Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 77-60

1977-1 C.B. 282

Section 2041 -- Powers of Appointment

IRS Headnote

Powers of appointment; not limited by ascertainable standard. The decedent who was granted a life estate in a trust with the power to invade corpus as desired to continue an accustomed standard of living, which power under the applicable state law is not construed to impose an objective limitation, possessed a power that was not limited by an ascertainable standard relating to health, education, support or maintenance and consequently possessed at death a general power of appointment.

Full Text

Rev. Rul. 77-60

Advice has been requested whether the decedent possessed at death a general power of appointment within the meaning of section 2041 of the Internal Revenue Code of 1954, under the circumstances described below.

Under the will of decedent's spouse, who died in 1970, the decedent was granted a life estate in certain properties, with the power to invade corpus as desired "to continue the donee's accustomed standard of living." Upon the death of the decedent, the corpus was to be distributed to other named beneficiaries. The decedent died in 1975. Under the state law applicable to the administration of the estate of decedent's spouse, the quoted language is not construed to impose an objective limitation on the exercise of the power of invasion granted by the donor, other than one of good faith.

Section 2041(a)(2) of the Code provides that the value of the gross estate of the decedent shall be determined by including the value at the time of death of all property "to the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, 1942 * * *."

Section 2041(b)(1) of the Code defines the term "general power of appointment" as a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate. However, section 2041(b)(1)(A) provides as follows:

A power to consume, invade, or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support or maintenance of the decedent shall not be deemed a general power of appointment.

Section 20.2041-1(c)(2) of the Estate Tax Regulations provides:

A power to consume, invade, or appropriate income or corpus, or both, for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support or maintenance of the decedent is, by reason of section 2041(b)(1)(A), not a general power of appointment. A power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them). As used in this subparagraph, the words "support" and "maintenance" are synonymous and their meaning is not limited to the bare necessities of life. A power to use property for the comfort, welfare or happiness of the holder of the power is not limited by the requisite standard. Examples of powers which are limited by the requisite standard are powers exercisable for the holder's "support," "support in reasonable comfort," "maintenance in health and reasonable comfort," "support in his accustomed manner of living," "education, including college and professional education," "health," and "medical, dental, hospital and nursing expenses and expenses of invalidism."

The ascertainable standard set forth in section 2041(b)(1)(A) of the Code spells out the limited degree of economic control over property that Congress chose to exempt from the estate tax. The language of the Code is detailed, i.e., if the exercise of the power is restricted by definite bounds relating to the health, education, support, or maintenance of the donee, it is not a general power of appointment with the resulting tax consequence. Further, section 20.2041-1(c)(2) of the regulations provides that the power must be limited to the donee's "needs for health, education, or support (or any combination of them)." While this ascertainable standard is not restricted to the bare necessities of life, the power must be exercisable only for the designated statutory purposes.

In determining whether property subject to a power is limited by an ascertainable standard within the meaning of section 2041 of the Code, the test is the "measure of control" over the property by virtue of the grant of the power, i.e., whether the exercise of the power is restricted by definite bounds. That the amount of property that could be consumed for the benefit of the donee is not measurable or predictable is of no consequence. The test under section 2041 differs from the test applicable before the Tax Reform Act of 1969 under section 2055 (relating to deductions for charitable transfers). The query under section 2041 is the breadth of the power granted; the query under section 2055 was the measurability of property subject to both private and charitable uses. Strite v. McGinnes, 330 F. 2d 234 (3rd Cir. 1964), cert. denied, 379 U.S. 836 (1964); see Estate of Josephine R. Lanigan, 45 T.C. 247 (1965).

A power to use property to enable the donee to continue an accustomed mode of living, without further limitation, although predictable and measurable on the basis of past expenditures, does not come within the ascertainable standard prescribed in section 2041(b)(1)(A) of the Code since the standard of living may include customary travel, entertainment, luxury items, or other expenditures not required for meeting the donee's "needs for health, education or support." Nor does the requirement of a good faith exercise of a power create an ascertainable standard. Good faith exercise of a power is not determinative of its breadth. Strite and Lanigan, above.

Accordingly, the power possessed by the decedent to invade trust principal as desired to continue an accustomed standard of living was not limited by an ascertainable standard relating to health, education, support or maintenance. Therefore, the decedent possessed at death a general power of appointment requiring inclusion of the value of the trust property in the decedent's gross estate under section 2041 of the Code.