TAXATION - FEDERAL ESTATE TAX - POWERS OF APPOINTMENT - WHEN PROPERTY SUBJECT THERETO IS TAXABLE AS PART OF DONEE'S ESTATE - EFFECT OF A COMPROMISE

Authors

Charles J. O'Laughlin, University of Michigan Law School

Abstract

The decedent was a beneficiary of a trust established by his father and of two other trusts created by his mother. From his father's trust the decedent was to receive a portion of the income prior to his twenty-eighth birthday, when he was to receive the principal and accumulated income. His mother's trusts gave him the income for life, subject to certain restrictions before he attained the age of twenty-eight. Under all three trusts he had a general testamentary power of appointment. In case of nonexercise of this power, decedent's descendants were to be default takers under the donor's will, or, if he had no descendants, his brothers and sisters and their representatives were to take per stirpes. Decedent died before reaching twenty-one, leaving two minor children and several brothers and sisters in whose favor he attempted to exercise the power of appointment. The validity of the exercise of the power was questioned and the brothers and sisters claimed that they were entitled to the property either as appointees or as default takers. A compromise agreement was entered into, whereby the children were each given a percentage of the property involved, the rest to be held in trust for the brothers and sisters pursuant to the default provisions of the donor's will. In approving the compromise, the Supreme Court of North Carolina mentioned both of the claims made by the brothers and sisters as a basis for supporting the share given to them. The Commissioner of Internal Revenue attempted to tax the property subject to the power under the Federal Estate tax. Both the Board of Tax Appeals and the Circuit Court of Appeals declared it not taxable. Held, a portion of the property may be taxable under section 302 (f) of the Revenue Act of 1926 as property passing under a general power of appointment exercised by the decedent by will, but none of it is taxable under section 302 (a) as property in which the decedent had an interest. Helvering v. Safe Deposit & Trust Company of Baltimore; (U.S. 1942) 62 S. Ct. 925.

Recommended Citation

Charles J. O'Laughlin, TAXATION - FEDERAL ESTATE TAX - POWERS OF APPOINTMENT - WHEN PROPERTY SUBJECT THERETO IS TAXABLE AS PART OF DONEE'S ESTATE - EFFECT OF A COMPROMISE, 40 Mich. L. Rev. 1270 (1942).
Available at: https://repository.law.umich.edu/mlr/vol40/iss8/22