## Facts

- G. Robert Muchemore died testate in 1992, leaving a will and a revocable trust (executed 1980; amended 1982).
- The will gave personal effects to his surviving spouse, Agnes B. Muchemore, and poured the residuary estate into the revocable trust.
- The amended trust created two subtrusts: (1) a pecuniary credit shelter trust and (2) a marital deduction trust.
- By stipulation, the credit shelter trust was funded with $600,000 (the federal estate tax credit amount), and the marital deduction trust received the balance (about $2,165,221).
- The marital deduction trust required payment of all income to Agnes and permitted principal distributions for her benefit in the trustee’s discretion.
- The trust granted Agnes a testamentary power of appointment over the remaining marital trust principal and income, exercisable by a will executed after Robert’s death and specifically referring to the power; the power permitted appointment to “such person or persons or the estate of” Agnes.
- If Agnes did not exercise the power, the remaining marital trust property would pass into the credit shelter trust and then to Robert’s nieces and nephews.
- Agnes sought a determination that the marital deduction trust property was not subject to Nebraska inheritance tax at Robert’s death because her power of appointment made the transfer one to a surviving spouse; Douglas County argued a taxable remainder passed at Robert’s death to the nieces and nephews.

## Issues

1. Whether, for Nebraska inheritance-tax purposes, assets placed in a marital deduction trust are treated as transferred to the surviving spouse when she holds a testamentary power of appointment broad enough to be a general power of appointment.
2. Whether the nieces’ and nephews’ contingent remainder interest in the marital deduction trust is a presently taxable transfer at the decedent’s death despite the surviving spouse’s power to divest it entirely.

## Decision

- The Nebraska Supreme Court affirmed the district court’s judgment upholding the county court’s inheritance-tax determination.
- The court held that the marital deduction trust property was treated as transferred to Agnes for Nebraska inheritance-tax purposes and was not taxable at Robert’s death.
- The court concluded that no taxable remainder interest passed to the nieces and nephews at Robert’s death because their interest was contingent and defeasible due to Agnes’s general testamentary power of appointment.

## Legal Principles

- For state inheritance-tax purposes, property subject to a surviving spouse’s general power of appointment is treated as transferred to the spouse rather than as a taxable transfer to contingent remainder beneficiaries at the first spouse’s death.
- A testamentary power allowing appointment to the donee’s estate constitutes a general power of appointment sufficient to prevent characterization of collateral heirs’ interests as presently vested for inheritance-tax assessment.
- A remainder that takes effect only upon the donee’s failure to exercise a general power of appointment is contingent and not a beneficial interest that “passes” at the decedent’s death for immediate inheritance-tax liability.

## Conclusion

Because Agnes received all marital trust income for life and held a general testamentary power of appointment permitting her to direct the remaining trust property to her estate or others, Nebraska inheritance tax could not be imposed on the marital trust assets at Robert’s death, and the nieces’ and nephews’ potential remainder was not a presently taxable transfer.


In re Estate of Muchemore, 560 N.W.2d 477 (Neb. 1997)