T.C. Memo. 2004-91
UNITED STATES TAX COURT
ESTATE OF SARAH W. GREVE, DECEASED, CHARLES E. GREVE & DAVID R.
GREVE, CO-EXECUTORS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16020-02. Filed April 5, 2004.
Louis R. Salamon, for petitioner.
Julia L. Wahl, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined a deficiency of
$163,677.55 in Federal estate tax (estate tax) with respect to
the estate (estate) of Sarah W. Greve (decedent). The issues for
decision are:
(1) Is certain property with respect to which decedent had a
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power of appointment at the time of her death includible in
decedent’s gross estate under section 2041(a)(1)?1 We hold that
it is.
(2) Is certain property with respect to which decedent had a
power of appointment at the time of her death includible in
decedent’s gross estate under section 2041(a)(2)? We hold that
it is.
FINDINGS OF FACT
Most of the facts have been stipulated and are so found.
Decedent was a resident of Pennsylvania at the time of her
death on December 27, 1998.
At the time the petition was filed, Charles E. Greve and
David R. Greve, decedent’s sons and the co-executors (executors)
of the estate, had a mailing address in Pittsburgh, Pennsylvania.
On July 29, 1933, Sarah S. Wright (Ms. Wright), decedent’s
grandmother, executed her last will and testament (Ms. Wright’s
will) under which Ms. Wright, inter alia, created a testamentary
trust (testamentary trust). Ms. Wright’s will provided in
pertinent part as follows:
SECOND: I give and bequeath all of the bonds and
all of the corporate stocks which I may own at the time
1
All section references are to the Internal Revenue Code
(Code) in effect on the date of decedent’s death. All Rule
references are to the Tax Court Rules of Practice and Procedure.
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of my death to THE UNION TRUST COMPANY OF PITTSBURGH,[2]
IN TRUST, NEVERTHELESS, for the following uses and
purposes to-wit:
To hold, manage, invest, re-invest, and keep
invested the same in such securities as the Trustee in
its sole discretion may deem fit without being limited
to those investments known as Trust Investments under
the Laws of the Commonwealth of Pennsylvania, and less
the expenses incident to the management of the trust
and a reasonable compensation to the Trustee, to pay
over the net income in equal shares to my children,
JOHN, HESTER, CLARA and ROBERT for and during the full
term of their natural lives. Upon the death of any of
my said children leaving issue, him or her surviving,
the income arising from that portion of th[e]
[p]rincipal to which said child [was] entitled to
receive the income at the time of his or her death
shall be paid over equally among such surviving issue
for and during the full term of their natural lives
* * * [.] Upon the death of any issue of a deceased
child of mine while such issue may be entitled to
receive a portion of income herefrom, the principal of
the fund represented by that portion of the income
which such issue was receiving at the time of his or
her death shall be paid over free and discharged of any
trust to such persons and in such manner as he or she
shall by his or her Last Will and Testament designate
and appoint, and in the absence of such testamentary
disposition it shall be paid over to those persons who
are then his or her heirs under the then existing
Intestate Laws of the Commonwealth of Pennsylvania.
On November 20, 1933, Ms. Wright died survived by four
children, one of whom was Robert Wright (Mr. Wright), decedent’s
father. On November 6, 1974, Mr. Wright died survived by six
children (collectively, Mr. Wright’s children).3 Between the
2
At a time not disclosed by the record, Mellon Bank, N.A.,
became the successor to the Union Trust Company of Pittsburgh.
3
Mr. Wright’s children are decedent, Elizabeth Wright Ander-
son, Ann Wright Curran, Patricia Wright Caldwell, Nancy Roberts
Wright, and Robert McEldowney Wright, Jr.
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date of Ms. Wright’s death and the date of Mr. Wright’s death,
Mr. Wright received a one-fourth share of the income from the
testamentary trust. Between the date of Mr. Wright’s death and
the date of decedent’s death on December 27, 1998, decedent
received a one-sixth share of the income from that trust.
On May 11, 1976, Hester M. Wright (Hester Wright), one of
decedent’s aunts, executed a deed of trust (deed of trust) under
which she created an inter vivos trust (inter vivos trust). The
deed of trust provided in pertinent part as follows:
HESTER M. WRIGHT, of the City of Pittsburgh,
Allegheny County, Pennsylvania, as the Settlor, and
MELLON BANK, N.A., a national banking association
authorized to engage in trust business in the Common-
wealth of Pennsylvania, as the Trustee, hereby agree as
follows:
ONE: The Settlor hereby transfers and delivers to
the Trustee * * * [certain property] together with all
her interest therein. The Trustee shall hold said
property, together with any additions thereto as here-
inafter provided, as a Trust Estate, shall invest and
reinvest the same and shall distribute the net income
(hereinafter called “Income”) and principal as set
forth in the following provisions.
