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ESTATE OF SARAH W. GREVE, DECEASED, CHARLES E. GREVE & DAVID R. GREVE, CO-EXECUTORS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentEstate of Greve v. Comm'rNo. 16020-02
United States Tax Court T.C. Memo 2004-91; 2004 Tax Ct. Memo LEXIS 92; 87 T.C.M. 1201;April 5, 2004, Filed2004 Tax Ct. Memo LEXIS 92">*92 Commissioner's deficiency determination sustained.
Louis R. Salamon , for petitioner.Julia L. Wahl , for respondent.Chiechi, Carolyn P.CHIECHIMEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined a deficiency of $ 163,677.55 in Federal estate tax (estate tax) with respect to the estate (estate) of Sarah W. Greve (decedent). The issues for decision are:
(1) Is certain property with respect to which decedent had a power of appointment at the time of her death includible in decedent's gross estate under
section 2041(a)(1) ?section 2041(a)(2) ? We hold that it is.FINDINGS OF FACT
2004 Tax Ct. Memo LEXIS 92">*93 Most of the facts have been stipulated and are so found.
Decedent was a resident of Pennsylvania at the time of her death on December 27, 1998.
At the time the petition was filed, Charles E. Greve and David R. Greve, decedent's sons and the co-executors (executors) of the estate, had a mailing address in Pittsburgh, Pennsylvania.
On July 29, 1933, Sarah S. Wright (Ms. Wright), decedent's grandmother, executed her last will and testament (Ms. Wright's will) under which Ms. Wright, inter alia, created a testamentary trust (testamentary trust). Ms. Wright's will provided in pertinent part as follows:
SECOND: I give and bequeath all of the bonds and all of the
corporate stocks which I may own at the time of my death to THE
UNION TRUST COMPANY OF PITTSBURGH, 2004 Tax Ct. Memo LEXIS 92">*94 the expenses incident to the management
of the trust and a reasonable compensation to the Trustee, to
pay over the net income in equal shares to my children, JOHN,
HESTER, CLARA and ROBERT for and during the full term of their
natural lives. Upon the death of any of my said children leaving
issue, him or her surviving, the income arising from that
portion of th[e][p]rincipal to which said child [was]
entitled to receive the income at the time of his or her death
shall be paid over equally among such surviving issue for and
during the full term of their natural lives * * * [.] Upon the
death of any issue of a deceased child of mine while such issue
may be entitled to receive a portion of income herefrom, the
principal of the fund represented by that portion of the income
which such issue was receiving at the time of his or her death
shall be paid over free and discharged of any trust to such
persons and in such manner as he or she shall by his or her Last
Will and Testament designate and appoint, and in the absence of
such testamentary disposition2004 Tax Ct. Memo LEXIS 92">*95 it shall be paid over to those
persons who are then his or her heirs under the then existing
Intestate Laws of the Commonwealth of Pennsylvania.
On November 20, 1933, Ms. Wright died survived by four children, one of whom was Robert Wright (Mr. Wright), decedent's father. On November 6, 1974, Mr. Wright died survived by six children (collectively, Mr. Wright's children). 2004 Tax Ct. Memo LEXIS 92">*96 vivos trust (inter vivos trust). The deed of trust provided in pertinent part as follows:
HESTER M. WRIGHT, of the City of Pittsburgh, Allegheny
County, Pennsylvania, as the Settlor, and MELLON BANK, N. A., a
national banking association authorized to engage in trust
business in the Commonwealth of Pennsylvania, as the Trustee,
hereby agree as follows:
ONE: The Settlor hereby transfers and delivers to
the Trustee * * * [certain property] together with all her
interest therein. The Trustee shall hold said property, together
with any additions thereto as hereinafter provided, as a Trust
Estate, shall invest and reinvest the same and shall distribute
the net income (hereinafter called "Income") and
principal as set forth in the following provisions.
(A) During the Settlor's lifetime, the Trustee shall pay
the Income quarter-annually to her or for her benefit and shall
also pay to her such sums from principal as she may direct in
writing * * *
(B) Upon the Settlor's death, the Trustee shall pay
2004 Tax Ct. Memo LEXIS 92">*97 directly to the taxing authorities or through the personal
representative of her estate all estate, inheritance and other
taxes in the nature thereof * * *. The Trustee shall also pay to
the Settlor's personal representative or shall expend directly,
from assets other than the proceeds of insurance, such sums as
said personal representative shall certify as necessary to
supplement the Settlor's probate estate in order to pay debts,
funeral expenses, legacies and administration expenses. Subject
to such payment, the trust shall continue as follows:
(1) During the lifetime of the Settlor's sister, CLARA E.
