In the case of Handy v. Delaware Trust Co., Executor, et al., 1931, the U.S Supreme Court was tasked with determining whether or not a federal estate tax could be levied on an annuity that had been purchased by a deceased individual for his wife. The decedent had bought this annuity contract from an insurance company and named his wife as beneficiary. After he passed away, the Collector of Internal Revenue argued that the value of this annuity should be included in his gross estate and therefore subject to taxation under applicable federal laws at that time. However, both lower courts disagreed with this assessment and ruled against it. The Supreme Court upheld these rulings upon review; they found no legal basis for including such an independently secured financial instrument within someone's taxable estate after death simply because they were responsible for its purchase during their lifetime. This decision clarified how certain types of assets are treated regarding inheritance taxes - specifically those which have been arranged so as to provide income or other benefits directly to designated beneficiaries without becoming part of one's general property holdings.

In the dissenting opinion for Handy v. Delaware Trust Co., Justice Stone argued that the majority's interpretation of Section 302(c) of the Revenue Act was incorrect. He contended that this section should not be read to exclude from gross income, and thus from taxation, any part of a trust beneficiary’s income which is used to pay estate taxes on his life interest in the trust property. According to him, such an interpretation would create a significant loophole in tax law by allowing large amounts of wealth to pass untaxed between generations through trusts. Furthermore, he pointed out that there was no clear legislative intent behind Section 302(c) suggesting it should be interpreted as creating such an exemption from taxation.