New England Trust Company v. Abbott

Supreme Judicial Court of Massachusetts · 1910 · Corporations

205 Mass. 279 (1910)

Updated August 22, 2026

Corporationscollateral inheritance taxtrustprincipal vs. incomepossession or enjoyment after deathcontingent interestvested income interestgrantor death

Facts

In 1893 James C. Marshall deposited $4,000 with the New England Trust Company under four substantially identical trust agreements. The trust company was to pay the income to Harriet E. Abbott, while Marshall could withdraw the principal at five-year intervals by giving six months' written notice, and the trust company could likewise pay off the principal on similar notice. If Marshall died before termination of the trust or any agreed extension, the principal and unpaid income were payable to Abbott sixty days after the expiration of the relevant five-year period. Marshall died in 1907 with the fund still held by the trust company, and the question was whether the principal payable to Abbott was subject to a collateral inheritance tax.

Issue

Whether the trust principal payable to Abbott upon Marshall's death was property "made or intended to take effect in possession or enjoyment after the death of the grantor" and therefore subject to the collateral inheritance tax, notwithstanding Abbott's present right to receive the income during Marshall's life.

Rule

When a trust beneficiary has only a contingent interest in the principal and cannot obtain possession or enjoyment of that principal until after the grantor's death, the transfer of the principal is one made or intended to take effect in possession or enjoyment after the death of the grantor and is subject to the collateral inheritance tax. A present vested right to income does not prevent taxation of the principal when income and principal are separately disposed of.

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In Portland, Maine, Nolan Pierce deposited $80,000 with Harbor Crest Fiduciary under a written trust agreement. The agreement required payment of all income to Lila Moreno quarterly, but allowed Pierce to reclaim the principal at the end of any four-year period by giving six months' notice; if Pierce died before any termination, the principal would be paid to Moreno sixty days after the close of the current four-year period.

If the state seeks to impose a collateral inheritance tax on the principal when Pierce dies with the trust still in place, what is the best argument for taxability?

Explanation. The governing rule is that a transfer of principal is taxable when the beneficiary cannot obtain possession or enjoyment of that principal until after the grantor's death, even if the beneficiary presently receives income. Here, income and principal are separately disposed of, and Moreno's enjoyment of income does not give her present enjoyment of principal. Because her right to principal could arise only after Pierce's death and remained subject to the trust's continuation, the principal is taxable.