WRIGHT, if she survives [t] he Settlor, the Trustee shall pay
the Income quarter-annually to her or for her benefit * * *
(2) Upon the death of the survivor of the Settlor and her
said sister, the principal shall be divided into six equal
shares for the Settlor's nieces and nephew, ELIZABETH WRIGHT
ANDERSON, SARAH WRIGHT GREVE, ANN WRIGHT CURRAN, PATRICIA WRIGHT
CALDWELL, ROBERT McELDOWNEY WRIGHT, JR., and NANCY ROBERTS
WRIGHT, 2004 Tax Ct. Memo LEXIS 92">*98 and each share shall be held as a separate trust. If any
of them is not then living, his or her share shall be
distributed as is hereinbelow provided.
(a) During the lifetime of each of them, the Trustee shall
pay the Income from his or her trust quarter-annually to or for
the benefit of said niece or nephew, and if the Trustee
considers the Income to be insufficient, in view of other funds
readily available for such purpose of which it has knowledg[e]
to provide for the welfare and comfortable support of said niece
or nephew and his or her family, including educational and
funera[l] expenses, the Trustee is authorized in its discretion
to use such sums from principal as it deems advisable therefor.
In addition, the Trustee shall pay to said niece or nephew such
sums from prin[cipal] as he or she may request in writing, not
to exceed FIVE THOUSAND ($ 5,000) DOLLARS in any one calendar
On December 31, 1981, Mellon Bank, N. A., the trustee under the deed of trust, and Mr. Wright's children, who were Hester Wright's nieces and nephew, entered into an agreement to amend the inter vivos trust (agreement to amend the inter vivos trust). That agreement provided in pertinent part as follows:
WHEREAS, Hester M. Wright, settlor under the Deed of Trust
died July 21, 1980; and
WHEREAS, Clara E. Wright, first life tenant under the Deed
of Trust, disclaimed all of her interest as such life tenant,
thereby accelerating the interests of the Beneficiaries hereto
as successor life tenants; and
WHEREAS, the Beneficiaries desire that during the term of
this Agreement the Trustee hold and administer the entire trust
estate as one fund, rather than dividing the same into six
separately held and administered trust funds, one for each
Beneficiary.
NOW, THEREFORE, the parties, intending to be legally bound
hereby, agree as follows:
1. 2004 Tax Ct. Memo LEXIS 92">*100 Notwithstanding the provisions of Article ONE (B)(2)
that, on the death of the Settlor and her sister, the principal
of the trust estate shall be divided into six equal separate
trusts, the Trustee shall during the continuance of this
Agreement hold, invest and reinvest and otherwise administer the
trust estate as one fund, distributing the net income in equal
shares directly to the six Beneficiaries and not through the
separate trusts.
2. Notwithstanding the provisions of Article ONE (B)(2)(a),
the Trustee shall not, during the continuance of this Agreement,
(i) make any distribution of principal to any Beneficiary
pursuant to its discretionary powers in this subparagraph or
(ii) make any distribution of principal to any Beneficiary
pursuant to such Beneficiary's power to request sums from
principal not to exceed $ 5,000 in any one calendar year, except
that at the request of the Attorney-in-Fact (hereinafter
appointed), the Trustee shall make equal distributions to each
Beneficiary of such sums from principal as shall not exceed
2004 Tax Ct. Memo LEXIS 92">*101 $ 5,000 to each Beneficiary in any one calendar year.
3. By the execution of this Agreement, each Beneficiary
hereby appoints ROBERT McE. WRIGHT, JR. 2004 Tax Ct. Memo LEXIS 92">*102 Each Beneficiary further agrees that this appointment of
the Attorney-in-Fact shall remain in full force and effect until
written notice of revocation is given to the Trustee or until
this Agreement is terminated as hereinafter provided.
4. This Agreement shall terminate upon the happening of any
of the following events:
(a) the death of any Beneficiary;
(b) written notice to the Trustee that any Beneficiary
desires to terminate the Agreement;
(c) written notice by the Trustee to the Attorney-in-
Fact that it desires to terminate the Agreement;
(d) revocation by any Beneficiary of the appointment
of the Attorney-in-Fact.
If the Agreement shall be terminated by the death of,
notice of termination by, or revocation of appointment of
Attorney-in-Fact by any Beneficiary, the remaining Beneficiaries
may enter into a new agreement with the Trustee upon the terms
herein set forth for the investment, reinvestment and
administration2004 Tax Ct. Memo LEXIS 92">*103 of their trusts as one fund as herein provided.
