because the [282 U.S. 582, 604] grantee was during the intervening life estate without immediate possession of the property conveyed. The court said (page 209 of 174 Cal., 162 P. 639, 641): 'It is the vesting in interest that constitutes the succession, and the question of liability to such a tax must be determined by the law in force at that time. ... What we have said appears perfectly clear on principle, and is sustained by practically all of the authorities in other states where the question has arisen.'
In Lacey v. State Treasurer, 152 Iowa, 477, 132 N. W. 843, a contract created a vested interest in real estate, subject only to postponement of the right of possession and enjoyment until the death of the grantor. The court held that there was a transfer of a present interest, and that its character was not affected by a condition therein that might subsequently reduce the share of each grantee. It was also held (pages 483, 484 of 152 Iowa, 132 N. W. 843, 846):
In re Houston's Estate, 276 Pa. 330, 120 A. 267, a deed irrevocably conveyed property in trust to pay income to the settlor for life and at her death to a remainderman. The statute then in force imposed a 5 per cent. tax on transfers intended to take effect in possession or enjoyment at or after death. The life tenant died after the taking effect of legislation, which increased the rate to 10 per. cent. The court held the estate passing to the emainderman [282 U.S. 582, 605] taxable at 5 per cent., and not at the higher rate fixed by the later statute. The opinion of the orphans' court, adopted by the Supreme Court, said (page 331 of 276 Pa., 120 A. 267, 268):
In State ex rel. v. Probate Court, 102 Minn. 268, 113 N. W. 888, an owner of much property organized a corporation and, his wife joining, conveyed practically all to the corporation. It issued its shares to him, and he gave one-third to her. Then they transferred the stock to their four children, who leased two-thirds to the father for his life and one- third tothe mother for her life. The father died in 1905 after the taking effect of an inheritance tax law enacted in that year. The court held that the leases vested in each parent a life estate in the stock, and reserved to the children estates in reversion which were beyond the control of the life tenants; and that the interests of the children vested when the leases were made, came into possession upon the termination of the life estates, and that the inheritance tax could not be collected thereon. See, also, Commonwealth v. Wellford, 114 Va. 372, 79 S. E. 917, 44 L. R. A. (N. S.) 419.
We conclude that the succession was complete when the trust deeds of Mr. and Mrs. Coolidge took effect, and that the enforcement of the statute imposing the excise in question would be repugnant to the contract clause of the Constitution and the due process clause of the Four- [282 U.S. 582, 606] teenth Amendment. We need not consider whether it would also conflict with the equal protection clause.
Mr. Justice ROBERTS (dissenting).
The Supreme Judicial Court of Massachusetts has construed and applied the statute as one taxing the taking of possession of property by a remainderman whose interest, acquired before the death of the donor, vested in possession and enjoyment, and free of a contingent gift over, on the donor's death. That court said:
And also said:
We are bound by the state court's determination as to the meaning of the statute, Nickel v. Cole, 256 U.S. 222 , 41 S. Ct. 467; Saltonstall v. Saltonstall, 276 U.S. 260 , 48 S. Ct. 225; and its applica- [282 U.S. 582, 607] tion, Stebbins v. Riley, 268 U.S. 137 , 45 S. Ct. 424, 44 A. L. R. 1454; Cahen v. Brewster, 203 U.S. 545 , 27 S. Ct. 174, 8 Ann. Cas. 215; Saltonstall v. Saltonstall, supra.
The application of the statute, thus defined, is held by this Court to be a denial of due process, and an impairment of the obligation of a contract, on the sole ground that the remainder vested before the adoption of the taxing statute, although the enjoyment in possession of the property, and the termination of the possibility of the contingent gift over, both followed its enactment. 1 [282 U.S. 582, 608] This is to deny to the commonwealth the power to distinguish, in laying its tax, between the vesting of a defeasible future interest which carries to the beneficiary no assurance of future possession or enjoyment and the later vesting of that interest by death in possession and enjoyment of the tangible property, without possibility of being divested. It is to assert that the succession is so complete upon the mere creation of the future interest that the state must tax the future estate when that interest comes into being, or thereafter abstain entirely from taxing it.
This position seems to me untenable. It is founded on the premise that the only privilege enjoyed by the holder of a future interest in property is the dry legal abstraction of owning that particular interest- that, if it vested years ago, to tax the owner later on the occasion of his coming into actual possession, control, and enjoyment of the property is in fact to tax him presently for the exercise of a privilege long since enjoyed.
In weighing the argument, it is essential that the nature of the challenged tax be kept clearly in mind.
Excises laid in respect of the privilege of transmitting property rights at death, and those laid on the correlative privilege of acquiring the same rights, are common. The phrases 'transfer,' 'estate,' and 'succession' taxes, and 'death duties,' are somewhat indiscriminately used to designate the two wholly different forms of tax. It will tend to clarity to employ the more usual phraseology and refer hereafter to the excise on the privilege of transmission as a transfer tax, and that on the privilege of reception as a succession tax. 2 [282 U.S. 582, 609] Since no one has the natural right either to own property or to transfer it to others at his death, but derives the power so to do solely from the state, the sovereign may tax the owner for the privilege of transmission conferred by law. United States v. Perkins, 163 U.S. 625, 628 , 16 S. Ct. 1073. The right to receive and enjoy that which was formerly owned by another is similarly derived, and upon like principles the sovereign may tax the taker for the privilege accorded. Mager v. Grima, 8 How. 490, 494; Plummer v. Coler, 178 U.S. 115 , 130-132, 20 S. Ct. 829. So distinct are these privileges that either or both may be taxed as respects the same property. Stebbins v. Riley, supra: Saltonstall v. Saltonstall, supra.
