## Facts

- Oliver Gould Jennings, a Connecticut resident, created two irrevocable trusts in December 1934, one for each son’s family; the instruments were materially identical.
- Jennings filed gift tax returns for the transfers and paid the gift taxes; the trusts were not created in contemplation of death or to reduce estate taxes.
- Jennings retained no beneficial interest and could not revoke the trusts.
- Jennings and his two sons served as the three trustees; trustees acted by majority vote, with successors to maintain the three-trustee structure and powers.
- Net income was to be accumulated annually into principal, but before year-end the trustees could, in their discretion, apply some or all income for the benefit of a son or the son’s issue.
- Distributions of income were limited by an objective standard tied to the beneficiaries’ comfort and expected standard of living if the settlor were alive and financially able.
- Trustees could invade principal only for specified contingencies (e.g., extraordinary medical expenses, financial misfortune, acquisition of a residence), subject to similar support-type limitations.
- Jennings died October 13, 1936.
- Executors sued for an estate tax refund; the government asserted an offsetting additional estate tax liability based on inclusion of the trust property in the gross estate under Internal Revenue Code § 811(d).
- The district court held the trust property includible under § 811(d) and entered judgment for the government; the executors appealed.

## Issues

1. Whether the trust property was includible in the decedent’s gross estate under § 811(d) because, as co-trustee, he held (alone or with others) a power to “alter, amend, or revoke” beneficial enjoyment through discretionary distribution powers.
2. Whether the government could defeat a conceded refund by asserting a time-barred additional liability as an offset if the asserted inclusion under § 811(d) was legally unfounded.

## Decision

- The Second Circuit reversed.
- The court held the trust property was not includible in the gross estate under § 811(d).
- Because no additional liability existed on the government’s § 811(d) theory, the asserted offset could not defeat the executors’ refund claim.

## Legal Principles

- Section 811(d) applies when, at death, beneficial enjoyment is subject to change through a decedent’s retained power (alone or jointly) to alter, amend, or revoke.
- A settlor’s powers held only in a fiduciary capacity as trustee, constrained by an external, ascertainable standard (e.g., support and maintenance) and enforceable under applicable trust law, are not treated as a retained power to “alter, amend, or revoke” within § 811(d).
- Trustee discretion subject to judicial review for abuse, and limited to specified beneficiary-welfare purposes, is materially different from retained dominion tantamount to ownership or testamentary control.
- In a refund suit, the government may offset additional tax liability even if assessment is time-barred, but only to the extent the tax was legally due.

## Conclusion

The court rejected estate tax inclusion under § 811(d) where the decedent’s only continuing authority over trust income and principal was shared, fiduciary, and bounded by enforceable support-type standards, leaving no legally due additional tax to offset the executors’ refund.


Jennings v. Smith, 161 F.2d 74 (2d Cir. 1947)