The share of the Beneficiary dying, giving notice of termination
or revoking the appointment of Attorney-in-Fact, shall be
withdrawn from this Agreement and shall be administered,
distributed or otherwise disposed of according to the terms of
the Deed of Trust. Also upon final termination of the Agreement
(or any new agreement referred to above), the trust fund
administered under this Agreement (or any new agreement) shall
be divided according to the terms of the Deed of Trust as if
this Agreement had not been entered into, it being understood
that this Agreement is intended only to relate [to] the
administration and management of the trust estate and not to
affect the substantive rights of any distributees under the Deed
of Trust. The termination of the Agreement shall not be an
occasion requiring the Trustee to file an account covering its
administration of the trust estate pursuant to this Agreement.
5. This Agreement shall not affect the Deed of Trust in any
other respect or the Trustee's2004 Tax Ct. Memo LEXIS 92">*104 ultimate duty to account. During
the time this Agreement is in effect, the Trustee's compensation
shall reflect the fact that the trust estate is being
administered as a single account.
Between the date on which Clara Wright disclaimed her interest in the inter vivos trust and the date of decedent's death on December 27, 1998, decedent received a one-sixth share of the income from the inter vivos trust.
On August 16, 1993, decedent executed her will (decedent's will). Decedent's will provided in pertinent part as follows:
I, SARAH W. GREVE, of Pittsburgh, Pennsylvania, make,
publish and declare this to be my last Will, hereby revoking all
prior wills.
FIRST: I give to my children living at my death, so much of
my tangible personal property (together with any insurance
thereon) as they may select in approximately equal shares. If
any dispute should arise among them about such selection, my
Executors shall have final authority to decide the same. Any
such property not so selected, shall be sold and the proceeds
added to my estate hereinafter disposed of.
2004 Tax Ct. Memo LEXIS 92">*105 SECOND: I give my remaining entire estate in equal shares
to my children, per stirpes, subject to the minority [relating
to beneficiaries under the age of 18] provisions hereinafter
provided.
When decedent died on December 27, 1998, she was survived by six children.
At a time not disclosed by the record after decedent's death and before September 24, 1999, Mellon Bank, N. A., distributed decedent's one-sixth share of the principal of the testamentary trust to decedent's children. At a time not disclosed by the record after decedent's death and before September 24, 1999, Mellon Bank, N. A., distributed decedent's one-sixth share of the principal of the inter vivos trust to decedent's children.
On January 4, 1999, the Register of Wills of Allegheny County, Pennsylvania, admitted decedent's will to probate. On that date, the executors received letters testamentary with respect to decedent's estate.
On September 24, 1999, the executors of decedent's will filed in the Orphans' Court of Allegheny County, Pennsylvania, what is identified as a disclaimer (purported disclaimer). The purported disclaimer provided in pertinent part as follows:
2004 Tax Ct. Memo LEXIS 92">*106 We are Charles E. Greve and David R. Greve. On January 4,
1999, your Honorable Register granted Letters Testamentary to us
as Co-Executors under the Last Will and Testament of our late
mother, Sarah W. Greve, she having died on December 27, 1998.
In our capacities as Executors under the Last Will and
Testament of Sarah W. Greve, we hereby disclaim the following:
1. The Power of Appointment and the right to exercise
same which was granted to Sarah W. Greve under the Last
Will and Testament of Sarah S. Wright, Deceased, said Last
Will and Testament having been executed on July 29, 1933.
(a) The asset which would have been the subject
of said Power of Appointment which we disclaim herein
is a one sixth (1/6) share of the corpus of a
Testamentary Trust created under said Last Will and
Testament of Sarah S. Wright, such share of the corpus
previously being held, in trust, by Mellon Bank, N.A.,
Successor to the Union Trust Company of Pittsburgh.
2. Any Power of Appointment and any right to exercise
same which was granted to Sarah W. Greve under a Deed of
Trust of Hester M. Wright dated May 11, 1976, [and amended
by the agreement dated2004 Tax Ct. Memo LEXIS 92">*107 December 31, 1981] [the agreement to
amend the inter vivos trust].
(a) The asset which would have been the subject
of said Power of Appointment which we disclaim herein
is a one sixth (1/6) share of the corpus of a Deed of
Trust created by Hester M. Wright, such share of the
corpus previously being held, in trust, by Mellon Bank, N.A.