The one is collected on the transfer of his estate by a decedent; it taxes not that to which some person succeeds upon a death, but that which ceased by reason of death. Nichols v. Coolidge, 274 U.S. 531, 537 , 47 S. Ct. 710, 52 A. L. R. 1081; Edwards v. Slocum, 264 U.S. 61, 62 , 44 S. Ct. 293. The other is laid on the right to become beneficially entitled to property on the death of its former owner. Keeney v. Comptroller of State of New York, 222 U.S. 525, 533 , 32 S. Ct. 105, 38 L. R. A. (N. S.) 1139; Nichols v. Coolidge, 274 U. S. at page 541, 47 S. Ct. 710, 52 A. L. R. 1081.
The latter type of excise has existed in Massachusetts for years, and the courts of that commonwealth have consistently construed the statutes as they did in this case. 3
Though the settlor's children took a vested interest by the delivery of the deed of trust in 1907, it was subject to be divested, as to any child, by his death prior to that of the survivor of the settlors. Until the parents died, it could not be known whether a child ever would possess or enjoy the trust property. Until then he had none of the rights of an owner in fee. He could not obtain [282 U.S. 582, 610] possession; that was in the trustees. He could neither spend the income nor direct its expenditure; the provisions of the deed of trust governed these matters.
In 1917 the parents conveyed their life estates to the children. The latter, conceiving that this entitled them, as sole owners, to the possession and enjoyment of the property, demanded of the trustees delivery of the corpus. This was refused. The settlors then filed a bill to reform the trust instrument so that it should provide that, by surrender of the parents' life interests to the children, the trust should terminate. They alleged that it was the true intent of the parties that the contingent remainders in the next of kin of the children should not vest if the interest of the settlors was released previous to the death of the survivor, and that appropriate language to express this intent had by mistake been omitted from the deed. The court held that no case had been made for the reformation of the deed, and refused relief. The trust property remained in the control and under the administration of the trustees. Coolidge v. Loring, 235 Mass. 220, 126 N. E. 276.
The appellants, nevertheless, assert that, while the children may have required the state's aid at the time of the delivery of the deed of trust, they never again had occasion to rely on the state's assistance; that the transfer to and into the beneficiaries was then complete; that they needed to do nothing more to become possessed of and enjoy their property; that merely to sit still and await the deaths of their parents did not constitute the doing of anything; that the vesting of their remainder interests in 1907 covers and includes its consequence, namely, their acquirement of tangible property and the enjoyment thereof at their parents' death. In short, appellants insist that the beneficiaries did not have to look to the laws of Massachusetts for the right of possession or enjoyment; and that consequently an alleged taxing of the [282 U.S. 582, 611] succession on the occasion of their acquiring such possession and enjoyment is but a thinly veiled attempt retroactively to tax the acquisition of an interest which vested in 1907.
But it is obvious that the children did rely on the law of Massachusetts for their right to receive the trust property from the trustees; and it might well have been they would have had to resort to her courts to obtain possession. All the law applicable to the administration of trusts, regulating the acts of trustees, giving remedies for trustees' defaults, providing for their compensation, and requiring the full execution of their fiduciary duties, was available to appellants. Without it their future interest, by way of remainder, might have been the merest shadow.
In spite of this, it is said that the succession is one and entire; that it must be taxed at its inception or not at all; that it is wholly out of the ordinary to tax it on the occasion of its fruition in possession; and that this court has held the attempt so to do violative of the Constitution. The converse of these propositions is true. This Court has repeatedly approved the selection of the event of possession and enjoyment as the proper occasion for the imposition of an excise; and every applicable decision of the Court sustains the validity of the tax and supports the judgment of the Supreme Judicial Court of Massachusetts.
First. In laying succession taxes, the United States has chosen as the occasion therefor, not the acquirement of a mere technical legal interest in property, but the coming into actual possession and enjoyment; and this fact has been recognized by this Court.
By the act of June 30, 1864, 124 (13 Stat. 285), a tax was imposed on legacies and distributive shares arising from personal property '... passing, after the passage of this act, from any person possessed of such property, either by [282 U.S. 582, 612] will or by the intestate laws ... or any personal property or interest therein, transferred by deed, grant, bargain, sale, or gift, made or intended to take effect in possession or enjoyment after the death of the grantor or bargainor. ...'
Section 127 provided that 'every past or future disposition of real estate by will, deed, or laws of descent, by reason whereof any person shall become beneficially entitled, in possession or expectancy, to any real estate, of the income thereof, upon the death of any person dying after the passing of this act,' should constitute the person so taking a successor and make him liable to a tax.
In Clapp v. Mason, 94 U.S. 589 , a testator, who died in 1867, devised real estate to his widow for life, with remainder to her children. She died in 1872, and the children's interests then took effect in enjoyment. The tax was assessed in 1873. It was paid under protest because the act of June 30, 1864, had been repealed by Act of July 14, 1870 (16 Stat. 256) on all legacies and successions after August 1, 1870. In an action against the collector to recover the amount paid, he defened on the ground that the tax accrued on creation of the remainder in 1867. The devisees in remainder contended that it did not accrue until they came into possession, which was subsequent to the repeal of the taxing act. This Court held that the occasion of the tax was not the vesting of the remainder, but the coming into possession by the successor. The corollary seems clear enough that, if a remainderman had died during the life estate, the statute would not have justified a tax upon him measured by the clear value of the property in which he owned only a future interest.
