Powers of Appointment Flashcards
Key provisions governing powers of appointment
2041 & 2514
Examples of non-explicit powers of appointment?
(1) Power to consume all or a portion of trust principal
(2) Right to compel a trustee to sell trust assets and distribute proceeds.
(3) Trustee’s discretionary power to distribute income or principal among beneficiaries.
(4) Power to remove trustee and appoint oneself. (Exception for conditions not subject to decedent’s control and did not in fact exist)
20.2041-1(b)(1)
Interaction with inclusion sections 2033-2038
If there is overlap, the other section will govern. As a result, 2041 powers of appointment are limited to property transferred by one other than the individual possessing the power.
General rule for type of power of appointment that can be included in transfer tax base?
Only General Powers of Appointment are included in
Basic definition of General Power of Appointment
A power of appointment exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate.
When is power of appointment available to decedent’s estate?
Must be available for administrative expenses. Can’t merely be exercisable in favor of individuals who happen to be beneficiaries of estate.
GPOA exceptions
(1) Ascertainable Standard: If the GPOA is only exerciseable by an ascertainable standard relating to HEMS
(2) GPOA can only be exercised in conjunction with the creator. (transfer tax consequences resolved with respect to creator).
(3) GPOA can only be exercised in conjunction with individual with adverse interest.
Can decedent possess GPOA if lacking capacity to exercise it?
Yes, even if individual is mentally incompetent for example, they will still be deemed to possess GPOA.
Must decedent be aware of GPOA to include it in their estate?
No, GPOA included even if possessor is unaware of it.
Does a contingency to exercise a GPOA preclude it from the estate?
Potentially yes. Not included if exercise is contingent on an event that did not occur prior to the decedent’s death and the decedent did not control.
How can powerholder give up GPOA without deeming it a transfer?
They can disclaim it under 2518.
When is a lapse of a GPOA considered a release?
It will be considered a release to the extent the property it can be exercised for exceeds $5,000 or 5% of total assests, whichever is greater.
Will a lapse of Crummey withdrawal rights be considered a GPOA release for gift tax purposes?
Yes, it will be considered a release unless avoided. Can be avoided by making withdrawal holder sole beneficiary of trust, so shift in value to remainder will just be to them and you can’t have gift to yourself. Or you can give them testamentary GPOA over property.