(A) During the Settlor’s lifetime, the
Trustee shall pay the Income quarter-annually to her or
for her benefit and shall also pay to her such sums
from principal as she may direct in writing * * *
(B) Upon the Settlor’s death, the Trustee
shall pay directly to the taxing authorities or through
the personal representative of her estate all estate,
inheritance and other taxes in the nature thereof
* * *. The Trustee shall also pay to the Settlor’s
personal representative or shall expend directly, from
assets other than the proceeds of insurance, such sums
as said personal representative shall certify as neces-
sary to supplement the Settlor’s probate estate in
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order to pay debts, funeral expenses, legacies and
administration expenses. Subject to such payment, the
trust shall continue as follows:
(1) During the lifetime of the Settlor’s
sister, CLARA E. WRIGHT, if she survives [t]he Settlor,
the Trustee shall pay the Income quarter-annually to
her or for her benefit * * *
(2) Upon the death of the survivor of
the Settlor and her said sister, the principal shall be
divided into six equal shares for the Settlor’s nieces
and nephew, ELIZABETH WRIGHT ANDERSON, SARAH WRIGHT
GREVE, ANN WRIGHT CURRAN, PATRICIA WRIGHT CALDWELL,
ROBERT McELDOWNEY WRIGHT, JR., and NANCY ROBERTS
WRIGHT, and each share shall be held as a separate
trust. If any of them is not then living, his or her
share shall be distributed as is hereinbelow provided.
(a) During the lifetime of each of
them, the Trustee shall pay the Income from his or her
trust quarter-annually to or for the benefit of said
niece or nephew, and if the Trustee considers the
Income to be insufficient, in view of other funds
readily available for such purpose of which it has
knowledg[e] to provide for the welfare and comfortable
support of said niece or nephew and his or her family,
including educational and funera[l] expenses, the
Trustee is authorized in its discretion to use such
sums from principal as it deems advisable therefor. In
addition, the Trustee shall pay to said niece or nephew
such sums from prin[cipal] as he or she may request in
writing, not to exceed FIVE THOUSAND ($5,000) DOLLARS
in any one calendar year[4] on a noncumulative basi[s.]
On July 21, 1980, Hester Wright died. On a date not dis-
closed by the record on or after July 21, 1980, Clara E. Wright
(Clara Wright), one of decedent’s aunts, disclaimed her interest
4
The deed of trust granted to decedent and Mr. Wright’s
other children the power of appointment with respect to an amount
not to exceed $5,000 from the principal of the inter vivos trust
in any one calender year. For convenience, we shall hereinafter
refer to that amount as $5,000.
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in the inter vivos trust.
On December 31, 1981, Mellon Bank, N.A., the trustee under
the deed of trust, and Mr. Wright’s children, who were Hester
Wright’s nieces and nephew, entered into an agreement to amend
the inter vivos trust (agreement to amend the inter vivos trust).
That agreement provided in pertinent part as follows:
WHEREAS, Hester M. Wright, settlor under the Deed
of Trust died July 21, 1980; and
WHEREAS, Clara E. Wright, first life tenant under
the Deed of Trust, disclaimed all of her interest as
such life tenant, thereby accelerating the interests of
the Beneficiaries hereto as successor life tenants; and
WHEREAS, the Beneficiaries desire that during the
term of this Agreement the Trustee hold and administer
the entire trust estate as one fund, rather than divid-
ing the same into six separately held and administered
trust funds, one for each Beneficiary.
NOW, THEREFORE, the parties, intending to be
legally bound hereby, agree as follows:
1. Notwithstanding the provisions of Article ONE
(B)(2) that, on the death of the Settlor and her sis-
ter, the principal of the trust estate shall be divided
into six equal separate trusts, the Trustee shall
during the continuance of this Agreement hold, invest
and reinvest and otherwise administer the trust estate
as one fund, distributing the net income in equal
shares directly to the six Beneficiaries and not
through the separate trusts.
2. Notwithstanding the provisions of Article ONE
(B)(2)(a), the Trustee shall not, during the continu-
ance of this Agreement, (i) make any distribution of
principal to any Beneficiary pursuant to its discre-
tionary powers in this subparagraph or (ii) make any
distribution of principal to any Beneficiary pursuant
to such Beneficiary’s power to request sums from prin-
cipal not to exceed $5,000 in any one calendar year,
except that at the request of the Attorney-in-Fact
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(hereinafter appointed), the Trustee shall make equal
distributions to each Beneficiary of such sums from
principal as shall not exceed $5,000 to each Benefi-
ciary in any one calendar year.