The case was followed in Mason v. Sargent, 104 U.S. 689 , which involved a trust of personal property created by the same will. Testator's daughter was entitled to the income of the trust for life, and on her death the [282 U.S. 582, 613] principal was to be paid to her children. It was held that no tax was due until the termination of the life trust, for until then the children had neither possession nor enjoyment. 4
By Act of June 13, 1898, c. 448, 29 (30 Stat. 448, 464), an excise was imposed relating, first, to legacies or distributive shares passing by death and arising from personal property, and secondly, to any personal property or interest therein transferred by deed, grant, bargain, sale, or gift to take effect in possession or enjoyment after the death of the grantor or bargainor, in favor of any person or persons, in trust or otherwise. In Vanderbilt v. Eidman, 196 U.S. 480, 492 , 25 S. Ct. 331, 334, this Court said:
After analyzing the words of the statute in order to arrive at its intent, the court said:
In Hertz v. Woodman, 218 U.S. 205 , 30 S. Ct. 621, Vanderbilt v. Eidman was followed. There a repealing act had been passed between the time of a decedent's death and the time for payment of a legacy under his will in accordance with the rules of administration. The Court held that, as the legatee had become fully entitled to possession prior to the passage of the repealer, he was liable for the tax. The dissenting justices, while not differing from the majority in the view that the tax was laid upon the coming into beneficial enjoyment and possession, were of opinion that until actual payment of the legacy the tax was not due, and therefore the repealing act had abolished it prior to the time fixed for its incidence upon the succession.
The foregoing cases are cited, not because they involve any constitutional questions, but because they answer in no uncertain terms the appellants' insistent argument that here the succession consists of but a single item-the creation of a future interest-and that upon the coming into being of that interest the succession is so complete as to prohibit the sovereign's imposing its excise as of the occasion of enjoyment and possession by the successor. They constitute a complete demonstration of the fallacy of the argument that a privilege tax which ignores the creation of the mere technical future interest and reaches [282 U.S. 582, 615] the possession and enjoyment of property pursuant to such interest is unheard of or in any wise out of the ordinary.
Second. The sanction of this Court has been given to the collection of a like excise by the United States, under a statute similar to that here in question, and in circumstances like those in the case at bar.
A testator who died in 1846 devised real estate to his daughter for life, with remainder in fee to her son should he survie h er. The daughter died in 1865. The collector's demand that the remainderman make return of his remainder for taxation under the act of 1864, above cited, was refused. The tax was assessed with penalty; payment was made under protest; and suit brought to recover the amount paid. Judgment for the collector was affirmed as to the tax, but, on grounds here immaterial, was reversed as to the penalty. Wright v. Blakeslee, 101 U.S. 174 .6
The remainder was contingent, but it was urged that it was a form of future estate known to the law, which had vested in the son in 1846 and must be taxed, if at all, as of that date. But this court was clear that the tax was laid on the event which occurred in 1865, quoting the words of the act to show that there was a 'past' 'disposition of real estate by will' 'by reason whereof' the life tenant's children became 'beneficially entitled, in possession,' to the property devised 'upon the death of (a) person dying after the passing of this act.' The brief for appellant shows he argued that the phrase 'past disposition' must be construed only to cover the case of a deed or will executed prior to the passage of the law, but legally operative thereafter, in order to avoid a retroactive effect of the statute and interference with vested [282 U.S. 582, 616] rights. He also insisted that the construction placed upon the act by the collector brought about an arbitrary result. So little did this Court regard the argument that it does not even notice it in its opinion. The Fifth Amendment obviously applied in that case, if the Fourteenth applies in the present.
Third. In cases involving the application of state laws imposing succession taxes, in circumstances such as are here found, this Court has overruled the contentions here made, and sustained the tax. The facts involved in some of these cases were more favorable to the appellants' contentions than those in the case at bar.
In Cahen v. Brewster, 203 U.S. 543 , 27 S. Ct. 174, 8 Ann. Cas. 215, the decedent, a resident of Louisiana, died May 26, 1904; his will was probated May 30; a final accounting was made, and tableau of distribution sibmitted to the probate court on August 3. These were approved and distribution ordered by a judgment of August 16. On October 16 the universal legatees petitioned the probate court for the delivery of the residuary estate to them. The executors answered that a tax was due on the legacies which they were bound to withhold. On June 28, 1904, a statute had been passed which imposed a tax applicable to all successions not finally closed at the date of its passage and all that should thereafter be opened. There were no forced heirs, and, under the statutes of Louisiana, the universal legatees were vested by law at the moment of death with full title to the property without taking any step whatever to put themselves into possession, without demanding delivery, or signifying their assent to accept the property bequeathed. The statutes are quoted in the margin, 203 U.S. 549 , 27 S. Ct. 175, 8 Ann. Cas. 215.
The petitioners argued that the taxing act as applied to them was violative of the Fourteenth Amendment because retroactive and arbitrary. The Supreme Court of Louisiana sustained the tax. This Court affirmed, hold- [282 U.S. 582, 617] ing that the state was at liberty to decide at what point it would impose the tax, provided such imposition was prior to the legatees' actual possession of the property. 7
Appellants' attempt to distinguish this caseis unconvincing. They say that it merely decided that the state had the power to lay the tax so long as the property was under the control of its courts for administration. They overlook the fact that in the instant case the possession of the trustees of the Coolidge trust did not cease until the death of the survivor of the settlors. During all that time the trust property was under the control of the Massachusetts courts. Not until those trustees had settled their trust and made distribution in accordance with the law of Massachusetts could the remaindermen come into possession and enjoyment of the property. And obviously the operation of the law of Massachusetts as to credits for expenses and commissions, and as to the duties of the trustees, and as to delivery of the trust property, might all be invoked before the beneficiaries could get actual possession and enjoyment.
