Integration of the Estate and Gift Taxes

Abstract

To give, yet not to give-that is the problem which fear of death taxes has forced down the throats of prospective decedents. Substitutes for testamentary disposition in a hundred different forms have been the nemesis of legislators and tax administrators as far back as death taxes have been levied. A person may desire to leave as much property as possible to his children, and to that end to diminish as far as possible the death taxes that will be imposed; nevertheless, as long as he lives he will want to keep the property for his benefit or at least under his control. Ground between these two desires, decedents have invented all manner of disposition inter vivos in which they have attempted to retain control. Often in their eagerness to avoid the death taxes they have added a provision destroying the control which under another provision they essayed to retain, thereby attempting to fool the tax gatherer but in result fooling only themselves, or rather their heirs. For example, beginning with the 1924 Act the federal estate tax law has contained a specific provision including in the gross estate property transferred subject to a power of revocation, whether the power was exercisable by the decedent alone or in conjunction with any other person; and the Supreme Court had occasion to decide that this provision was applicable and valid even where such other person was the beneficiary.2 Obviously, a power of revocation exercisable only with the consent of the beneficiary is no power at all. Its inclusion in a trust instrument is but evidence of the absurd lengths to which persons will go in the attempt to avoid death taxes and at the same time retain until death the power and benefit which ownership has meant to them. That Congress was aware of the use of testamentary substitutes is shown by the fact that in the very first federal estate tax act, that enacted in I916, it provided for inclusion in the gross estate of transfers made in contemplation of death, and of transfers inter vivos intended to take effect in possession or enjoyment at or after death. But Congress was soon to find that testamentary substitutes were of many kinds, and that when one fell under its ax there was always another to take its place. In