On September 27, 1999, the estate filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (decedent's estate tax return). Decedent's estate tax return did not include as part of decedent's total gross estate any amount with respect to the testamentary trust. Nor did that return include as part of decedent's total gross estate any amount with respect to the inter vivos trust. In Schedule H, Powers of Appointment (Schedule H), included as part of decedent's estate tax return, a notation stated "See attached explanation". The estate attached to decedent's estate tax return a document identified as an Explanation as to Schedule H-Powers of Appointment (explanation as to Schedule H). The explanation as to Schedule H provided in pertinent part as follows:
At no time between July 29, 1933, and the date of her death
did Sarah W. Greve, the Decedent herein, 2004 Tax Ct. Memo LEXIS 92">*108 have any knowledge or
understanding whatsoever that she possessed a power of
appointment under the Testamentary Trust established under the
Last Will and Testament of her grandmother, Mrs. Wright. For
that reason, there was absolutely no mention of such Power of
Appointment in the Last Will and Testament of Sarah W. Greve and
there was no specific testamentary disposition of the assets as
to which she had such Power of Appointment. Rather, Sarah W.
Greve made, in her Last Will and Testament, * * * a general
residuary bequest and devise to her children, per stirpes.
* * * * * * *
In mid September 1999, when counsel for the Estate of Sarah
W. Greve began to prepare this Return, he discovered that it
might be concluded by the Internal Revenue Service that the
assets which were the subject of said Power of Appointment are
includable in the gross Estate of Sarah W. Greve. For this
reason, on September 24, 1999, Charles E. Greve and David R.
Greve, the Executors of the Estate of Sarah W. Greve filed2004 Tax Ct. Memo LEXIS 92">*109 a
Disclaimer, as to the Estate of Sarah W. Greve, as to said Power
of Appointment with the Register of Wills of Allegheny County,
Pennsylvania; and, on that same date, such Disclaimer was
delivered to Mellon Bank, N. A., per Attorney Collins. * * *
The assets in said Trust and the fair market value of those
assets on the date when Sarah W. Greve died are shown on a
document, issued by Mellon Bank, N.A., entitled "Account
Assets". * * * The fair market value of a one sixth (1/6)
share of said assets is $ 314,612.42.
It is the position of the Estate of Sarah W. Greve that
said $ 314,612.42 should not be included in the taxable Estate of
Sarah W. Greve because Sarah W. Greve did not specifically
exercise her Power of Appointment in the manner as directed in
the Will of Mrs. Wright.
It is the position of the six (6) children of Sarah W.
Greve that said $ 314,612.42 passed to them, in equal shares,
pursuant to the Will of Mrs. Wright because they are the only
heirs of Sarah W. Greve under the Intestate Laws of the
Commonwealth of Pennsylvania.
2004 Tax Ct. Memo LEXIS 92">*110 Alternatively, if it is determined that the general
residuary bequest in the Last Will and Testament of Sarah W.
Greve constituted such an exercise, it is the position of the
Estate of Sarah W. Greve that a proper and appropriate
Disclaimer as to said Power of Appointment was timely filed.
The explanation as to Schedule H did not discuss any potential issue with respect to the power of appointment that decedent had with respect to $ 5,000 of the principal of the inter vivos trust.
Respondent issued a notice of deficiency (notice) to decedent's estate. 2004 Tax Ct. Memo LEXIS 92">*111 trust and that that power was a general power of appointment. Consequently, respondent increased decedent's total gross estate by $ 5,000.
OPINION
The parties do not address
section 7491(a) . The estate filed decedent's estate tax return on September 27, 1999. We presume that respondent's examination of that return commenced after July 22, 1998, and thatsection 7491(a) is applicable in the instant case. The estate has failed to establish2004 Tax Ct. Memo LEXIS 92">*112 that it satisfiessection 7491(a)(2)(A) and (B) with respect to any factual issue relating to respondent's deficiency determinations that remains in this case. On the record before us, we conclude that the estate's burden of proof on any such issue, seeRule 142(a) ;Welch v. Helvering, 290 U.S. 111, 115, 78 L. Ed. 212">78 L. Ed. 212 , 54 S. Ct. 8">54 S. Ct. 8 (1933), does not shift to respondent undersection 7491(a) .We turn first to the power of appointment that decedent had with respect to one-sixth of the principal of the testamentary trust. For the first time on brief, the estate advances the position that, pursuant to the testamentary trust, decedent had a special power of appointment, and not a general power of appointment, with respect to that portion of the principal of that trust. 2004 Tax Ct. Memo LEXIS 92">*113 Pursuant to said Testamentary Trust [the testamentary trust
created in Ms. Wright's will], the death of any of the six
children of Robert Wright had the effect of terminating the
Trust as to the principal comprising said Testamentary Trust
represented by that portion of the income therefrom which such
child had been receiving prior to her death.