It is certainly an immaterial difference that in the one case the fiduciaries were called executors and in the other trustees. Both were subject to the law of the state, which defined and protected the rights of beneficiaries in both cases. The Coolidge children could not obtain possession or control of the corpus despite their parents' release of all interest in it. The trustees still had duties to perform. Coolidge v. Loring, supra. Cahen v. Brewster presents a more extreme case than this, because it involved no such contingency of divestment as is here involved; the executors [282 U.S. 582, 618] there having completed their administration, the act of physical delivery only remained to the performed by them. 8
In Chanler v. Kelsey, 205 U.S. 466 , 27 S. Ct. 550, one Astor, in 1844, 1848, 1849, and 1865, made deeds to trustees, which provided that the income should go to his daughter Laura for life, with remainder to her issue in fee, or, in default thereof, to her heirs in fee, with power of appointment amongst her issue in such amounts and proportions as she should-by instrument in its nature testamentary, to be acknowledged by her as a deed in the presence of two witnesses, or published by her as a will-appoint. She died in 1902, and by will exercised the power. An act of 1897 imposed a succession tax, and under its provisions the authorities sought to collect from the appointees under the daugher's will. The argument made on behalf of the beneficiaries was that the gift was completed when Astor made his deeds. It will be noted that the remainders were in that case vested, subject to be divested by the daughter's exercise of the power. The argument was strongly pressed that, in the case of a power of appointment, title passes under the creating instrument, and does not pass from the donee by virtue of his act of appointment. That this is sound law is undisputed. On this doctrine the beneficiaries founded their argument, that to tax the succession upon the occasion of their coming into possession and enjoyment was to tax something which had in fact occurred years before at the date of the delivery of the deeds by Astor. This is the same argument appellants now urge upon facts which present no significant legal difference from those in the Chanler Case. The Court of Appeals of New York (In re Delano's Estate, 176 N. Y. 486, 68 N. E. 871, 64 L. R. A. 279) [282 U.S. 582, 619] held the tax not offensive to any constitutional principle. This Court affirmed. In so doing, it disregarded the technical situation, and looked to the substance of the matter. 9 At page 473 of 205 U. S., 27 S. Ct. 550, 552, it used the following language:
Moffitt married in California in 1863 and resided there with his wife until his death in 1906. By his will he gave his estate to his wife and children as if he had died intestate The probate court held that his widow's interest in the marital community was within the provisions of a law passed in 1905 taxing all devolutions of property by will or intestacy. The question was, therefore, whether a surviving wife was liable for a tax, which, as applied, could only be incident to her coming into untrammeled possession and enjoyment of what she had technically owned prior to the passage of the taxing statute. The Supreme Court of California held the tax valid against her insistence that this was a violation of the contract clause, the due process clause, and the equal protection clause, of the Federal Constitution. This Court sustained the judgment, and said:
Whatever may be said of the nature of the wife's interest in community property, this decision assumes the wife's vested interest in her half thereof; and that its free and unincumbered enjoyment only was postponed to the husband's death. There can be no difference in legal effect between that situation and one presented by the division of the total interests in a given property into a life tenancy and a remainder.
The authority of the cases just noted has not heretofore been questioned in this court, and for years they have stood unqualified in the vindication of the constitutional validity of just such a tax as is now under attack.
Fourth. In all its decisions touching death duties, whether on successions or on transfers, this Court has enunciated principles which sustain the validity of the tax.
The most recent expression with respect to a succession tax concerned the very laws of Massachusetts the application of which is here called in question.
In Saltonstall v. Saltonstall, 276 U.S. 260 , 48 S. Ct. 225, one Brooks, on various dates between 1905 and 1907, executed deeds to trustees, which provided that the income should be paid to the settlor for life, or, if he elected, should be accumulated, and that upon his and his wife's deaths the income should be paid to his children in spendthrift trust, with gifts over. The instruments reserved to the grantor [282 U.S. 582, 623] certain powers of management of the trust, and also provided that their terms might be changed by him with the concurrence of one truste. Brooks died in 1920, having three times changed the trusts-the last time in 1919. At the time the deeds were executed, there was no statute taxing the succession to children of a decedent. But prior to Brooks' death the act of 1907, which is involved in the present case, had been passed, and had been amended by an act of 1909 taxing the acquisition of possession and enjoyment of property by virtue of the exercise of a power of appointment or by reason of the failure to exercise it. The Supreme Judicial Court of Massachusetts held that the power of revocation reserved to Brooks was equivalent to the creation of a power of appointment in him, and that, since the beneficiaries could not be certain of taking until his death, the gift was one made or intended to take effect in possession or enjoyment after his death; and that the tax was on the succession, which includes the 'privileges enjoyed by the beneficiary of succeeding to the possession and enjoyment of property.' There, as here, it was claimed that the beneficiaries had vested interests subject to be divested by a future event (in that case, the exercise of the power), which never happened, and they argued that the tax law was retroactive in its operation if applied to their interests, and hence violated the due process clause, the equal protection clause, and probably article 1, 10, of the Constitution. There, as here, it was insisted that the remaindermen needed nothing from the commonwealth of Massachusetts subsequent to the vesting of their remainders.
After pointing out that the excise was not on the privilege of transmission, as was the federal estate tax dealt with in Nichols v. Coolidge, but was upon the privilege of succession, which might constitutionally be subjected to a tax by the state, whether occasioned by death or [282 U.S. 582, 624] effected by deed, and after calling attention to the fact that the tax was imposed not on the donor, but on the beneficiary, this Court said:
The Court further stated that:
Again the Court said:
One of such other 'legal devices' is a provision 'divesting' a remainder which is 'vested.'
As the above quotation shows, the essential question in all such cases is whether the succession has become complete by actual possession and enjoyment prior to the passage of the taxing act.
Notwithstanding the distinction between a transfer tax and a succession tax, the decisions under the federal estate tax statutes ( transfer tax laws) are convincing on the matter of substantiality as against technicality. The Court has uniformly disregarded the technical aspect of a transfer and looked at the reality and substance of the transaction. There is, in this aspect, no logical distinction between the two kinds of excise.
