Internal Revenue Service
Revenue Ruling
Rev. Rul. 77-158
1977-1 C.B. 285
Section 2041 -- Powers of Appointment
IRS Headnote
General power of appointment; conjunctive control of trust. One third of
the value of a trust created by three siblings, each of whom named an adult
child as one of the three trustees who, through majority vote, had complete
discretionary power over the assets of the trust and individually had the
right to name a relative as successor, is includible in a
decedent-trustee's estate as property subject to a general power of
appointment under section 2041 of the Code; Rev. Rul. 76-503 amplified.
Full Text
Rev. Rul. 77-158
Advice has been requested as to the application of section 2041 of the
Internal Revenue Code of 1954 and the conclusion of Rev. Rul. 76-503,
1976-2 C.B. 275, in the circumstances described below.
In 1973, three siblings named A, B, and C owned equal interests in their
family business. They decided to place the business in trust for the
benefit of their descendants and with a view toward keeping the family
enterprise intact. Each sibling-grantor designated one of the sibling's
adult children as one of the three trustees of the trust. Under the terms
of the trust, income is to be accumulated and added to principal until the
trust terminates. The trust shall terminate exactly twenty years after the
death of the last surviving descendant of A, B, and C who is living at the
date of creation of the trust.
The trustees are empowered to manage the trust assets in their complete
discretion. They are also empowered to distribute trust property to
whomever they select, including themselves, in such proportions, at such
times, and for such purposes as they see fit. Each trustee is privileged to
designate one of the trustee's relatives to serve as a successor trustee in
the event of the trustee's death or resignation. In the absence of such a
designation, the oldest adult living descendant of the deceased or resigned
trustee who is willing to serve as the new trustee shall occupy the vacant
trustee position.
The terms of the trust provide that the trustees may exercise any of their
powers by majority vote.
The decedent D was selected by A to be one of the three trustees and D
continued in that position until D's death in 1975.
The question presented is whether any amount is includible, with respect to
the trust described above, in D's gross estate under section 2041 of the
Code as the value of property subject to a general power of appointment in
view of the fact that the power was held by D and two cotrustees.
Section 2041(a)(2) of the Code requires inclusion in the gross estate of
the value of all property with respect to which the decedent has, at the
time of death, a "general power of appointment" created after October 21,
1942.
Section 2041(b)(1)(C)(ii) of the Code provides that a power is not a
general power of appointment if it is only exercisable by the decedent in
conjunction with another person who has a substantial interest, in the
property subject to the power, that is adverse to exercise of the power in
favor of the decedent. A person who, after the death of the decedent, may
possess the power of appointment and exercise it in favor of himself or
herself is, under this provision of the Code, deemed to hold a substantial
interest in the property that is adverse to exercise in favor of the
decedent.
Rev. Rul. 76-503 involves facts identical to those in the present case,
except in Rev. Rul. 76-503 the trustees hold their powers jointly and thus
act unanimously, whereas here the trustees must act by majority vote. In
the present case, as in Rev. Rul. 76-503, a trustee is replaced upon death
or resignation by a successor trustee. Because, as in Rev. Rul. 76-503, the
surviving trustees are in no better position to exercise the power after
the decedent's death than before the death, the conclusion of that Revenue
Ruling, that the interests of the co-trustees are not adverse to exercise
of the power in favor of the decedent, is equally applicable in the present
case.
Accordingly, in the instant case, the power held by the decedent and the
other trustees is a "general power of appointment" and, under section
2041(b)(1)(C)(iii), one third of the value of the trust assets (as of the
date of death of D or the appropriate alternate valuation date) is
includible in the gross estate of D.
Rev. Rul. 76-503 is amplified.