3. By the execution of this Agreement, each
Beneficiary hereby appoints ROBERT McE. WRIGHT, JR.[5]
(the Attorney-in-Fact) as her [sic] attorney-in-fact
under the Deed of Trust and hereunder:
(a) to take any actions and make any deci-
sions contemplated to be taken or made
by the Beneficiaries and to communicate
the same to the Trustee;
(b) to communicate to the Trustee the in-
vestment objectives of the Beneficiaries
with respect to the investment of the
principal of the trust fund;
(c) to request on behalf of the Beneficia-
ries equal distributions from principal
not to exceed $5,000 per Beneficiary in
any one calendar year, as contemplated
in paragraph 2 hereof; and
(d) generally to make representations, give
consents and act on her [sic] behalf in
all dealings with the Trustee under the
Deed of Trust and hereunder.
Each Beneficiary further agrees that this appoint-
ment of the Attorney-in-Fact shall remain in full force
and effect until written notice of revocation is given
to the Trustee or until this Agreement is terminated as
hereinafter provided.
4. This Agreement shall terminate upon the hap-
pening of any of the following events:
(a) the death of any Beneficiary;
(b) written notice to the Trustee that any
5
We presume that Robert McE. Wright, Jr., is Robert
McEldowney Wright, Jr., decedent’s only brother and one of the
beneficiaries under the inter vivos trust.
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Beneficiary desires to terminate the
Agreement;
(c) written notice by the Trustee to the
Attorney-in-Fact that it desires to
terminate the Agreement;
(d) revocation by any Beneficiary of the
appointment of the Attorney-in-Fact.
If the Agreement shall be terminated by the death
of, notice of termination by, or revocation of appoint-
ment of Attorney-in-Fact by any Beneficiary, the re-
maining Beneficiaries may enter into a new agreement
with the Trustee upon the terms herein set forth for
the investment, reinvestment and administration of
their trusts as one fund as herein provided. The share
of the Beneficiary dying, giving notice of termination
or revoking the appointment of Attorney-in-Fact, shall
be withdrawn from this Agreement and shall be adminis-
tered, distributed or otherwise disposed of according
to the terms of the Deed of Trust. Also upon final
termination of the Agreement (or any new agreement
referred to above), the trust fund administered under
this Agreement (or any new agreement) shall be divided
according to the terms of the Deed of Trust as if this
Agreement had not been entered into, it being under-
stood that this Agreement is intended only to relate
[to] the administration and management of the trust
estate and not to affect the substantive rights of any
distributees under the Deed of Trust. The termination
of the Agreement shall not be an occasion requiring the
Trustee to file an account covering its administration
of the trust estate pursuant to this Agreement.
5. This Agreement shall not affect the Deed of
Trust in any other respect or the Trustee’s ultimate
duty to account. During the time this Agreement is in
effect, the Trustee’s compensation shall reflect the
fact that the trust estate is being administered as a
single account.
Between the date on which Clara Wright disclaimed her
interest in the inter vivos trust and the date of decedent’s
death on December 27, 1998, decedent received a one-sixth share
of the income from the inter vivos trust.
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On August 16, 1993, decedent executed her will (decedent’s
will). Decedent’s will provided in pertinent part as follows:
I, SARAH W. GREVE, of Pittsburgh, Pennsylvania,
make, publish and declare this to be my last Will,
hereby revoking all prior wills.
FIRST: I give to my children living at my
death, so much of my tangible personal property (to-
gether with any insurance thereon) as they may select
in approximately equal shares. If any dispute should
arise among them about such selection, my Executors
shall have final authority to decide the same. Any
such property not so selected, shall be sold and the
proceeds added to my estate hereinafter disposed of.
SECOND: I give my remaining entire estate in
equal shares to my children, per stirpes, subject to
the minority [relating to beneficiaries under the age
of 18] provisions hereinafter provided.
When decedent died on December 27, 1998, she was survived by
six children.
At a time not disclosed by the record after decedent’s death
and before September 24, 1999, Mellon Bank, N.A., distributed
decedent’s one-sixth share of the principal of the testamentary
trust to decedent’s children. At a time not disclosed by the
record after decedent’s death and before September 24, 1999,
Mellon Bank, N.A., distributed decedent’s one-sixth share of the
principal of the inter vivos trust to decedent’s children.
On January 4, 1999, the Register of Wills of Allegheny
County, Pennsylvania, admitted decedent’s will to probate. On
that date, the executors received letters testamentary with
respect to decedent’s estate.
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On September 24, 1999, the executors of decedent’s will
filed in the Orphans’ Court of Allegheny County, Pennsylvania,
what is identified as a disclaimer (purported disclaimer). The
purported disclaimer provided in pertinent part as follows:
We are Charles E. Greve and David R. Greve. On
January 4, 1999, your Honorable Register granted Let-
ters Testamentary to us as Co-Executors under the Last
Will and Testament of our late mother, Sarah W. Greve,
she having died on December 27, 1998.
