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 IRS.
- 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.