In Chase National Bank v. United States, 278 U.S. 327 , 49 S. Ct. 126, 129, 63 A. L. R. 388, where the beneficiaries' interests were admittedly vested, the Court reiterated the principle stated in Salton- [282 U.S. 582, 625] stall v. Saltonstall, that the test of constitutionality is the incidence of the tax on the shifting of economic benefit, and not on the passage of mere technical legal title. Thus it said:
In Tyler v. United States, 281 U.S. 497 , 50 S. Ct. 356, 358, 69 A. L. R. 758, the Court considered the estate tax provisions of the Revenue Acts of 1916 and 1921. Both acts contained a provision that upon the death of one of two tenants by the entireties there should be included in the amount of the decedent's estate, for the purpose of measuring the tax, the value of the joint estate property, 'except such part thereof as may be shown to have originally belonged to' the surviving joint tenant, 'and never to have belonged to the decedent.' Under this provision, the United States assessed a tax against the estates of Pennsylvania and Maryland decedents. Collection was resisted on the ground that, by the common law of those states, tenants by the entireties are seised of the whole and of every part of the joint estate, and that the survivor had a vested estate long prior to the passage of the acts.
It was conceded that at the death of one nothing descends to the survivor; the latter has, in the eye of the law, no more and no less than he or she had before-technically speaking, there is no succession.
But Congress expressed a purpose to tax the passage of something from the decedent at death; just as here the Massachusetts Legislature showed its intent to tax the [282 U.S. 582, 626] acquisition of something which accrued to the beneficiaries at the death of the settlor. In the instant case the so-called vested estate of the beneficiaries was subject to be divested by their death prior to that of the survivor of the grantors. In the Tyler Case the estate was absolutely vested; not only so, but it was in law as large qua the survivor after the death of his cotenant as it had been when both were alive; it could not be divested by the act of either party; it could not be taken in execution of a judgment against either party; the survivor needed to make no demand upon any one for possession.
The taxpayers argued in the Tyler Case, on precisely the same ground as appellants now urge, that the survivor's interest had vested long prior to the adoption of the Revenue Acts; that no transfer of title or interest in property occurred on the death of one of the tenants by the entireties, and consequently the tax was arbitrary and in violation of the Fifth Amendment, because the subject or event on which the tax must be predicated was wanting. But the Court had no difficulty in holding that what happened at the death of one of the tenants was a transfer from the decedent of something which was the legitimate subject of an excise. The Court said (page 503 of 281 U. S., 50 S. Ct. 356, 359):
Language more closely descriptive of the situation presented in the present case could not be employed. Again the Court said (pages 503, 504 of 281 U. S., 50 S. Ct. 356, 359):
[282 U.S. 582, 627] 'According to the amiable fiction of the common law, adhered to in Pennsylvania and Maryland, husband and wife are but one person, and the point made is that, by the death of one party to this unit, no interest in property held by them as tenants by the entirety passes to the other. This view when applied to a taxing act, seems quite unsubstantial. The power of taxation is a fundamental and imperious necessity of all government, not to be restricted by mere legal fictions.Whe ther that power has been properly exercised in the present instance must be determined by the actual results brought about by the death, rather than by a consideration of the artificial rules which delimit the title, rights, and powers of tenants by the entirety at common law. See Nicol v. Ames, 173 U.S. 509, 516 , 19 S. Ct. 522; Saltonstall v. Saltonstall, supra, page 271 of 276 U. S., 48 S. Ct. 225.
Every word of the above quotation applies with as great force to the beneficiaries of the Coolidge trust as it applied in that case to the surviving tenant.
In Reinecke v. Northern Trust Co., 278 U.S. 339 , 49 S. Ct. 123, 125, 66 A. L. R. 397, a testator who died in 1922 had, in the period between 1903 and 1919, while not in contemplation of death, executed seven trust indentures. Two of these provided that the income should be paid to the settlor for life; and, after his death, to named persons, with remainders over. These deeds reserved a power of revocation to the settlor alone. The remaining five provided for life incomes to certain persons, terminable five years after the settlor's death, or upon the death of the life tenants, whichever should first happen, with remainders over. Powers of amendment were reserved in these, not to the settlor alone, but jointly to the settlor and certain beneficiaries. One of the seven trusts was modified in a matter immaterial to the decision, and the others were not modified or revoked. In calculating the amount of the federal estate tax, the United States sought to include the property embraced in all seven of the trusts. It was held that as to the two trusts in which the settlor had unrestricted power of revocation the transfer was not complete until his death. As to the five trusts in which the settlor did not have such power in himself alone, but had power of amendment jointly with bene- [282 U.S. 582, 629] ficiaries, it was decided that the property had for all practical purposes passed completely from his control. It was pointed out that the reservation of powers of management in the settlor, as distinguished from the right to revoke or change the beneficiaries of the trust, was insignificant, and that the essential test was the passage of the economic benefit or enjoyment of the property. Thus it was said:
Repeatedly throughout the opinion the passage of the control, possession, and enjoyment of the property is referred to as the touchstone of the incidence of the tax. If that be the test when the privilege of the transferor is under investigation, no reason is apparent why the same yardstick should not be used when we are considering acquisition of rights by the beneficiary.
Thus the Reinecke Case is a full authority for the disregard of mere legal interests as distinguished from substantial rights of control or enjoyment. Technically speaking, the remainders to the beneficiaries in that case were vested subject only to be divested by the exercise of a power of revocation reserved to the grantor. It has been argued in the instant case that the vested estates created by the deed of 1907 never were divested; that [282 U.S. 582, 630] the event which could work a divestiture never occurred. That was equally true in the Reinecke Case.
It might well have been argued in the Reinecke Case that the right of revocation reserved by the grantor did not constitute an interest in the property; was not a property right, and therefore, the grantor having parted with all legal interest, his estate could not be taxed as upon the transfer of any property or any interest recognized by the law. Such an argument would have been technically sound under Jones v. Clifton, 101 U.S. 225 , 230, where it was said of such a power:
The reasoning in the Reinecke Case shows that such an argument would have been of no avail. No more ought the argument of appellants, based upon the so-called vesting of the future interest at the execution of the deed, prevail in this case.
