Jennings v. Smith
United States Court of Appeals for the Second Circuit
161 F.2d 74 (1947)
- Written by Angela Patrick, JD
Facts
Oliver Jennings transferred property into two irrevocable trusts, one for each of his two sons. Jennings named himself and his sons as the trustees for both trusts and paid gift taxes on these permanent transfers. Under the trusts’ terms, if either son needed money to maintain his family’s usual lifestyle, the trustees were allowed to distribute trust income to that son. Otherwise, the trustees were obligated to accumulate the income. The trustees were also allowed to distribute a trust’s principal to a son if the son needed the money to pay extraordinary medical expenses, handle financial misfortune, or buy a residence. Otherwise, the trustees could not distribute the trusts’ principals. When Jennings died, the federal government (defendant) and Jennings’s estate (plaintiff) disputed several estate-tax matters. Ultimately, the only remaining issue was the government’s claim that the principals and incomes from the two trusts were taxable parts of Jennings’s gross estate. The district court ruled that Jennings had retained the right to control the trusts’ principals and incomes through his trustee power to distribute the principals or incomes and, therefore, that both items were taxable parts of the gross estate. The estate appealed to the Second Circuit.
Rule of Law
Issue
Holding and Reasoning (Swan, J.)
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