Summary

In PLR 201209003, the Service ruled that modifying a discretionary trust to allow for the appointment of a successor co-trustee would neither cause the trust assets to be included in her gross estate for estate tax purposes nor cause the trust to lose its "grandfathered" GST-exempt status.

Extended Summary

Husband and wife each created a revocable trust, making identical provision for their two children. Both died before September 25, 1985, the effective date of the present generation-skipping transfer tax. The trusts were merged sometime after that date, but no further additions were made.

The trust was to accumulate income during the lives of the two children and until the ultimate distributees, their descendants per stirpes, received distribution at age 21. The settlors' daughter was appointed co-trustee. An independent co-trustee was given unlimited discretion to make distributions of principal at any time.

Under the terms of the trust document, the independent co-trustee was to designate his own successor from among the partners in a particular accounting firm. However, that individual had become incapacitated without having designated a successor.

The trust beneficiaries proposed to petition a state court to modify the terms of the trust to provide that the remaining trustee (at this moment, the daughter) could appoint an independent co-trustee from among the partners of a particular law firm in which, conincidentally, her husband was a partner. The proposed modification would provide that neither the daughter's husband nor any other related or subordinate party could be appointed.

The Service ruled that the proposed modification:

1. would not, in effect, give the daughter a general power of appointment, causing the trust assets to be includible in her gross estate; and
   
2. would not cause the trust to lose its "grandfathered" GST-exempt status.

CPC Commentary

See our commentary last week on related PLRs 201208003,201208004, 201208006, and 201208031 and our commentary this week on PLRs 201209001 and 201209002 for additional thoughts on this new flexibility to modify "admnistrative" provisions in irrevocable documents.

Relevant Documents

	201209003	3/2/12
	Section 2041: Powers of appointment	3/24/10
	Reg. Sec. 26.2601-1: Effective dates.	9/16/12