Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-20

1954-1 C.B. 195

IRS Headnote

The power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow does not in itself create a separate trust in respect of the portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812(e)(1)(F) of the Internal Revenue Code.

Full Text

Rev. Rul. 54-20

Advice is requested whether the power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow in itself creates a separate trust in respect of that portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812(e)(1)(F) of the Internal Revenue Code.

In the instant case the decedent bequeathed the entire residue of his estate to an inter vivos trust created by him during life, the terms of which called for the payment of the net income from the trust estate to his surviving spouse so long as she should live, with the power in the spouse, exercisable during life or by will, to appoint in her favor, in favor of her estate, or otherwise as she may please, a portion of the trust corpus equal in value to 50 percent of the value of the decedent's adjusted gross estate, reduced by the value of property included therein which passed to the spouse other than under the terms of the trust.

In the case of an interest in property which passes from a decedent to a trust which comes within the purview of subparagraph (F) of section 812(e)(1), the marital deduction is to be allowed only if the terms of the trust satisfy all the requirements of this subparagraph. One of such requirements is that under the terms of the trust the surviving spouse must have the power, exercisable in favor of such spouse, or in favor of his or her estate, to appoint the entire corpus free of trust . That portion of section 81.47a of Regulations 105, which deals with this point, provides as follows:

If the surviving spouse is entitled to only a portion of the trust income, or has power to appoint only a portion of the corpus, the trust fails to satisfy conditions (1) and (3), respectively. * * *

Condition (3) is to the effect that the power exercisable in favor of the spouse, or of her estate must extend to the entire corpus of the trust. However, it is further provided in the regulations that this condition may be satisfied by one or more of several separate trusts created by the decedent; that an undivided interest in property may constitute the corpus of a trust, and that the will or a single trust instrument may create more than one trust.

Under the terms of the trust in the instant case the decedent's widow is  entitled to the entire net income from the trust estate during her life-time. However, there was no segregation of the interest in the residue of the decedent's estate which passed in trust subject to the power of appointment in his widow such as would constitute a separate trust of an undivided interest in the property so passing. A trust instrument merely giving the widow the power to appoint a portion of the corpus of the trust estate transferred to the trust does not thereby create a separate trust in respect of any portion of, or interest in, the property forming the entire trust corpus. The interest in the trust property which passed to the widow was in effect a life estate in the entire property, together with a power of appointment over only a portion of the property, which is less than the virtual ownership contemplated by section 812(e)(1)(F) of the Code and section 81.47a of Regulations 105.

In view of the foregoing it is held that the power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow does not in itself create a separate trust in respect of the portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812(e)(1)(F) of the Internal Revenue Code.