New PLR Addresses Special Trustee’s Power to Limit or Eliminate Testamentary General Power of Appointment

The IRS recently issued a private letter ruling addressing key issues with respect to an independent special trustee’s power under a trust instrument to limit or eliminate a testamentary power of appointment granted in favor of the primary trust beneficiary. Significant, the IRS acknowledged that a testamentary general power of appointment is not considered to be exercisable during the lifetime of the power holder.

The private letter ruling is particularly interesting in that certain trust assets that would otherwise be included in the Primary Beneficiary’s gross estate may now be excluded from the Primary Beneficiary’s gross estate if the special trustee exercises its power to limit or eliminate the Primary Beneficiary’s testamentary power of appointment.

The IRS accepted the taxpayer’s position that the power of appointment set forth in the trust agreement is conditioned upon the Primary Beneficiary dying before an independent trustee limits or eliminates the power of appointment. The result of this ruling is that if the independent trustee were to exercise its discretionary power under the trust agreement to eliminate the Primary Beneficiary’s testamentary power of appointment, then such power of appointment would not exist upon the Primary Beneficiary’s death, and the trust assets would not be included in the Primary Beneficiary’s gross estate.

See Ashley L. Gill, New PLR Addresses Special Trustee’s Power to Limit or Eliminate Testamentary General Power of Appointment, Mitchell Williams Law, November 6, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.