In our capacities as Executors under the Last Will
and Testament of Sarah W. Greve, we hereby disclaim the
following:
1. The Power of Appointment and the right to
exercise same which was granted to Sarah W.
Greve under the Last Will and Testament of
Sarah S. Wright, Deceased, said Last Will and
Testament having been executed on July 29,
1933.
(a) The asset which would have been the
subject of said Power of Appointment
which we disclaim herein is a one sixth
(1/6) share of the corpus of a Testamen-
tary Trust created under said Last Will
and Testament of Sarah S. Wright, such
share of the corpus previously being
held, in trust, by Mellon Bank, N.A.,
Successor to the Union Trust Company of
Pittsburgh.
2. Any Power of Appointment and any right to
exercise same which was granted to Sarah W.
Greve under a Deed of Trust of Hester M.
Wright dated May 11, 1976, [and amended by
the agreement dated December 31, 1981] [the
agreement to amend the inter vivos trust].
(a) The asset which would have been the
subject of said Power of Appointment
which we disclaim herein is a one sixth
(1/6) share of the corpus of a Deed of
Trust created by Hester M. Wright, such
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share of the corpus previously being
held, in trust, by Mellon Bank, N.A.
On September 27, 1999, the estate filed Form 706, United
States Estate (and Generation-Skipping Transfer) Tax Return
(decedent’s estate tax return). Decedent’s estate tax return did
not include as part of decedent’s total gross estate any amount
with respect to the testamentary trust. Nor did that return
include as part of decedent’s total gross estate any amount with
respect to the inter vivos trust. In Schedule H, Powers of
Appointment (Schedule H), included as part of decedent’s estate
tax return, a notation stated “See attached explanation”. The
estate attached to decedent’s estate tax return a document
identified as an Explanation as to Schedule H-Powers of Appoint-
ment (explanation as to Schedule H). The explanation as to
Schedule H provided in pertinent part as follows:
At no time between July 29, 1933, and the date of
her death did Sarah W. Greve, the Decedent herein, have
any knowledge or understanding whatsoever that she
possessed a power of appointment under the Testamentary
Trust established under the Last Will and Testament of
her grandmother, Mrs. Wright. For that reason, there
was absolutely no mention of such Power of Appointment
in the Last Will and Testament of Sarah W. Greve and
there was no specific testamentary disposition of the
assets as to which she had such Power of Appointment.
Rather, Sarah W. Greve made, in her Last Will and
Testament, * * * a general residuary bequest and devise
to her children, per stirpes.
* * * * * * *
In mid September 1999, when counsel for the Estate
of Sarah W. Greve began to prepare this Return, he
discovered that it might be concluded by the Internal
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Revenue Service that the assets which were the subject
of said Power of Appointment are includable in the
gross Estate of Sarah W. Greve. For this reason, on
September 24, 1999, Charles E. Greve and David R.
Greve, the Executors of the Estate of Sarah W. Greve
filed a Disclaimer, as to the Estate of Sarah W. Greve,
as to said Power of Appointment with the Register of
Wills of Allegheny County, Pennsylvania; and, on that
same date, such Disclaimer was delivered to Mellon
Bank, N.A., per Attorney Collins. * * *
The assets in said Trust and the fair market value
of those assets on the date when Sarah W. Greve died
are shown on a document, issued by Mellon Bank, N.A.,
entitled “Account Assets”. * * * The fair market value
of a one sixth (1/6) share of said assets is
$314,612.42.
It is the position of the Estate of Sarah W. Greve
that said $314,612.42 should not be included in the
taxable Estate of Sarah W. Greve because Sarah W. Greve
did not specifically exercise her Power of Appointment
in the manner as directed in the Will of Mrs. Wright.
It is the position of the six (6) children of
Sarah W. Greve that said $314,612.42 passed to them, in
equal shares, pursuant to the Will of Mrs. Wright
because they are the only heirs of Sarah W. Greve under
the Intestate Laws of the Commonwealth of Pennsylvania.
Alternatively, if it is determined that the gen-
eral residuary bequest in the Last Will and Testament
of Sarah W. Greve constituted such an exercise, it is
the position of the Estate of Sarah W. Greve that a
proper and appropriate Disclaimer as to said Power of
Appointment was timely filed.
The explanation as to Schedule H did not discuss any potential
issue with respect to the power of appointment that decedent had
with respect to $5,000 of the principal of the inter vivos trust.
