## Facts

- On June 4, 1932, Leonidas Hudson Powell created an irrevocable inter vivos trust and transferred property to it.
- Powell named himself and the Fourth National Bank of Wichita as co-trustees.
- Powell’s wife was the primary beneficiary during her lifetime; the trust’s income was payable to her upon request, and otherwise could be accumulated and added to principal.
- After the wife’s death, the trust provided for Powell’s two daughters as remainder beneficiaries, with provisions for their issue and alternative dispositions if a daughter died without issue before full distribution.
- The trust called for staged distributions of each daughter’s share of principal in fifths at specified ages (37, 47, 52, 57, and 62), rather than a single immediate distribution.
- While Powell served as joint trustee, the trustees had broad authority to sell, mortgage, pledge, and reinvest trust assets, and to deal with the trust property in ways the trustees deemed advisable for the benefit of the trust estate.
- The trustees were also authorized to invade the trust corpus when necessary for the maintenance, welfare, comfort, or happiness of Powell’s wife or daughters, and for the daughters’ education.
- Powell died on May 16, 1954. His executors (Lucy Thomas Powell, Nellie Louise Powell, and Elmer E. Fox) filed a federal estate-tax return that did not include the trust assets in the gross estate.
- The IRS assessed an estate-tax deficiency based on including the trust property under former Internal Revenue Code § 811(d)(2) (later codified in substance at 26 U.S.C. § 2038).
- The executors paid the assessed amount, sought a refund, and sued the United States after the refund claim was disallowed.
- The district court, in a bench trial, entered judgment for the estate for $55,762.46, and the United States appealed to the Tenth Circuit.

## Issues

1. Whether, under former IRC § 811(d)(2) (now reflected in IRC § 2038), Powell’s retained powers as co-trustee—including broad management powers and discretion to invade corpus for the wife’s and daughters’ maintenance, welfare, comfort, or happiness and the daughters’ education—constituted a power to “alter, amend, revoke, or terminate” the trust so that the trust property had to be included in his gross estate.

## Decision

- The Tenth Circuit affirmed the district court’s judgment for the estate.
- The court held that the trust corpus was not includable in Powell’s gross estate under former § 811(d)(2) because the powers Powell retained as co-trustee were fiduciary powers and did not amount to a taxable power to change the beneficial enjoyment of the transferred property.
- The court treated the invasion authority as constrained by standards tied to the beneficiaries’ support and well-being and as subject to fiduciary limits, rather than a retained right to rewrite the trust’s dispositive plan.

## Legal Principles

- Former IRC § 811(d)(2) (now reflected in IRC § 2038) includes transferred property in a decedent’s gross estate if, at death, the enjoyment of the property is subject to a power held by the decedent (alone or with another) to alter, amend, revoke, or terminate the transfer.
- Trustee powers that are administrative or managerial—such as powers to sell, invest, reinvest, or otherwise manage trust assets—do not by themselves constitute a § 811/§ 2038 power unless they permit the decedent to change the beneficial interests.
- Discretionary authority to distribute income or invade principal for specified beneficiaries, when exercised in a fiduciary capacity and limited by support-type standards (e.g., maintenance and welfare and related terms), generally is not treated as a retained power to alter beneficial enjoyment within § 811/§ 2038.
- The presence of an independent corporate co-trustee and the requirement that trustee powers be exercised for the benefit of the trust estate support characterizing the retained powers as fiduciary restraints rather than personal dominion over the transferred property.

## Conclusion

Because Powell’s retained authority was held and exercisable as a joint trustee, subject to fiduciary duties and standards focused on the support and well-being of the named beneficiaries, and did not permit him to rewrite the trust’s fixed distributive scheme, the Tenth Circuit held that the trust property was not includable in his gross estate under former IRC § 811(d)(2) (now § 2038) and affirmed the refund judgment for the estate.


United States v. Powell, 307 F.2d 821 (1962)