It is said that the death of the settlors has no necessary relation to the benefits received by the remaindermen; that any other event might as well have been chosen as the occasion for the commutation of the children's future interests into interests in fee simple in possession; and that this in itself makes the tax arbitrary and unreasonable because the incident which occasions its imposition is irrelevant. This Court has negatived this contention. In Keeney v. Comptroller of State of New York, supra, it was said:
And in the same case it was said:
And in Chase National Bank v. United States, supra, the same principle was announced at page 338 of 278 U. S., 49 S. Ct. 129.12
Appellants rely on Nichols v. Coolidge, supra; Blodgett v. Holden, 275 U.S. 142 , 48 S. Ct. 105; Untermyer v. Anderson, 276 U.S. 440 , 48 S. Ct. 353; Chase National Bank v. United States, supra; and Reinecke v. Northern Trust Co., supra, as in principle supporting their position. The Reinecke Case and the Chase National Bank Case have already been analyzed. It is evident from what has been said that appellants can derive no comfort from those decisions.
Of course the test to be applied in cases arising under the federal estate tax law is whether the transferor has parted with every vestige of control over the beneficial enjoyment and possession of the property, and not whether the beneficiary has received it. Nichols v. Coolidge dealt, [282 U.S. 582, 632] under the federal estate tax law, with the same trust involved in this case, and the inquiry there necessarily was whether prior to the passage of the estate tax act the grantors had so fully divested themselves of all right of control and enjoyment of the property that nothing remained to pass out of them at death. The facts were held to make an affirmative answer imperative. Here, on the other hand, we inquire, not whether the grantor has parted with title, control, and enjoyment, but whether the grantee has fully acquired them prior to the passage of the law.
In Blodgett v. Holden and Untermyer v. Anderson the Court had under consideration a transfer tax laid on the donor in respect of gifts made inter vivos. The gifts in those cases were complete prior to the passage of the taxing statute, and, as in Nichols v. Coolidge, technical title, power to recall, and beneficial use and enjoyment had all passed from the donor prior to the legislative attempt to tax the gift. These circumstances demonstrate that neither case is an authority for holding a succession tax invalid if levied on the occasion of the acquisition of possession and enjoyment of property by the donee.
Finally, appellants cite Matter of Pell, 171 N. Y. 48, 63 N. E. 789, 57 L. R. A. 540, 89 Am. St. Rep. 791, and certain cases in state courts which have followed it. That case adopts the views urged by appellants. It was followed in Hunt v. Wicht, 174 Cal. 205, 162 P. 639, L. R. A. 1917C, 961.
In re Houston's Estate, 276 Pa. 330, 120 A. 267, involved no constitutional question. The statute in that case was construed to apply only to interests thereafter created.
In Lacey v. State Treasurer, 152 Iowa, 477, 132 N. W. 843, and Commonwealth v. Wellford, 114 Va. 372, 76 S. E. 917, 44 L. R. A. (N. S.) 419, the statutes were construed as affecting only interests thereafter arising, though in both there were dicta to the effect that a contrary construction would render them unconstitutional. The dic- [282 U.S. 582, 633] tum in the Lacey Case is repugnant to the later decision in Brown v. Gulliford, 181 Iowa, 897, 165 N. W. 182.
State v. Probate Court, 102 Minn. 268, 113 N. W. 888, is not only distinguishable on its facts, as later held by the same court (State v. Brooks, 232 N. W. 331, 334), but the constitutional question here raised was not discussed.
In a well-considered case, involving precisely the same question as Cahen v. Brewster, supra, the tax was sustained. Gelsthorpe v. Furnell, 20 Mont. 299, 51 P. 267, 39 . R . A. 170.
It cannot, therefore, be said, as appellants contend, that there is any considerable body of state decisions in their favor.
The reasoning of the state court cases which have held the tax invalid is flatly contrary to the decisions of this Court in the cases above discussed; and, in view of that fact, it should not prevail here.
The Massachusetts court described the tax as one on the succession, and we have dealt with it on that basis; but it is neither necessary to sustain it nor permissible to defeat it by applying to it any particular descriptive language. See Macallen Co. v. Massachusetts, 279 U.S. 620, 625 , 626 S., 49 S. Ct. 432; Educational Films Corp. v. Ward, 282 U.S. 379 , 51 S. Ct. 170, decided January 12, 1931; Moffitt v. Kelly, supra; Tyler v. United States, supra. A state's power to tax property is plenary. The power to tax it as a whole necessarily embraces the power to tax any of its incidents, or the use or enjoyment of them-provided only that the taxable occasion does not antedate the taxing statute so as to render it invalid because retroactive. If the property itself may constitutionally be taxed, obviously it is competent to tax the use of it, Billings v. United States, 232 U.S. 261 , 34 S. Ct. 421; Hylton v. United States, 3 Dall. 171; or a sale of it, Thomas v. United States, 192 U.S. 363, 370 , 24 S. Ct. 305; Nicol v. Ames, 173 U.S. 509 , 19 S. Ct. 522; or the gift of it, Bromley v. McCaughn, 280 U.S. 124 , 50 S. Ct. 46. And, if the gift of it may be taxed, it is difficult [282 U.S. 582, 634] to see upon what constitutional grounds the power to tax the receipt of it, whether as the result of inheritance or otherwise, may be denied to a state, whatever name may be given the tax, and even though the right to receive it, as distinguished from its actual receipt at a future date, antedated the statute. Receipt in possession and enjoyment is as much a taxable occasion as the enjoyment of any other incident of property. A levy upon the taking possession of property acquired by inheritance is one of the most ancient forms of tax known to the law. It existed on the European Continent and in England prior to the adoption of our Constitution. 13
A tax laid upon the succession after the future interest has been created and the right accrued, but before the actual enjoyment in possession of the property, is no more a denial of due process than a tax laid upon income accrued prior to the adoption of the taxing statute but received after its passage. The constitutionality of the latter form of tax is now beyond question. Brushaber v. U. P. R. R. 240 U.S. 1, 20 , 36 S. Ct. 236, L. R. A. 1917D, 414, Ann. Cas. 1917B, 713; Lynch v. Hornby, 247 U.S. 339, 343 , 38 S. Ct. 543; Taft v. Bowers, 278 U.S. 470, 483 , 484 S., 49 S. Ct. 199, 64 A. L. R. 362; Cooper v. United States, 280 U.S. 409, 411 , 50 S. Ct. 164.