Respondent issued a notice of deficiency (notice) to dece-
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dent’s estate.6 In that notice, respondent determined that
decedent had a general power of appointment with respect to one-
sixth of the principal of the testamentary trust and that dece-
dent exercised that power in decedent’s will. Consequently,
respondent increased decedent’s total gross estate by $314,612,
which was the date-of-death value that the estate attributed to
such power in the explanation as to Schedule H and which respon-
dent accepted.7 In the notice, respondent further determined
that at the time of her death decedent had the power to withdraw
$5,000 from the principal of the inter vivos trust and that that
power was a general power of appointment. Consequently, respon-
dent increased decedent’s total gross estate by $5,000.
OPINION
The parties do not address section 7491(a). The estate
filed decedent’s estate tax return on September 27, 1999. We
presume that respondent’s examination of that return commenced
after July 22, 1998, and that section 7491(a) is applicable in
the instant case. The estate has failed to establish that it
6
In the notice, respondent determined to allow all of the
expenses that the estate claimed in Schedule J, Funeral Expenses
and Expenses Incurred in Administering Property Subject to
Claims, included as part of decedent’s estate tax return. The
parties stipulated that as a result of the instant case the
estate has incurred certain additional expenses that are deduct-
ible.
7
The parties stipulated that the value of one-sixth of the
principal of the testamentary trust on the date of decedent’s
death was $320,732.11, and not $314,612.
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satisfies section 7491(a)(2)(A) and (B) with respect to any
factual issue relating to respondent’s deficiency determinations
that remains in this case. On the record before us, we conclude
that the estate’s burden of proof on any such issue, see Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933), does not
shift to respondent under section 7491(a).
We turn first to the power of appointment that decedent had
with respect to one-sixth of the principal of the testamentary
trust. For the first time on brief, the estate advances the
position that, pursuant to the testamentary trust, decedent had a
special power of appointment, and not a general power of appoint-
ment, with respect to that portion of the principal of that
trust.8 The estate does not cite any Code section, Treasury
regulation, or caselaw in support of its position.9 Instead, the
8
We conclude that the estate’s position on brief that dece-
dent had a special power of appointment, and not a general power
of appointment, with respect to one-sixth of the principal of the
testamentary trust raises a new issue. However, respondent does
not object to, and we find no prejudice to respondent as a result
of, the estate’s raising that issue for the first time on brief.
9
The estate acknowledges that if the Court were to find that
decedent had a general power of appointment with respect to one-
sixth of the principal of the testamentary trust, under Pennsyl-
vania law decedent exercised that power through the residuary
clause in her will. In that event, the estate would concede that
the portion of that principal subject to that power is includible
in decedent’s gross estate under sec. 2041(a)(1). The estate’s
position with respect to Pennsylvania law, see sec. 20.2041-1(d),
Estate Tax Regs., accurately reflects that under Pennsylvania law
an individual who has a general power of appointment may exercise
that power through the residuary clause in that individual’s
will. See 20 Pa. Cons. Stat. Ann. sec. 2514 (13) (West Supp.
(continued...)
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estate argues:
Pursuant to said Testamentary Trust [the testamen-
tary trust created in Ms. Wright’s will], the death of
any of the six children of Robert Wright had the effect
of terminating the Trust as to the principal comprising
said Testamentary Trust represented by that portion of
the income therefrom which such child had been receiv-
ing prior to her death.
Pursuant to said Testamentary Trust, the recipi-
ent(s) of that principal were, as to such deceased
child of Robert Wright, here, Mrs. Greve, such persons
as Mrs. Greve shall by her Last Will and Testament,
designate and appoint.
* * * * * * *
It is respectfully submitted that the above de-
scribed Trust termination language constituted a spe-
cial and not a general power of appointment in favor of
Mrs. Greve.
Pursuant to the clear language of said Trust
termination provision, Mrs. Greve was required to
designate and appoint persons to take that principal.
The word “designate” is defined, in Websters New Colle-
giate Dictionary, as to distinguish or to indicate and
set apart for a specific purpose or to denote. The
word “appoint” is defined, in Websters New Collegiate
Dictionary, as to fix or set officially or to name
officially.
It is respectfully submitted that nowhere in her
Will did Mrs. Greve fulfill the express requirement in
said Trust termination language that she had to “desig-
nate and appoint” persons to take the specified portion
of the principal in said Testamentary Trust over which
she had control by her Will.
In summary, Mrs. Greve did not receive a general
power of appointment in the Testamentary Trust created
by Mrs. Wright. What she received was the right to
specifically designate and appoint those persons who
would take principal. She completely failed so to do;
9
(...continued)
2003); In re Estate of Jaekel, 424 Pa. 433, 438 (1967).
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as such, pursuant to said Testamentary Trust * * * that
principal is not an asset of the Estate of Mrs. Greve
for federal estate tax purposes. [Reproduced liter-
ally.]
