## Facts

- A decedent’s spouse created a testamentary trust for the decedent.
- The trust provided that the decedent would receive trust payments for life (including income distributions).
- A bank served as trustee.
- The trustee was authorized to distribute amounts from trust principal to or for the benefit of the decedent, in the trustee’s discretion, and the trust directed that this discretionary authority be exercised liberally for the decedent.
- During the decedent’s lifetime, the decedent made numerous requests for distributions from principal.
- The trustee honored each request and made the requested principal distributions.
- After the decedent’s death, the Internal Revenue Service considered whether the decedent should be treated as having a power of appointment over the trust property because of the trustee’s broad invasion power and its consistent practice of granting the decedent’s requests.

## Issues

1. Whether the decedent’s ability to request principal distributions—coupled with a bank trustee’s broad, “liberally” exercised discretion and a history of granting all requests—caused the decedent to be treated as holding a general power of appointment over the trust corpus for federal estate tax purposes.

## Decision

- The IRS concluded that the decedent did not possess a general power of appointment over the trust corpus.
- The trustee’s discretionary authority to distribute principal, even when directed to be exercised liberally and even when exercised repeatedly at the beneficiary’s request, remained a trustee power rather than a power held by the beneficiary.
- As a result, the trust corpus was not includible in the decedent’s gross estate on the theory that the decedent held a general power of appointment.

## Legal Principles

- A “general power of appointment” for federal estate tax purposes generally requires that the decedent hold a legally enforceable power to appoint property to the decedent, the decedent’s estate, or the creditors of either.
- A beneficiary’s ability to ask for distributions is not, by itself, a power of appointment; the question is whether the beneficiary can compel distributions or otherwise control beneficial enjoyment as a matter of law.
- When discretion to distribute principal is vested in an independent trustee (such as a bank), that discretion is not treated as a power in the beneficiary unless the governing instrument or applicable law gives the beneficiary enforceable control over the trustee’s decision.
- A trustee’s pattern of routinely granting a beneficiary’s requests does not convert trustee discretion into a general power of appointment in the beneficiary; consistent administration does not replace the legal allocation of authority in the trust instrument.

## Conclusion

Revenue Ruling 76-368 concludes that a life beneficiary does not hold a general power of appointment merely because an independent bank trustee is authorized—and instructed—to make liberal discretionary principal distributions and, in practice, grants the beneficiary’s requests; without a legally enforceable right in the beneficiary to compel distributions or appoint the property, the trust corpus is not included in the beneficiary’s gross estate on a general-power theory.


Revenue Ruling 76-368, 1976-2 C.B. 271 (1976)