## Facts

- In 1930, Gertrude Feldman James, a nonresident U.S. citizen, created an inter vivos trust naming City Bank Farmers Trust Co. as trustee and transferring securities to the trust.
- The trust term lasted for the lives of her two daughters or the survivor.
- During the settlor’s life, trust income was payable to her until death or termination of the trust, whichever occurred first.
- After her death, income was payable to her husband if he survived; thereafter, income was to be distributed among their issue per stirpes.
- At termination, the corpus was payable to the husband if living; if not, to the settlor if living; otherwise to then-income beneficiaries; if none, to the husband’s heirs at law.
- The settlor reserved a power to “modify, alter, or revoke” the trust, including changing beneficial interests, but only with written consent of the trustee and her husband; if the husband was dead, consent required the trustee and the husband’s brother, with the husband’s or brother’s decision controlling if disagreement arose.
- The settlor died after creating the trust and before its termination; her husband survived and was receiving income.
- The Commissioner included the trust corpus in the settlor’s gross estate under § 302(d) of the Revenue Act of 1926; the Board of Tax Appeals and the Second Circuit held § 302(d) inapplicable.

## Issues

1. Whether § 302(d) includes in a decedent’s gross estate the corpus of a trust when, at death, enjoyment remained subject to change through a power to alter, amend, or revoke exercisable by the decedent only in conjunction with others, including a beneficiary and the trustee.
2. Whether applying § 302(d) to a post-enactment trust with such a jointly exercisable power violates the Fifth Amendment’s Due Process Clause.

## Decision

- The Supreme Court reversed the Second Circuit and sustained inclusion of the trust corpus in the gross estate.
- Section 302(d) applied because, at the settlor’s death, enjoyment of the transferred property was still subject to change through a power to alter, amend, or revoke exercisable by the settlor “in conjunction with any person.”
- The statute was constitutional as applied to transfers made after enactment; treating such retained, shared control as taxable at death was a reasonable anti-avoidance measure and did not deny due process.

## Legal Principles

- For federal estate tax purposes, property transferred in trust is includable in the gross estate to the extent that, at the decedent’s death, enjoyment was subject to change through a power to alter, amend, or revoke held by the decedent alone or jointly with any other person.
- Statutory text controlling such inclusion is applied according to its plain meaning; legislative history does not narrow unambiguous language.
- Congress may, to prevent tax avoidance, tax a retained power jointly exercisable with others (including family beneficiaries) as the functional equivalent of a revocable transfer, consistent with due process when applied to post-enactment transfers.

## Conclusion

Because the settlor retained a power to alter or revoke the trust jointly with the trustee and a beneficiary, the trust’s enjoyment remained subject to change at her death, requiring inclusion of the corpus in her gross estate under § 302(d); applying that rule to a 1930 trust was consistent with the Fifth Amendment.


Helvering v. City Bank Farmers Trust Co., 296 U.S. 85 (1935)