Pursuant to said Testamentary Trust, the recipient(s) of
that principal were, as to such deceased child of Robert Wright,
here, Mrs. Greve, such persons as Mrs. Greve shall by her Last
Will and Testament, designate and appoint.
* * * * * * *
It is respectfully submitted that the above described Trust
termination language constituted a special and not a general
power of appointment in favor of Mrs. Greve.
Pursuant to the clear language of said Trust termination
provision, Mrs. Greve was required to designate and appoint
persons to take that principal. The word "designate" is
defined, in Websters New Collegiate2004 Tax Ct. Memo LEXIS 92">*114 Dictionary, as to
distinguish or to indicate and set apart for a specific purpose
or to denote. The word "appoint" is defined, in
Websters New Collegiate Dictionary, as to fix or set
officially or to name officially.
It is respectfully submitted that nowhere in her Will did
Mrs. Greve fulfill the express requirement in said Trust
termination language that she had to "designate and
appoint" persons to take the specified portion of the
principal in said Testamentary Trust over which she had control
by her Will.
In summary, Mrs. Greve did not receive a general power of
appointment in the Testamentary Trust created by Mrs. Wright.
What she received was the right to specifically designate and
appoint those persons who would take principal. She completely
failed so to do; as such, pursuant to said Testamentary Trust *
* * that principal is not an asset of the Estate of Mrs. Greve
for federal estate tax purposes. [Reproduced literally.]
It is respondent's position that decedent had a general power of appointment with respect to2004 Tax Ct. Memo LEXIS 92">*115 one-sixth of the principal of the testamentary trust; under Pennsylvania law decedent exercised that power through the residuary clause in her will; and consequently that portion of the testamentary trust is includible in decedent's gross estate under
section 2041(a)(1) .Section 2041 provides in pertinent part as follows:SEC. 2041. POWERS OF APPOINTMENT. (a) In General. -- The value of the gross estate shallinclude the value of all property --
(1) Powers 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 --
(A) by will * * *
* * * * * * *
(b) Definitions. -- For purposes of subsection (a) --
(1) General power of appointment. -- The term
"general power of appointment" means a power which
is exercisable in favor of the decedent, his estate, his
creditors, or the creditors2004 Tax Ct. Memo LEXIS 92">*116 of his estate * * *
The regulations under
section 2041 provide the following definition of the term "power of appointment":(b) Definition of "power of appointment" --
(1) In general. The term "power of appointment"
includes all powers which are in substance and effect powers of
appointment regardless of the nomenclature used in creating the
power and regardless of local property law connotations. For
example, if a trust instrument provides that the beneficiary may
appropriate or consume the principal of the trust, the power to
consume or appropriate is a power of appointment. * * *
Sec. 20.2041-1(b)(1) , Estate Tax Regs.The regulations under
section 2041(b)(1) elaborate as follows on the definition of the term "general power of appointment" set forth in that section:(c) Definition of "general power of
appointment" -- (1) In general. The term
"general power of appointment" as defined in section
2041(b)(1) means any power of appointment exercisable in favorof the decedent, his estate, his creditors, or the creditors of
his estate, except (i) joint2004 Tax Ct. Memo LEXIS 92">*117 powers, to the extent provided in
sections 20.2041-2 and 20.2041-3 * * * A power of appointmentis not a general power if by its terms it is either --
(a) Exercisable only in favor of one or more
designated persons or classes other than the decedent or his
creditors, or the decedent's estate or the creditors of his
estate, or
(b) Expressly not exercisable in favor of the
decedent or his creditors, or the decedent's estate or the
creditors of his estate.
Sec. 20.2041-1(c)(1) , Estate Tax Regs.Although the estate's position on brief regarding the power of appointment with respect to one-sixth of the principal of the testamentary trust is difficult to understand, as best we can comprehend it, the estate's position is that, because the testamentary trust gave to decedent the power to "designate and appoint" in her will the persons to take one-sixth of the principal of the testamentary trust, decedent had a special power of appointment. We reject the estate's position.
