## Facts

- Zachary Smith Reynolds died in 1932 at age 20, having interests in three family trusts created by his parents.
- Under his father’s trust, Reynolds received limited income until age 28, when he would have taken the corpus outright if living.
- Under two trusts created by his mother, Reynolds received life income (with restrictions before age 28) and held a general testamentary power of appointment over the trust property; in default of appointment, the property passed to his descendants, or if none, to his siblings and their issue.
- After Reynolds’s death, litigation arose among his children and siblings over whether his will effectively exercised the testamentary powers in favor of the siblings; the siblings also asserted an alternative claim as heirs at law.
- The dispute ended in a court-approved compromise allocating trust property among claimants, including a share to Reynolds’s children.
- The Commissioner included the trust property in Reynolds’s gross estate for federal estate tax purposes.
- The Board of Tax Appeals and the court of appeals held none of the trust property was includible; the Supreme Court reviewed.

## Issues

1. Whether an unexercised general testamentary power of appointment constitutes an “interest” in property includible in the gross estate under § 302(a) of the Revenue Act of 1926.
2. Whether, and to what extent, property distributed under a court-approved compromise of claims partly based on an asserted exercise of a general testamentary power is includible under § 302(f) as property passing under an exercised power of appointment.

## Decision

- The Supreme Court reversed and remanded.
- An unexercised general testamentary power of appointment is not an “interest” in property includible under § 302(a).
- Under § 302(f), the gross estate must include the portion of the compromise distribution properly attributable to the claim that property passed under the decedent’s exercised general testamentary power of appointment.
- The allocation between amounts attributable to the appointment claim and amounts attributable to alternative heirship claims is a factual matter for the tax tribunal on remand and may require approximation.

## Legal Principles

- Section 302(a) reaches property in which the decedent had a taxable property interest at death; it does not reach trust property solely because the decedent held an unexercised general testamentary power of appointment.
- Powers of appointment are addressed specifically under § 302(f), reflecting that taxation of such property turns on whether the power was exercised and property in fact passed under it.
- When a compromise settlement resolves competing claims to trust property, estate tax consequences follow the substantive basis of the claims resolved: amounts fairly allocable to an asserted exercised general testamentary power are includible under § 302(f), while amounts allocable to independent non-power claims are not.
- Apportionment of a settlement among competing claim theories is a fact question for the adjudicative tax body.

## Conclusion

The Court held that unexercised general testamentary powers do not create an includible “interest” under § 302(a), but that § 302(f) requires inclusion of the portion of a settlement distribution attributable to property passing under an exercised general testamentary power, with the required allocation to be determined on remand.


Helvering v. Safe Deposit & Tr. Co. of Balt., 316 U.S. 56 (1942)