United States v. Estate of Grace

PETITIONER: United States
RESPONDENT: Estate of Grace
LOCATION: Ohio General Assembly

DECIDED BY: Warren Court (1969)

CITATION: 395 US 316 (1969)
ARGUED: Apr 22, 1969
DECIDED: Jun 02, 1969

Facts of the case


Media for United States v. Estate of Grace

Audio Transcription for Oral Argument - April 22, 1969 in United States v. Estate of Grace

Earl Warren:

This case is number 574, United States versus the Estate of Joseph P. Grace, deceased, et al.

Mr. Solicitor General.

Erwin N. Griswold:

Mr. Chief Justice and may it please Court.

This is an estate tax case which comes here from the Court of Claims.

Now, before starting to discuss the merits of the case, I would point out that the respondent has raised a question of jurisdiction of the Court.

It is discussed in the reply memorandum which we filed in connection with our petition for certiorari and I want to discuss it now very briefly only to make a claim that I do not think that there is appropriately a jurisdictional question here.

It starts out I think -- the way it starts out can best be seen by looking first at page 123 of the record where the Court of Claims on April 19, -- April 18 said upon the foregoing findings of facts which are made a part of the judgment herein, the Court concludes as a matter of law that the plaintiffs are entitled to recover and judgment is entered to that effect.

The amount of recovery, will be determined pursuant to Rule 47 (c) and I would also point out that there is on page 2 of the record a pasted in correction of the record because the respondents felt that the record is it had been submitted was not accurate and that shows April 19 judgment for plaintiff with the amount of recovery to be determined by further proceedings.

And then there was a stipulation and the final order of the Court appears at page 125 of the record.

It is therefore ordered that judgment be and the same is entered for the plaintiffs in the sum of $419,221.05 together with interest thereon from July 14, 1954 as provided by law and that was entered on June 28th.

The Government's position for certiorari was filed on September 26th which was within the 90 days.

We believe that this question has been several times passed upon by this Court and perhaps most clearly and effectively in connection with the case of United States against Bianchi and Company where there is nothing in the opinion but were substantially the same question was raised in opposition to the Government's petition.

The Government responded on the jurisdictional ground.

The Court granted the petition and decided the case on the merits.

Now, with respect to the merits of this case, it is a question of the taxability of one of two reciprocal trust created by a husband and wife within 15 days of each other at the close of 1931.

The question involving reciprocal trust was one which people regarded as subtle and nearly 30 years ago, by an opinion of the Second Circuit Court of Appeals in Lehman against the Commissioner, an opinion by Judge Patterson which was concurred in by Judge Learned Hand and Judge Chase a petition for certiorari was filed and this Court denied certiorari and stated the thing as followed after that case is I think exemplified by the title of an article which is cited in our brief and was published in 1948, Colgan and Molloy, “Converse Trusts – The Rise and Fall of a Tax Avoidance Device.”

I think it was Lord McNaughton who said that it's one thing to put Shelly's case in a nutshell and another thing to keep it there and this case illustrates the fact that it's one thing to get in the state tax point decided and another thing to keep it decided.

Now, what then are the facts of this case?

The case as I have said comes from the Court of Claims and the findings of fact if the Court of Claims begins at page 87 of the record.

They show in substance in effect that Joseph P. Grace and Janet Grace were husband and wife that they lived happily together, that the husband was quite wealthy and frequently made gifts to his wife from time to time after he returned property which he had given to her which she always did and on page 88 of the record, we have finding five the decedent exercised supervision and control over and he made the decisions that were involved in the management of the business affairs of the family.

And then the last sentence in that paragraph, when the decedent decided that some formal action by Janet Grace was required in connection with the management or disposition of a piece of property or a financial interest that was in her ownership, the decedent customarily would have the appropriate instrument for his wife's signature and with then ever execute such instrument.

In the latter part of 1931, Mr. Grace became concerned of some indication that there were suggestions to him of ways to minimize taxes at least gift taxes which he thought would become effective and in 1932 as they did in fact become effective and on December 15, 1931, Mr. Grace created a trust, the essential terms of which are set forth on pages 92 to 94 of the record in the Court's findings.

They provided that certain property was transferred to trustees upon trust for his wife for life with remainder as she might by will of point with power in the trustees to convey the principle to her and with gifts in default of appointment to his heirs.

And then the finding show on page 98 to 100 that 15 days later on December 30, 1931 Mrs. Grace executed a trust instrument which was essentially identical except reciprocal, that is it was a trust by which she transferred certain property including the family residence to trustees upon trust for her husband for life with power in the trustees to convey the principle to him with remainder subject to his appointment and give in default of appointment to her heirs.

Mrs. Grace died in the 1930s and Mr. Grace lived until 1951.

When Mr. Grace died, the Government contended pursuant to the Lehman case that the trust which she had created was one which should be included in his gross estate as a trust in which he had reserved a life estate.

The trust was of course formally created by her.

It provided for a life estate in him.

The estate paid the tax pursuant to the demand of the Government.

Claims for refund were filed when they were not acted on within the six months that this suit was brought in the Court of Claims.