## Facts

- In 1913, the decedent created an inter vivos trust for named beneficiaries and reserved broad powers to terminate or modify the trust.
- In 1919, the decedent surrendered the power to revoke, but expressly retained the power to modify the trust, including changing beneficiaries, while disclaiming any power to withdraw principal or income for himself.
- The federal gift tax became effective under the Revenue Act of 1924.
- In August 1924, after the gift tax’s effective date, the decedent renounced the remaining power to modify the trust (including the ability to alter beneficiary interests).
- The decedent died in 1928.
- The Commissioner determined a gift tax deficiency on the ground that the gift was not complete until the 1924 relinquishment of the power to modify; the Board of Tax Appeals sustained the deficiency and the Third Circuit affirmed.

## Issues

1. Whether a transfer in trust is a completed gift for federal gift tax purposes when the donor retains power to alter beneficial interests among beneficiaries (excluding himself).
2. Whether surrender of a power of revocation, while retaining a power to modify beneficiary interests, completes the gift.
3. Whether the 1924 gift tax applies when the donor relinquishes the power to change beneficiaries after the tax’s effective date, even though the trust was created earlier.

## Decision

- The Supreme Court affirmed the Third Circuit.
- A gift in trust is incomplete for gift tax purposes so long as the donor retains a power to alter the disposition of the property in a manner not beneficial to himself, including changing beneficiaries.
- The gift became complete—and taxable under the 1924 gift tax—only when the donor relinquished the remaining power to modify the trust in August 1924.
- The Court treated the gift tax as supplementary to the estate tax and construed the two statutes together to avoid double taxation of the same transfer.

## Legal Principles

- A transfer in trust is not a completed gift if the donor retains a power to change beneficial interests (other than in the donor’s favor); completion occurs upon relinquishment of that power.
- The federal gift tax is supplementary to the estate tax; the statutes are construed in pari materia to prevent tax avoidance and to avoid duplicative taxation.
- Statutory construction is not controlled by vague stipulations about administrative practice, and parties cannot bind the Court on questions of law by stipulation.
- Ambiguous or inapplicable Treasury regulations do not override the best construction of the governing statute; later regulations may be consulted only for consistency, not retroactive control.

## Conclusion

The Court held that the donor’s retained power to change beneficiaries kept the trust transfer incomplete for gift tax purposes, making the taxable event the donor’s post-enactment relinquishment of that power in 1924 rather than the earlier creation of the trust or the prior surrender of revocation.


Estate of Sanford v. Comm’r, 308 U.S. 39 (1939)