The testamentary trust created under Ms. Wright's will provided in pertinent part as follows:
Upon the death of2004 Tax Ct. Memo LEXIS 92">*118 any of my said children leaving issue, him or
her surviving, the income arising from that portion of th[e]
[p]rincipal to which said child [was] entitled to receive the
income at the time of his or her death shall be paid over
equally among such surviving issue for and during the full term
of their natural lives * * * [.] Upon the death of any issue
of a deceased child of mine while such issue may be entitled to
receive a portion of income herefrom, the principal of the fund
represented by that portion of the income which such issue was
receiving at the time of his or her death shall be paid over
free and discharged of any trust to such persons and in such
manner as he or she shall by his or her Last Will and Testament
designate and appoint, and in the absence of such
testamentary disposition it shall be paid over to those persons
who are then his or her heirs under the then existing Intestate
Laws of the Commonwealth of Pennsylvania. [Emphasis added.]
The above-quoted underscored language in the testamentary trust gave decedent the unlimited power to appoint2004 Tax Ct. Memo LEXIS 92">*119 through her will one-sixth of the principal of that trust in favor of whomever decedent desired. We conclude that the foregoing power is a general power of appointment (i.e., a power of appointment exercisable in favor of decedent's estate, decedent's creditors, or the creditors of decedent's estate). See
sec. 2041(b)(1) ;Martin v. United States, 780 F.2d 1147">780 F.2d 1147 , 780 F.2d 1147">1148 (4th Cir. 1986); see alsosec. 20.2041-1(c)(1)(a) and (b) , Estate Tax Regs. As discussed supra note 9, the estate acknowledges that if the Court were to find that decedent had a general power of appointment with respect to one-sixth of the principal of the testamentary trust, under Pennsylvania law decedent exercised that power through the residuary clause in her will, and one-sixth of the principal of that trust (i.e., $ 320,732.11) is includible in decedent's gross estate undersection 2041(a)(1) .2004 Tax Ct. Memo LEXIS 92">*120 We turn now to the power of appointment that decedent had with respect to $ 5,000 of the principal of the inter vivos trust. For the first time on brief, the estate advances the position that, pursuant to the agreement to amend the inter vivos trust, undersection 2041(b)(1)(C)(ii) decedent did not have at the time of her death a general power of appointment with respect to $ 5,000 of the principal of that trust. 2004 Tax Ct. Memo LEXIS 92">*121 named in the Deed of Trust:A. The six separate trusts for each such beneficiary
were merged into one fund.
B. No principal whatsoever from such single fund could
be distributed to any beneficiary except that at the
request of Robert E. Wright, the attorney in fact for each
beneficiary, Mellon was required to make equal
distributions of principal to each beneficiary not to
exceed $ 5,000.00 to each.
C. Although all said beneficiaries had the power to
direct said attorney in fact to request such distribution
of principal, no one of them had such right.
The effect of the above provisions is that Mrs. Greve could
only withdraw $ 5,000.00 per year from the now single trust
established in the Deed of Trust in conjunction with five
persons each of whom having a substantial interest in such
single trust and each of whom, for this purpose, having an
interest in such single trust which was adverse to exercise of
the power2004 Tax Ct. Memo LEXIS 92">*122 in favor of Mrs. Greve.
Clearly, no one beneficiary of such single trust was given
the right to unilaterally withdraw principal therefrom to the
exclusion of any other beneficiary because any such unilateral
withdrawal would adversely affect the other beneficiaries.
* * * * * * *
It is respectfully submitted, by reason of * * * [section
2041(b)(1)(C)(ii)] that Mrs. Greve did not possess a general
power of appointment as to said $ 5,000.00 and that such sum is
not an asset of her gross Estate. [Reproduced literally.]
It is respondent's position that decedent had at the time of her death a general power of appointment with respect to $ 5,000 of the principal of the inter vivos trust and that consequently $ 5,000 is includible in decedent's gross estate under
section 2041(a)(2) . In support of that position, respondent argues:Petitioner contends that by virtue of an agreement executed
by all of the then living beneficiaries of the inter vivos trust
and the trustee after the death of the settlor, Decedent2004 Tax Ct. Memo LEXIS 92">*123 did not
have the right to withdraw $ 5,000 of trust principal at her
death and therefore did not possess a general power of
appointment over that amount. Respondent disagrees as to the
effect of the agreement.
The agreement entered into by the beneficiaries did bar the
beneficiaries from withdrawing $ 5,000 of trust principal while
the agreement was in effect. However, the agreement terminated
by its terms on the happening of any of four events, including
the death of a beneficiary. Pursuant to the terms of the
agreement, when a beneficiary died, her share was withdrawn from
the agreement and disposed of according to the original trust
document. The agreement terminated when Decedent herein died, if
not earlier, and Decedent possessed at her death the right to
withdraw $ 5,000 of trust principal. Accordingly, that amount is
includible in her estate pursuant to
I.R.C. section 2041(a)(2) .[Fn. ref. omitted.]
