Lober v. United States
1953 U.S. LEXIS 2679, 346 U.S. 335, 98 L. Ed. 2d 15 (1953)
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Rule of Law:
Property transferred to an irrevocable trust is includible in the grantor's gross estate for tax purposes if the grantor retains the power to terminate the trust and distribute the principal to the beneficiaries, as this constitutes a power to alter or amend the enjoyment of the property under the Internal Revenue Code.
Facts:
- In 1924 and 1929, Morris Lober created three irrevocable trusts for his children, naming himself as the trustee.
- Under the terms of the trusts, Lober would manage the funds, pay out accumulated income when each child turned 21, and distribute the principal when they turned 25.
- The trusts gave the children a 'vested interest,' meaning if a child died, their share would pass to their own estate.
- A key term in each trust instrument gave Lober the power to, at his discretion, terminate the trust at any time and give all or part of the principal to the beneficiary.
- Lober died in 1942 without having exercised this power to terminate the trusts early.
Procedural Posture:
- The Commissioner of Internal Revenue included the value of three trusts in Morris Lober's gross estate for tax purposes.
- The executors of Lober's estate (as plaintiffs) filed a lawsuit in the U.S. Court of Claims seeking a refund of the estate tax paid on the trusts.
- The Court of Claims, an intermediate appellate court in this context, ruled in favor of the Commissioner (the government).
- The executors (as petitioners) successfully petitioned the U.S. Supreme Court for a writ of certiorari to resolve a circuit split.
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Issue:
Does a grantor's retained power to terminate irrevocable trusts and distribute the principal to the beneficiaries at any time constitute a power to 'alter, amend, or revoke' the enjoyment of the trust property under § 811(d)(2) of the Internal Revenue Code, thus requiring the value of the trusts to be included in the grantor's gross estate for tax purposes?
Opinions:
Majority - Mr. Justice Black
Yes. A grantor's power to terminate a trust and accelerate the beneficiaries' enjoyment of the principal is a power to 'alter, amend, or revoke' within the meaning of the estate tax statute. The court's reasoning is that the statute is concerned with 'present economic benefit,' not 'technical vesting of title.' Because the beneficiaries had no right to immediate enjoyment and had to wait until age 25 unless their father, Lober, decided to give them the principal earlier, Lober retained a significant degree of control over their enjoyment of the property. This power to affect the timing of enjoyment is the type of control that § 811(d)(2) targets, making the property includible in his taxable estate, consistent with the precedent set in Commissioner v. Holmes.
Dissenting - Mr. Justice Douglas and Mr. Justice Jackson
Yes. (The justices dissented without a written opinion, but their vote indicates they would have answered the issue question in the affirmative, finding the property was not includible in the estate).
Analysis:
This decision solidifies the principle that the power to affect the timing of enjoyment of property is as significant for estate tax purposes as the power to change who enjoys it. By focusing on 'present economic benefit' over 'technical vesting of title,' the Court reinforced a substance-over-form approach in tax law. This precedent prevents grantors from avoiding estate tax by making technically irrevocable transfers while still retaining substantial control over the beneficiaries' access to the assets, effectively closing a potential loophole in estate planning.