The contention that taxation of a property right or an incident of ownership previously created by a deed or contract impairs the obligation of the contract is not new. But it must be denied both on reason and on authority. The present tax has no reference to the contract or its obligation save to recognize and observe the existence of both. It would serve no useful purpose at this late day to elaborate the doctrine, long since settled, that, to be obnoxious to the contract clause, a statute must [282 U.S. 582, 635] act upon the contract so as to interfere with the right of enforcement. All of the cases cited as supporting the conclusion of the Court deal with such a situation. None of them even remotely ear on the question here raised whether a tax levied in respect of the future enjoyment of property which chanced to be acquired under an earlier contract impairs the contract. That question, often raised, has always been answered here in the negative.
In Orr v. Gilman, supra, it was claimed that a succession tax law enacted after the original deed granting a power of appointment, and construed as taxing the beneficiary of the power, violated article 1, 10, of the Constitution. The argument was rejected.
A similar contention made in Chanler v. Kelsey, supra, was disposed of in these words:
Justice White, in Moffitt v. Kelly, supra, said of a similar contention:
The foregoing cases constitute only one application of a principle which has been repeatedly applied, not only to rights derived under deeds in their aspect as contracts, but to rights derived pursuant to all sorts of contracts. It was said in North Missouri Railroad v. Maguire, 20 Wall. 46, 61:
With respect to deeds and grants, this Court said in Providence Bank v. Billings, 4 Pet. 514, 562:
In Kehrer v. Stewart, 197 U.S. 60 , 25 S. Ct. 403, 406, it was contended that a statute levying a tax upon all agents of packing houses doing business in the state, of $200, in each county where such business was carried on, impaired the obligation of the contract which an agent and entered into with a packing house. With respect to this contention this Court said:
With respect to a tax upon income, it was said in Murray v. Charleston, 96 U.S. 432 , 446:
In Clement National Bank v. Vermont, 231 U.S. 120 , 34 S. Ct. 31, 38, the claim was that a state statute which levied a tax on bank deposits collectible from the depositor, and which had to be deducted by the bank from the interest paid to the depositor, impaired the obligations of the prior contracts of depositors with the bank. This Court overruled the objection, saying:
In Lake Superior Mines v. Lord, 271 U.S. 577 , 46 S. Ct. 627, 628, the obligation of an outstanding contract for the receipt of [282 U.S. 582, 638] royalties in minerals mined was held not to be impaired by a later state statute taxing the proceeds of the contract. The Court said:
In short, it is evident from the authorities cited, and many more which might be quoted, that the power to tax property, or a right or a status, or a privilege, acquired or enjoyed by virtue of a contract, is no wise him dered or impeded by the fact of the existend of the contract whether it antedates or follows the effective date of the taxing act. No exercise of a governmental power, whether it be that of taxation, police, or eminent domain, though it make less valuable the fruits of a private contract, can be said to impair the obligation thereof.
I think the judgment should be affirmed.
Mr. Justice HOLMES, Mr. Justice BRANDEIS, and Mr. Justice STONE concur in this opinion.
[ Footnote 1 ] The importance of the question is shown by the fact that forty-one states and territories have statutes containing provisions substantially similar to those of the Massachusetts acts involved in this appeal: Alaska, chapter 60, S. L. 1919; Arizona, Chapters 26, 26A, S. L. 1922; Arkansas, Act No. 106, p. 526, Laws 1929; California, chapter 821, Laws 1921, 2; Chapter 844, Laws 1929, 2; Colorado, chapter 144, S. L. 1921, 2; chapter 114, S. L. 1927, 2; Connecticut, chapter 190, P. A. 1923, 1; chapter 299, P. A. 1929, 2(d); Delaware, chapter 6, 146, R. C. 1915; 29 Del. Laws, chapter 7, Laws 1917; 36 Del. Laws, chapter 7, Laws 1929; Hawaii, chapter 96, Rev. Laws 1915, 1323; Act 223, S. L. 1917; Act 195, S. L. 1923; Idaho, chapter 148, Comp. St. 1919 3371; chapter 243, S. L. 1929; Illinois, Laws 1909, p. 311; Smith-Hurd, 1929, chapter 120, 375, p. 2436; Indiana, chapter 65, Acts 1929, p. 186; Iowa, chapter 351, 7307, Code 1927; Kansas, 79-1501 et seq., Rev. St. 1923; Kentucky, Art. 19, 4281a-1 (Carroll, Ky. Stat. 1930); Maine, chapter 266, Laws 1917; chapter 187, Laws 1919; Michigan, Act No. 188, Laws 1899; Act No. 380, P. A. 1925; Minnesota, section 2292 et seq., 1927 Minn. Stat. (Mason), vol. 1; Mississippi, chapter 134, Laws 1924, 5(f); Missouri, art. 21, 558 et seq., Rev. St. 1919; Montana, chapter 57, 10377.1, C. C. P. (Rev. Codes Supp. 1927); Nebraska, article 22, 77-2201), Comp. Stat. 1929; New Hampshire, chapter 73, Pub. Laws, 1926; New Jersey, chapter 228, Laws 1909; chapter 144, Laws 1929; New York, chapter 60, 249-b, Consol. Laws 1930; North Carolina, chapter 101, P. L. 1925; chapter 80, P. L. 1927; North Dakota, chapter 267, Laws 1927; Ohio, 5331, 5332, Gen. Code; Oklahoma, chapter 84, art. 18, 9856, Comp. St. 1921; Oregon, chapter 6, 10-601, Ann. Code 1930; Pennsylvania, Act May 6, 1887, P. L. 79; Act June 20, 1919, P. L. 521; Rhode Island, chapter 1339, P. L. 1916; chapter 2311, P. L. 1923; chapter 1355, P. L. 1929; South Carolina, Acts 1922, p. 800; Acts 1925, p. 201; South Dakota, chapter 11, 6827, Comp. Laws 1929; Tennessee, chapter 46, P. A. 1919; chapter 64, P. A. 1925; Texas, chapter 5, art. 7117, 1928 Complete Stat.; Utah, section 3185, Comp. Laws 1917; chapter 64, Laws 1919; Virginia, section 44, Code (Appendix) 1924; chapter 45, Acts 1928, p. 35; Tax Code (Appendix 1930) c. 9, 98; Washington, section 7051, Pierce 1929 Code; West Virginia, chapter 33, Barnes Code 1923; chapter 57, Acts 1929; Wisconsin, Stat. 72.01 et seq. 1923; chapter 237, Stat. 1925; Wyoming, chapter 78, S. L. 1925.