Section 2041 provides in pertinent part as follows:SEC. 2041. POWERS OF APPOINTMENT. (a) In2004 Tax Ct. Memo LEXIS 92">*124 General. -- The value of the gross estate shallinclude the value of all property --
* * * * * * *
(2) Powers created after October 21, 1942. -- 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)(C)(ii) excepts, inter alia, the following power of appointment from the definition of the term "general power of appointment" insection 2041(b)(1) :(C) In the case of a power of appointment created after
October 21, 1942, which is exercisable by the decedent only in
conjunction with another person --
* * * * * * *
(ii) If the power is not exercisable by the decedent
except in conjunction with a person having a substantial
interest in the property, subject to the power, which is
adverse to exercise of the power in favor of the decedent
-- such power2004 Tax Ct. Memo LEXIS 92">*125 shall not be deemed a general power of
appointment. For the purposes of this clause a person who,
after the death of the decedent, may be possessed of a
power of appointment (with respect to the property subject
to the decedent's power) which he may exercise in his own
favor shall be deemed as having an interest in the property
and such interest shall be deemed adverse to such exercise
of the decedent's power.
The regulations under
section 2041(b)(1)(C)(ii) elaborate as follows on the power of appointment described in that section:(c) Joint powers created after October 21, 1942. The
treatment of a power of appointment created after October 21,
1942, which is exercisable only in conjunction with another
person is governed by
section 2041(b)(1)(C) , which provides asfollows:
* * * * * * *
(2) Such power is not considered a general power of
appointment if it is not exercisable by the decedent except
with the2004 Tax Ct. Memo LEXIS 92">*126 consent or joinder of a person having a
substantial interest in the property subject to the power
which is adverse to the exercise of the power in favor of
the decedent, his estate, his creditors, or the creditors
of his estate. An interest adverse to the exercise of a
power is considered as substantial if its value in relation
to the total value of the property subject to the power is
not insignificant. For this purpose, the interest is to be
valued in accordance with the actuarial principles set
forth in
section 20.2031-7 or, if it is not susceptible tovaluation under those provisions, in accordance with the
general principles set forth in
section 20.2031-1 . A taker indefault of appointment under a power has an interest which
is adverse to an exercise of the power. A coholder of the
power has no adverse interest merely because of his joint
possession of the power nor merely because he is a
permissible appointee under a power. 2004 Tax Ct. Memo LEXIS 92">*127 However, a coholder of
a power is considered as having an adverse interest where
he may possess the power after the decedent's death and may
exercise it at that time in favor of himself, his estate,
his creditors, or the creditors of his estate.
Sec. 20.2041-3(c) , Estate Tax Regs.In support of its position that, pursuant to the agreement to amend the inter vivos trust, under
section 2041(b)(1)(C)(ii) decedent did not have at the time of her death a general power of appointment with respect to $ 5,000 of the principal of the inter vivos trust, the estate relies on the agreement to amend the inter vivos trust which was entered into by Mellon Bank, N.A., and decedent and Mr. Wright's other children, who were Hester Wright's nieces and nephew. We reject the estate's position.The deed of trust provided in pertinent part as follows:
(a) * * * In addition, the Trustee shall pay to said niece
or nephew such sums from prin[cipal] as he or she may request
in writing, not to exceed FIVE THOUSAND ($ 5,000) DOLLARS in any
one calendar year on a noncumulative basi[s.]
The agreement2004 Tax Ct. Memo LEXIS 92">*128 to amend the inter vivos trust provided in pertinent part as follows:
4. This Agreement shall terminate upon the happening of any
of the following events:
(a) the death of any Beneficiary;
(b) written notice to the Trustee that any Beneficiary
desires to terminate the Agreement;
(c) written notice by the Trustee to the Attorney-in-
Fact that it desires to terminate the Agreement;
(d) revocation by any Beneficiary of the appointment
of the Attorney-in-Fact.
If the Agreement shall be terminated by the death of * * *
any Beneficiary * * * The share of the Beneficiary dying * * *
shall be withdrawn from this Agreement and shall be
administered, distributed or otherwise disposed of according to
the terms of the Deed of Trust. * * *
We note initially that the agreement to amend the inter vivos trust provided that it was intended to relate only to the administration and management of the principal of that trust and not to affect the substantive rights of any2004 Tax Ct. Memo LEXIS 92">*129 distributees under the deed of trust. Moreover, assuming arguendo that each of the beneficiaries of the inter vivos trust other than decedent had an interest in $ 5,000 of the principal of that trust that was substantial and that was adverse to decedent's interest and that the agreement to amend the inter vivos trust had not terminated before decedent's death,
sec. 2041(b)(1) . On the record before us, we find that decedent had at the time of her death a general power of appointment with respect to $ 5,000 of the principal of the inter vivos trust. We hold that $ 5,000 is includible in decedent's gross estate undersection 2041(a)(2) .2004 Tax Ct. Memo LEXIS 92">*130 We have considered all of the contentions and arguments of the parties that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.
