In the 1939 case Morgan, Executor v. Commissioner of Internal Revenue, the U.S Supreme Court was tasked with determining whether or not a trust fund established by a decedent for his wife could be included in his gross estate and thus subject to federal estate tax. The decedent had transferred securities into an irrevocable trust for his wife during their marriage but retained some control over income distribution. Upon his death, the IRS sought to include this trust in calculating estate taxes owed by arguing that it fell within Section 302(c) of the Revenue Act of 1926 which allowed inclusion if transfers were made without adequate consideration and where possession or enjoyment could only occur after death. However, the court ruled against this interpretation stating that since he did not retain any beneficial interest nor power to alter beneficiaries' interests after transfer (despite having limited control), it should not be considered part of gross estate under section 302(c). Therefore, they held that such trusts are exempt from federal taxation upon death unless specific conditions outlined in law are met.

In the dissenting opinion for Morgan v. Commissioner of Internal Revenue, Justice McReynolds disagreed with the majority's decision to uphold an estate tax on a life insurance policy held by the deceased. He argued that under Section 302(g) of the Revenue Act of 1926, proceeds from life insurance policies payable upon death should not be included in gross estate calculations unless they were receivable by or for the benefit of an executor or administrator. In this case, he noted that there was no evidence suggesting such a scenario and thus believed it improper to include these funds as part of taxable assets within Mr. Morgan’s estate. Furthermore, he contended that Congress did not intend for such policies to be taxed when passing this legislation and criticized his colleagues' interpretation as overly broad and inconsistent with legislative intent.