It is respondent’s position that decedent had a general
power of appointment with respect to one-sixth of the principal
of the testamentary trust; under Pennsylvania law decedent
exercised that power through the residuary clause in her will;
and consequently that portion of the testamentary trust is
includible in decedent’s gross estate under section 2041(a)(1).
Section 2041 provides in pertinent part as follows:
SEC. 2041. POWERS OF APPOINTMENT.
(a) In General.--The value of the gross estate
shall include the value of all property--
(1) Powers of appointment created on or
before October 21, 1942.-–To the extent of any
property with respect to which a general power of
appointment created on or before October 21, 1942, is
exercised by the decedent--
(A) by will * * *
* * * * * * *
(b) Definitions.–-For purposes of subsection (a)--
(1) General power of appointment.–-The term
“general power of appointment” means a power which is
exercisable in favor of the decedent, his estate, his
creditors, or the creditors of his estate * * *
The regulations under section 2041 provide the following
definition of the term “power of appointment”:
(b) Definition of “power of appointment”–-(1) In
general. The term “power of appointment” includes all
powers which are in substance and effect powers of
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appointment regardless of the nomenclature used in
creating the power and regardless of local property law
connotations. For example, if a trust instrument
provides that the beneficiary may appropriate or con-
sume the principal of the trust, the power to consume
or appropriate is a power of appointment. * * *
Sec. 20.2041-1(b)(1), Estate Tax Regs.
The regulations under section 2041(b)(1) elaborate as
follows on the definition of the term “general power of appoint-
ment” set forth in that section:
(c) Definition of “general power of appointment”–-
(1) In general. The term “general power of appoint-
ment” as defined in section 2041(b)(1) means any power
of appointment exercisable in favor of the decedent,
his estate, his creditors, or the creditors of his
estate, except (i) joint powers, to the extent provided
in § § 20.2041-2 and 20.2041-3 * * * A power of ap-
pointment is not a general power if by its terms it is
either--
(a) Exercisable only in favor of one or more
designated persons or classes other than the decedent
or his creditors, or the decedent’s estate or the
creditors of his estate, or
(b) Expressly not exercisable in favor of the
decedent or his creditors, or the decedent’s estate or
the creditors of his estate.
Sec. 20.2041-1(c)(1), Estate Tax Regs.
Although the estate’s position on brief regarding the power
of appointment with respect to one-sixth of the principal of the
testamentary trust is difficult to understand, as best we can
comprehend it, the estate’s position is that, because the testa-
mentary trust gave to decedent the power to “designate and
appoint” in her will the persons to take one-sixth of the princi-
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pal of the testamentary trust, decedent had a special power of
appointment. We reject the estate’s position.
The testamentary trust created under Ms. Wright’s will
provided in pertinent part as follows:
Upon the death of any of my said children leaving
issue, him or her surviving, the income arising from
that portion of th[e] [p]rincipal to which said child
[was] entitled to receive the income at the time of his
or her death shall be paid over equally among such
surviving issue for and during the full term of their
natural lives * * * [.] Upon the death of any issue of
a deceased child of mine while such issue may be enti-
tled to receive a portion of income herefrom, the
principal of the fund represented by that portion of
the income which such issue was receiving at the time
of his or her death shall be paid over free and dis-
charged of any trust to such persons and in such manner
as he or she shall by his or her Last Will and Testa-
ment designate and appoint, and in the absence of such
testamentary disposition it shall be paid over to those
persons who are then his or her heirs under the then
existing Intestate Laws of the Commonwealth of Pennsyl-
vania. [Emphasis added.]
The above-quoted underscored language in the testamentary
trust gave decedent the unlimited power to appoint through her
will one-sixth of the principal of that trust in favor of whom-
ever decedent desired. We conclude that the foregoing power is a
general power of appointment (i.e., a power of appointment
exercisable in favor of decedent’s estate, decedent’s creditors,
or the creditors of decedent’s estate). See sec. 2041(b)(1);
Martin v. United States, 780 F.2d 1147, 1148 (4th Cir. 1986); see
also sec. 20.2041-1(c)(1)(a) and (b), Estate Tax Regs. As
discussed supra note 9, the estate acknowledges that if the Court
- 19 -
were to find that decedent had a general power of appointment
with respect to one-sixth of the principal of the testamentary
trust, under Pennsylvania law decedent exercised that power
through the residuary clause in her will, and one-sixth of the
principal of that trust (i.e., $320,732.11) is includible in
decedent’s gross estate under section 2041(a)(1).10
We turn now to the power of appointment that decedent had
with respect to $5,000 of the principal of the inter vivos trust.
