US SUPREME COURT DECISIONS

Decedent transferred to an irrevocable trust for the benefit of his children (and if they died before the trust ended, their surviving children) stock in three unlisted corporations that he controlled, retaining the right to vote the transferred stock, to veto the transfer by the trustee (a bank) of any of the stock, and to remove the trustee and appoint another corporate trustee as successor. The right to vote the transferred stock, together with the vote of the stock decedent owned at the time of his death, gave him a majority vote in each of the corporations. The Commissioner of Internal Revenue determined that the transferred stock was includable in decedent's gross estate under § 2036(a) of the Internal Revenue Code of 1954, which requires the inclusion in a decedent's gross estate of the value of any property he has transferred by inter vivos gift, if he retained for his lifetime

"(1) the . . . enjoyment of . . . the property transferred, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall . . . enjoy . . . the income therefrom."

The Commissioner claimed that decedent's right to vote the transferred shares and to veto any sale by the trustee, together with the ownership of other shares, made the transferred shares includable under § 2036(a)(2), because decedent retained control over corporate dividend policy and, by regulating the flow of income to the trust, could shift or defer the beneficial enjoyment of trust income between the present beneficiaries and remaindermen, and under § 2036(a)(1) because, by reason of decedent's retained control over the corporations, he had the right to continue to benefit economically from the transferred shares during his lifetime.

Held: 1. Decedent did not retain the "right," within the meaning of § 2036(a)(2), to designate who was to enjoy the trust income. Pp. 408 U. S. 131-144.

(a) A settlor's retention of broad management powers did not necessarily subject an inter vivos trust to the federal estate tax. Pp. 408 U. S. 131-135. chanrobles.com-red

Page 408 U. S. 126

(b) In view of legal and business constraints applicable to the payment of dividends, especially where there are minority stockholders, decedent's right to vote a majority of the shares in these corporations did not give him a de facto position tantamount to the power to accumulate income in the trust. Pp. 408 U. S. 135-144.

2. Decedent's voting control of the stock did not constitute retention of the enjoyment of the transferred stock within the meaning of § 2036(a)(1), since the decedent had transferred irrevocably the title to the stock and right to the income therefrom. Pp. 408 U. S. 145-150.

440 F.2d 949, affirmed.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J.,and DOUGLAS, STEWART, MARSHALL, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which BRENNAN and BLACKMUN, JJ., joined, post, p. 408 U. S. 151.