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 Rev. Rul. 54-59

1954-1 C.B. 183

IRS Headnote

Where the inclusion in the gross estate of a deceased donee of a general power of appointment of the property subject to the power, is dependent upon an exercise of the power by the donee, and the donee partially exercises the power by appropriating a part of the property to her own use, the property unaffected by the exercise is not includible in the donee's gross estate for Federal estate tax purposes under section 811(f)(1) of the Internal Revenue Code.

Full Text

Rev. Rul. 54-59

Advice is requested whether the value of property over which the decedent died possessed of a general power of appointment under the will of her deceased husband, is includible in her gross estate for Federal estate tax purposes under the provisions of section 811(f) of the Internal Revenue Code where inclusion of such power is dependent upon the exercise thereof.

The decedent's husband died in April 1949. By his will, which was executed in 1939 and not republished by a codicil executed after October 21, 1942, he bequeathed and devised the residue of his estate in trust, to pay the income to his wife during her life and upon her death to distribute the principal to named beneficiaries. The will authorized the trustee to pay over, transfer and deliver and part or all of the principal of the trust estate to the wife at any time or times she may in her absolute and uncontrolled discretion request the same. This discretionary power conferred upon the wife gave her a general power of appointment over the principal within the meaning of section 811(f) of the Internal Revenue Code. The wife exercised the power during her life by withdrawing to her own use a part of the principal of the trust estate.

Section 811(f)(1) of the Code as amended by the Powers of Appointment Act of 1951, Public Law 58, 82nd Congress, 65 Stat. 91, C.B. 1951-2, 343, provides in part that the value of the gross estate of a decedent shall be determined by including the value at the time of his death of:

(1) PROPERTY WITH RESPECT TO WHICH DECEDENT EXERCISES A GENERAL POWER 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 (1) by will or (2) by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent's gross estate under subsection (c) of (d); but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof.

Section 2(b) of the Powers of Appointment Act of 1951 provides:

(b) DATE OF CREATION OF POWER.-For the purpose of this section a power of appointment created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942.

The will of the husband which created the power of appointment was executed prior to October 21, 1942, and he died before July 1, 1949, without having republished such will, by a codicil or otherwise, after October 21, 1942. Accordingly the property subject to the power is not includible in the instant decedent's gross estate (the donee of the power) unless the decedent exercised the power by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in her gross estate under section 811(c) or (d) of the Internal Revenue Code.

Where the inclusion of property subject to a power to appoint is dependent upon an exercise of the power by the decedent, a partial exercise may, or may not, depending upon the nature of the exercise, require the inclusion of the entire property in the donee's estate. Where the exercise affects the entire property, for example, the appointment of a life estate in the whole, the entire property is subject to the tax. However, where the exercise affects only a part of the property, the portion unaffected by the exercise is not subject to estate tax. Cf. Estate of Mabel Wooster v. Commissioner , 9 T.C. 742.

In the instant case the decedent's exercise of the power of appointment by withdrawing a part of the principal of the trust estate in nowise affected her husband's testamentary disposition of the remaining principal. It is, accordingly, held, that, where the inclusion in the gross estate of a deceased donee of a general power of appointment of the property subject to the power is dependent upon an exercise of the power by the donee, and the donee partially exercises the power by appropriating a part of the proper to her own use, the property unaffected by the exercise is not includible in the donee's gross estate for Federal estate tax purposes under section 811(f)(1) of the Internal Revenue Code.