## Facts

- Harry Alperstein died in 1967 and created a marital-deduction trust for his wife, Fannie, funded with the maximum amount qualifying for the marital deduction under IRC § 2056.
- The trust paid Fannie all net income for life and granted her a testamentary power to appoint the trust principal “free of any restrictions,” with Harry’s children (or their issue) as default takers if she did not appoint.
- Fannie entered a nursing home before Harry’s death and later was adjudicated incompetent by a New York court; her daughter, Rosalind Greenberg, was appointed to manage her affairs.
- The parties stipulated that from Harry’s death until Fannie’s death, Fannie lacked capacity under New York law to execute a will, did not attempt to exercise the power, and was legally incapable of exercising it.
- Fannie died intestate in 1972.
- Fannie’s estate tax return excluded the trust corpus; the IRS determined the testamentary power was a general power of appointment under IRC § 2041(a)(2), included the trust property in her gross estate, and asserted a deficiency.
- The Tax Court sustained the deficiency; the estate appealed.

## Issues

1. Whether a decedent who was continuously legally incapable of executing a will nonetheless “possessed” a general testamentary power of appointment “exercisable at the time of death” under IRC § 2041(a)(2).
2. Whether the value of the marital-deduction trust corpus subject to that power must be included in the decedent’s gross estate.

## Decision

- The Second Circuit affirmed the Tax Court.
- The court held that Fannie possessed a general power of appointment within IRC § 2041(a)(2) despite her continuous incompetency and inability to exercise the power.
- The trust corpus was includible in her gross estate.

## Legal Principles

- For IRC § 2041(a)(2), the inquiry focuses on whether the governing instrument confers a general power of appointment at death, not on the donee’s actual mental capacity to exercise it.
- Incompetency does not negate “possession” of a power for estate-tax inclusion when the power remains in existence by the terms of the instrument.
- Federal estate-tax treatment should not turn on variable, fact-intensive state-law capacity determinations that would impair uniform administration.
- Reading § 2041 to exclude powers held by incompetent donees would create a tax-avoidance path and conflict with Congress’s broad inclusionary approach to general powers as ownership equivalents.
- Symmetry supports inclusion where the marital deduction was obtained by structuring the spouse’s interest as one carrying a general power of appointment.

## Conclusion

Because the trust instrument granted the decedent an unrestricted testamentary power qualifying as a general power of appointment, her continuous legal incapacity to exercise it did not prevent “possession” under IRC § 2041(a)(2), and the trust corpus was properly included in her gross estate.


Estate of Alperstein v. Commissioner, 613 F.2d 1213 (2d Cir. 1979)