[ Footnote 2 ] Both transfer and succession taxes have been imposed by the United States, the former by the existing estate tax law, the latter by the act of 1864 (chapter 173, 124, 127, 13 Stat. 285, 287) and the act of 1898 ( chapter 448, 29, 30 Stat. 464).
[ Footnote 3 ] St. 1891, c. 425; St. 1907, c. 563; Minot v. Winthrop, 162 Mass. 113, 38 N. E. 512, 26 L. R. A. 259; Callahan v. Woodbridge, 171 Mass. 595, 51 N. E. 176; Crocker v. Shaw, 174 Mass. 266, 54 N. E. 549; Attorney General v. Stone, 209 Mass. 186, 95 N. E. 395; Magee v. Commissioner of Corporations, 256 Mass. 512, 153 N. E. 1.
[ Footnote 4 ] See, also, United States v. Hazard (C. C.) 8 F 38 0; United States v. Rankin (C. C.) 8 F. 872.
[ Footnote 5 ] See, also, Brown v. Kinney (C. C. A.) 137 F. 1018; Ward v. Sage (C. C. A.) 185 F. 7; Rosenfeld v. Scott (C. C. A.) 245 F. 646.
[ Footnote 6 ] A similar result had been reached in like circumstances in Blake v. McCartney, Fed. Cas. No. 1498, 4 Cliff. 101, where apparently no attack was made on the constitutionality of the tax.
[ Footnote 7 ] Carpenter v. Pennsylvania, 17 How. 456, dealt with a similar situation, and the tax was sustained. It was decided prior to the adoption of the Fourteenth Amendment; but in Orr v. Gilman, 183 U.S. 278, 286 , 22 S. Ct. 213, it was said that the grounds on which it went were pertinent under the amendment.
[ Footnote 8 ] In Stauffer's Succession, 119 La. 66, 43 So. 928, it was held that, where the executors had actually delivered the property to the legatee prior to the passage of the act, the tax could not be collected, because the seisin in right had merged into a seisin in fact, and that to apply the statute would be to give it a retroactive effect; and reference was made to the Cahen Case.
[ Footnote 9 ] See, also, to the same effect, Orr v. Gilman, supra.
[ Footnote 10 ] Taxes have been sustained where a statute passed after the creation of a future interest imposed a tax on the occasion of the acquisition of possession and enjoyment due to the failure to exercise a power of appointment, the exercise of which would have divested such future interest. Saltonstall v. Saltonstall, 276 U.S. 260 , 48 S. Ct. 225, infra; Minot v. Treasurer, 207 Mass. 588, 93 N. E. 973, 33 L. R. A. (N. S.) 236; Manning v. Board, 46 R. I. 400, 127 A. 865; Montague v. State, 163 Wis. 58, 157 N. W. 508; State v. Brooks (Minn.) 232 N. W. 331. Such cases are authority against appellants' contention. The 'estate' or 'interest' of the beneficiary is just as truly vested in such a case as here; it is equally true that he has to do nothing but wait to come into possession and enjoyment. In both instances some future event, either a voluntary act of the donor or the holder of the power, or an event certain to happen, but uncertain as to the time of its happening, may deprive him of the possibility of possession and enjoyment. See contra, In re Lansing, 182 N. Y. 238, 74 N. E. 882; In re Chapman, 133 App. Div. 337, 117 N. Y. S. 679. The courts of New York thus hold that possession and enjoyment due to the exercise of a power of appointment is taxable, though the legal estate springs from the original instrument which antedated the taxing statute, while that due to nonexercise of the power is not.
[ Footnote 11 ] See, also, Blake v. McCartney, Fed. Cas. No. 1498, 4 Cliff. 101, where, under a bequest in trust effective in 1847, two successive life estates were created, the second of which too ef fect in possession in 1867, and it was held the beneficiary was liable for tax under the act of 1864. The court said: 'The argument for the plaintiff is, that the tax can only be imposed by virtue of the section in question, where the death of the predecessor is the cause of the successor's being entitled to possession of the real estate, and not where it is merely the occasion, as in this case; but the proposition finds no support in the language of the provision, and the rule in the exchequer court of England is well settled the other way.'
[ Footnote 12 ] See Boston Safe Dep. & T. Co. v. Commissioner (Mass.) 166 N. E. 729.
[ Footnote 13 ] Nielsen v. Johnson, 279 U.S. 47, 53 , 49 S. Ct. 223; Gleason and Otis, 'Inheritance Taxation' (4th Ed.) 243. As shown by Digby, 'History of the Law of Real Property' (5th Ed.) p. 40, feudal 'relief' was a payment made by an heir for the privilege of admission as tenant of the land in his ancestor's place.