Morgan v. Commissioner

Background

The executor of Elizabeth S. Morgan challenged the Commissioner’s inclusion of property she appointed from two family trusts in her gross estate. Morgan was the donee of powers over trusts created by her father; the trusts left remaining property to appointees named in her will, with gifts over if she failed to appoint. Trustees could withhold distributions if they thought a beneficiary would waste the property. At death Morgan appointed in favor of her husband. The tax board and the Court of Appeals upheld the Commissioner’s decision, and the case reached the Court to decide whether the appointment was a “general power” subject to estate tax.

Reasoning

The Court framed the central question as whether and how state law should control the meaning of a “general power of appointment” under the Revenue Act. It explained that federal tax law defines what gets taxed, and while state law creates property rights, the federal statute’s words control. The Court relied on the ordinary test—whether the donee could appoint to anyone, including herself, her estate, or creditors—and on long-standing Treasury regulations and congressional reenactments adopting that view. Because Morgan could appoint to her estate or creditors under local law, the Court held the power was general and taxable. The Court also rejected the argument that trustees’ discretion to withhold distributions made the power special.

Real world impact

The ruling means that for federal estate tax purposes, an appointment that lets the decedent direct property to anyone will be included in the gross estate even if state law labels the power differently. Executors, heirs, trustees, and estate planners must treat broadly framed appointment powers as potentially taxable. The decision emphasizes that federal tax labels and tests, not state labels alone, determine inclusion in the estate.