For the first time on brief, the estate advances the position
that, pursuant to the agreement to amend the inter vivos trust,
under section 2041(b)(1)(C)(ii) decedent did not have at the time
of her death a general power of appointment with respect to
$5,000 of the principal of that trust.11 In support of its
10
The estate may also be arguing on brief that decedent did
not exercise the power of appointment that decedent had with
respect to one-sixth of the principal of the testamentary trust
because she did not specifically name any beneficiaries of that
power in her will. We reject any such argument. Decedent’s will
provided in pertinent part as follows:
SECOND: I give my remaining entire estate in
equal shares to my children, per stirpes * * *.
As discussed supra note 9, the estate has acknowledged, and we
have found, that under Pennsylvania law an individual who has a
general power of appointment may exercise that power through the
residuary clause in that individual’s will.
11
We conclude that the estate’s position on brief that under
sec. 2041(b)(1)(C)(ii) decedent did not have at the time of her
death a general power of appointment with respect to $5,000 of
the principal of the inter vivos trust raises a new issue.
However, respondent does not object to, and we find no prejudice
(continued...)
- 20 -
position, the estate argues:
By an Agreement executed on December 31, 1981,
between Mellon, the Trustee as to the Deed of Trust and
the six beneficiaries named in the Deed of Trust:
A. The six separate trusts for each such benefi-
ciary were merged into one fund.
B. No principal whatsoever from such single fund
could be distributed to any beneficiary ex-
cept that at the request of Robert E. Wright,
the attorney in fact for each beneficiary,
Mellon was required to make equal distribu-
tions of principal to each beneficiary not to
exceed $5,000.00 to each.
C. Although all said beneficiaries had the power
to direct said attorney in fact to request
such distribution of principal, no one of
them had such right.
The effect of the above provisions is that Mrs.
Greve could only withdraw $5,000.00 per year from the
now single trust established in the Deed of Trust in
conjunction with five persons each of whom having a
substantial interest in such single trust and each of
whom, for this purpose, having an interest in such
single trust which was adverse to exercise of the power
in favor of Mrs. Greve.
Clearly, no one beneficiary of such single trust
was given the right to unilaterally withdraw principal
therefrom to the exclusion of any other beneficiary
because any such unilateral withdrawal would adversely
affect the other beneficiaries.
* * * * * * *
It is respectfully submitted, by reason of * * *
[section 2041(b)(1)(C)(ii)] that Mrs. Greve did not
possess a general power of appointment as to said
$5,000.00 and that such sum is not an asset of her
11
(...continued)
to respondent as a result of, the estate’s raising that issue for
the first time on brief.
- 21 -
gross Estate. [Reproduced literally.]
It is respondent’s position that decedent had at the time of
her death a general power of appointment with respect to $5,000
of the principal of the inter vivos trust and that consequently
$5,000 is includible in decedent’s gross estate under section
2041(a)(2). In support of that position, respondent argues:
Petitioner contends that by virtue of an agreement
executed by all of the then living beneficiaries of the
inter vivos trust and the trustee after the death of
the settlor, Decedent did not have the right to with-
draw $5,000 of trust principal at her death and there-
fore did not possess a general power of appointment
over that amount. Respondent disagrees as to the
effect of the agreement.
The agreement entered into by the beneficiaries
did bar the beneficiaries from withdrawing $5,000 of
trust principal while the agreement was in effect.
However, the agreement terminated by its terms on the
happening of any of four events, including the death of
a beneficiary. Pursuant to the terms of the agreement,
when a beneficiary died, her share was withdrawn from
the agreement and disposed of according to the original
trust document. The agreement terminated when Decedent
herein died, if not earlier, and Decedent possessed at
her death the right to withdraw $5,000 of trust princi-
pal. Accordingly, that amount is includible in her
estate pursuant to I.R.C. § 2041(a)(2). [Fn. ref.
omitted.]
Section 2041 provides in pertinent part as follows:
SEC. 2041. POWERS OF APPOINTMENT.
(a) In General.--The value of the gross estate
shall include the value of all property--
* * * * * * *
(2) Powers created after October 21, 1942.--To
the extent of any property with respect to which the
decedent has at the time of his death a general power
- 22 -
of appointment created after October 21, 1942 * * *
Section 2041(b)(1)(C)(ii) excepts, inter alia, the following
power of appointment from the definition of the term “general
power of appointment” in section 2041(b)(1):
(C) In the case of a power of appointment
created after October 21, 1942, which is
exercisable by the decedent only in conjunction
with another person--
* * * * * * *
(ii) If the power is not exercisable by
the decedent except in conjunction with a person
having a substantial interest in the property,
subject to the power, which is adverse to exercise
of the power in favor of the decedent–-such power
shall not be deemed a general power of
appointment. For the purposes of this clause a
person who, after the death of the decedent, may
be possessed of a power of appointment (with
respect to the property subject to the decedent’s
power) which he may exercise in his own favor
shall be deemed as having an interest in the
property and such interest shall be deemed adverse
to such exercise of the decedent’s power.
