Mallinckrodt v. Nunan

Edward Mallinckrodt Sr. established a trust in 1918. The initial trustees were St. Louis Union Trust Company and his son, Edward Jr. (plaintiff). Edward Sr. had already given substantial amounts of property to Edward Jr. and established the trust to support Edward Jr.’s three children and their potential grandchildren. Per the trust agreement, every year, after expenses, $10,000 of income was to be paid to Edward Jr.’s wife. The remainder of trust income was payable to Edward Jr. on his request, with any undistributed annual net income to be added to the trust corpus. Edward Jr. had a testamentary power of appointment, but if he failed to exercise that power, the trust would continue for the benefit of Edward Jr.’s widow and children. The trustees, on unanimous agreement, could pay Edward Jr. any portion of the principal that seemed wise upon his request for same. The trust could also be terminated during the life of Edward Jr. at the unanimous discretion of the trustees, with Edward Jr. taking all assets. In 1934 and 1935, the $10,000 was paid to Edward Jr.’s wife, and she reported it as income. In 1936, at Edward Jr.’s request, the trustees distributed $15,000 to educational and charitable organizations and $4,075.82 to a trust Edward Jr. created for his wife. In 1937, another $3,109.14 at Edward Jr.’s request was transferred to the same trust for his wife. Edward Jr. reported no taxable income from these transactions, and his wife reported only the annual $10,000 she received. The trust paid tax on the undistributed net annual income. The government (defendant) found that the undistributed trust income for each year was taxable to Edward Jr., who paid the deficiency and filed suit in tax court. The tax court ruled for the government, finding that because of the broad powers granted to Edward Jr. by the trust agreement, he had sufficient control over the trust property to be regarded as its owner. Five justices dissented and argued that the only income distributable to Edward Jr. was any amount he requested and that any income accumulated was properly taxable to the trust as income accumulated or held for future distributions. Edward Jr. appealed the trial court’s ruling.