To reflect the foregoing,
Decision will be entered under
Rule 155 .Footnotes
1. All section references are to the Internal Revenue Code (Code) in effect on the date of decedent's death. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. At a time not disclosed by the record, Mellon Bank, N. A., became the successor to the Union Trust Company of Pittsburgh.↩
3. Mr. Wright's children are decedent, Elizabeth Wright Anderson, Ann Wright Curran, Patricia Wright Caldwell, Nancy Roberts Wright, and Robert McEldowney Wright, Jr.↩
4. The deed of trust granted to decedent and Mr. Wright's other children the power of appointment with respect to an amount not to exceed $ 5,000 from the principal of the inter vivos trust in any one calender year. For convenience, we shall hereinafter refer to that amount as $ 5,000.↩
5. We presume that Robert McE. Wright, Jr., is Robert McEldowney Wright, Jr., decedent's only brother and one of the beneficiaries under the inter vivos trust.↩
6. In the notice, respondent determined to allow all of the expenses that the estate claimed in Schedule J, Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims, included as part of decedent's estate tax return. The parties stipulated that as a result of the instant case the estate has incurred certain additional expenses that are deductible.↩
7. The parties stipulated that the value of one-sixth of the principal of the testamentary trust on the date of decedent's death was $ 320,732.11, and not $ 314,612.↩
8. We conclude that the estate's position on brief that decedent had a special power of appointment, and not a general power of appointment, with respect to one-sixth of the principal of the testamentary trust raises a new issue. However, respondent does not object to, and we find no prejudice to respondent as a result of, the estate's raising that issue for the first time on brief.↩
9. The estate acknowledges that if the Court were to find that decedent had a general power of appointment with respect to one-sixth of the principal of the testamentary trust, under Pennsylvania law decedent exercised that power through the residuary clause in her will. In that event, the estate would concede that the portion of that principal subject to that power is includible in decedent's gross estate under
sec. 2041(a)(1) . The estate's position with respect to Pennsylvania law, seesec. 20.2041-1(d) , Estate Tax Regs., accurately reflects that under Pennsylvania law an individual who has a general power of appointment may exercise that power through the residuary clause in that individual's will. See20 Pa. Cons. Stat. Ann. sec. 2514 (13) (West Supp. 2003);In re Estate of Jaekel, 424 Pa. 433">424 Pa. 433 , 424 Pa. 433">438, 227 A.2d 851">227 A.2d 851↩ (1967).10. The estate may also be arguing on brief that decedent did not exercise the power of appointment that decedent had with respect to one-sixth of the principal of the testamentary trust because she did not specifically name any beneficiaries of that power in her will. We reject any such argument. Decedent's will provided in pertinent part as follows:
SECOND: I give my remaining entire estate in equal shares
to my children, per stirpes * * *.
As discussed supra note 9, the estate has acknowledged, and we have found, that under Pennsylvania law an individual who has a general power of appointment may exercise that power through the residuary clause in that individual's will.↩
11. We conclude that the estate's position on brief that under
sec. 2041(b)(1)(C)(ii) ↩ decedent did not have at the time of her death a general power of appointment with respect to $ 5,000 of the principal of the inter vivos trust raises a new issue. However, respondent does not object to, and we find no prejudice to respondent as a result of, the estate's raising that issue for the first time on brief.12. The estate has failed to carry its burden of establishing that the agreement to amend the inter vivos trust had not terminated before decedent's death by (1) written notice by any beneficiary to the trustee that that beneficiary desired to terminate that agreement, (2) written notice by the trustee to the attorney-in- fact that the trustee desired to terminate that agreement, and/or (3) revocation by any beneficiary of the appointment of the attorney-in- fact.↩
Document Info
Docket Number： No. 16020-02
Citation Numbers： 87 T.C.M. 1201, 2004 Tax Ct. Memo LEXIS 92, 2004 T.C. Memo. 91
Judges： "Chiechi, Carolyn P."
Filed Date： 4/5/2004
Precedential Status： Non-Precedential
Modified Date： 11/21/2020