The regulations under section 2041(b)(1)(C)(ii) elaborate as
follows on the power of appointment described in that section:
(c) Joint powers created after October 21, 1942.
The treatment of a power of appointment created after
October 21, 1942, which is exercisable only in
conjunction with another person is governed by section
2041(b)(1)(C), which provides as follows:
* * * * * * *
(2) Such power is not considered a general power
of appointment if it is not exercisable by the decedent
except with the consent or joinder of a person having a
substantial interest in the property subject to the
power which is adverse to the exercise of the power in
favor of the decedent, his estate, his creditors, or
- 23 -
the creditors of his estate. An interest adverse to
the exercise of a power is considered as substantial if
its value in relation to the total value of the
property subject to the power is not insignificant.
For this purpose, the interest is to be valued in
accordance with the actuarial principles set forth in §
20.2031-7 or, if it is not susceptible to valuation
under those provisions, in accordance with the general
principles set forth in § 20.2031-1. A taker in
default of appointment under a power has an interest
which is adverse to an exercise of the power. A
coholder of the power has no adverse interest merely
because of his joint possession of the power nor merely
because he is a permissible appointee under a power.
However, a coholder of a power is considered as having
an adverse interest where he may possess the power
after the decedent’s death and may exercise it at that
time in favor of himself, his estate, his creditors, or
the creditors of his estate.
Sec. 20.2041-3(c), Estate Tax Regs.
In support of its position that, pursuant to the agreement
to amend the inter vivos trust, under section 2041(b)(1)(C)(ii)
decedent did not have at the time of her death a general power of
appointment with respect to $5,000 of the principal of the inter
vivos trust, the estate relies on the agreement to amend the
inter vivos trust which was entered into by Mellon Bank, N.A.,
and decedent and Mr. Wright’s other children, who were Hester
Wright’s nieces and nephew. We reject the estate’s position.
The deed of trust provided in pertinent part as follows:
(a) * * * In addition, the Trustee shall pay to
said niece or nephew such sums from prin[cipal] as he
or she may request in writing, not to exceed FIVE
THOUSAND ($5,000) DOLLARS in any one calendar year on a
noncumulative basi[s.]
The agreement to amend the inter vivos trust provided in
- 24 -
pertinent part as follows:
4. This Agreement shall terminate upon the
happening of any of the following events:
(a) the death of any Beneficiary;
(b) written notice to the Trustee that any
Beneficiary desires to terminate the
Agreement;
(c) written notice by the Trustee to the
Attorney-in-Fact that it desires to
terminate the Agreement;
(d) revocation by any Beneficiary of the
appointment of the Attorney-in-Fact.
If the Agreement shall be terminated by the death
of * * * any Beneficiary * * * The share of the
Beneficiary dying * * * shall be withdrawn from this
Agreement and shall be administered, distributed or
otherwise disposed of according to the terms of the
Deed of Trust. * * *
We note initially that the agreement to amend the inter
vivos trust provided that it was intended to relate only to the
administration and management of the principal of that trust and
not to affect the substantive rights of any distributees under
the deed of trust. Moreover, assuming arguendo that each of the
beneficiaries of the inter vivos trust other than decedent had an
interest in $5,000 of the principal of that trust that was
substantial and that was adverse to decedent’s interest and that
the agreement to amend the inter vivos trust had not terminated
before decedent’s death,12 pursuant to its terms, that agreement
12
The estate has failed to carry its burden of establishing
(continued...)
- 25 -
to amend terminated upon decedent’s death, and decedent’s share
(i.e., $5,000 of the principal of the inter vivos trust) was
withdrawn from that agreement and was disposed of according to
the terms of the deed of trust. Thus, even under the foregoing
assumptions, we conclude that decedent had a general power of
appointment in favor of herself with respect to $5,000 of the
principal of the inter vivos trust. See sec. 2041(b)(1). On the
record before us, we find that decedent had at the time of her
death a general power of appointment with respect to $5,000 of
the principal of the inter vivos trust. We hold that $5,000 is
includible in decedent’s gross estate under section 2041(a)(2).
We have considered all of the contentions and arguments of
the parties that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
To reflect the foregoing,
Decision will be entered
under Rule 155.
12
(...continued)
that the agreement to amend the inter vivos trust had not termi-
nated before decedent’s death by (1) written notice by any
beneficiary to the trustee that that beneficiary desired to
terminate that agreement, (2) written notice by the trustee to
the attorney-in-fact that the trustee desired to terminate that
agreement, and/or (3) revocation by any beneficiary of the
appointment of the attorney-in-fact.