Estate of Kurz v. Commissioner
68 F.3d 1027 (1995)
Mrs. Kurz was the beneficiary
of two trusts left by her husband.
The first trust, the
'Marital trust', allowed her to take as much $$$ as she wanted per year.
The second trust, the
'Family Trust', could not be touched by Kurz until the first trust was
drained, and even then, she could only take 5% of the principle per year.
The Marital Trust had enough
money in it that Kurz never drained it during her lifetime.
The Marital Trust was large
enough that Mr. Kurz never expected Mrs. Kurz could ever drain the whole
thing (barring some emergency)
Mrs. Kurz died. The estate
filed tax returns that included 100% of the Marital Trust, but 0% of the
Family Trust as assets. The IRS sued, claiming that the estate owed taxes
on the value of the Family Trust, since Kurz owned it.
The Tax Court found for the
The Tax Court found that
Kurz held a general power of appointment over 5% of the Family Trust and should pay taxes on 5% of the
value of the Family Trust.
The Appellate Court affirmed,
and found that Kurz owed taxes on 5% of the value of the Family Trust.
Kurz argued that the power
to appoint 5% of the Family Trust was not exerciseable, since the Marital
Trust was never drained.
The Appellate Court found
that exercising of the Family Trust was within Kurz's power. She could
have drained the Marital Trust at
will. At that point she could have taken 5% of the Family Trust. Therefore she did control the
Family Trust and therefore 'owned' it as far as the IRS was concerned.