IRS written determination 201425007

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201425007
Release Date: 6/20/2014
Index Number: 2601.03-08, 2041.05-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B4
PLR-140394-13
Date:
February 25, 2014
Legend
Settlor=-----------------
A=---------------------------------------------------------------------------------
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Date=--------------------
Trust =---------------------------------------------------
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Taxpayer=-----------------
Trust Agreement=---------------------------------------------------------------
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Dear ---------------------:
This letter responds to the ruling request dated September 11, 2013, and
subsequent correspondence, submitted by your authorized representative requesting a
generation-skipping transfer tax (GST) ruling regarding the proposed exercise of a
power of appointment over assets in Trust.
The facts submitted are as follows:
Trust
On Date, Settlor executed Trust Agreement. Date is a date prior to
September25, 1985. Trust Agreement established four irrevocable trusts, including
Trust.
Article III, Section 1(a) of Trust Agreement provides that Taxpayer is the primary
life beneficiary of Trust. ArticleIII, Sections 1(b), (c) and (d) each name one of
Taxpayer’s siblings as a respective primary life beneficiary of one of three remaining
trusts created by Trust Agreement. This ruling pertains only to Trust and does not

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pertain to the three other trusts created by Trust Agreement for the benefit of
Taxpayer’s siblings.
Article V, Section 5(b) of Trust Agreement provides, in part, that each beneficiary
may receive from time to time during the life of his or her trust such portions of the net
income accruing from time to time to the trust and such portions of the corpus of the
trust as the trustee may see fit to pay over and deliver to such beneficiary.
Article III, Section 1(e) provides that upon the death of the primary life
beneficiary, the remainder interest beneficiary or beneficiaries of that trust shall be such
person or persons who are the primary life beneficiary’s lineal descendants, brothers or
sisters, nephews, nieces, or cousins (but never the primary life beneficiary, his estate,
his creditors,or the creditors of his estate) to the extent or in the amounts or
proportions, and in the lawful interests or estates, that the primary life beneficiary by his
last will and testament (Will) appoints. The primary life beneficiary may at any time
during his life release the power of appointment with respect to any or all of the property
subject to the power, and may further limit the persons in whose favor the power may
be exercised. If the power of appointment is not validly exercised by the primary life
beneficiary, then upon his death, any corpus and income of the trust that has not been
validly appointed by the primary life beneficiary shall be held for the equal use and
benefit of (1)the lineal descendants of the primary life beneficiary, then living, per
stirpes; or (2)if none, then in equal shares to the brothers and sisters of the primary life
beneficiary, or their descendants, then living, per stirpes.
Article III, Section 1(e) also provides that the term “primary life beneficiary”
applies not only to the beneficiaries named in Article III, Sections 1(a), (b), (c) and (d),
but to all their successors to beneficial interests under the respective trust estates
during their respective terms.
Article IV, Section 1 provides that the term of each trust established under Trust
Agreement shall be for the period of the life of the last to die of the primary life
beneficiaries named in Article III, Sections 1(a), (b), (c), and (d) above, plus an
additional period of twenty-one (21) years. (The primarylife beneficiaries named in
Article III, Sections 1(a), (b), (c), and (d) above were all lives in being when Trust was
created.)
Article V, Section 4 provides that at the end of the period of time when the trusts
established by Trust Agreement terminate, the trustee will proceed to wind up the affairs
of each trust and distribute and deliver unconditionally all the then corpus and
undistributed income to the then beneficiary or beneficiaries; provided, however, if such
corpus and undistributed income of a trust, or portion thereof, has vested in a person
under twenty-one (21) years of age, the trustee in his discretion, may retain the
possession and management of such minor’s share until such minor has attained the

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age of twenty-one (21) years, or until his or her disabilities or minority have been legally
removed.
It is represented that no additions, actual or constructive, have been made to
Trust after September25, 1985.
Proposed Codicil to Taxpayer’s Will and Successor Trusts
Taxpayer proposes to execute a codicil to his Will (Proposed Codicil) to exercise
his testamentary special power to appoint Trust assets. The Proposed Codicil
substitutes a new Subsection 4.2B for the existing Subsection 4.2B of Taxpayer’s Will.
Subsection 4.2B, as set forth in the Proposed Codicil, designates Taxpayer’s
three children, in equal shares, and the descendants of any such child who is deceased
at the time of Taxpayer’s death, on a per stirpesbasis, as the remainder interest
beneficiaries (as that term is used in Trust Agreement) of a portion of Trust.
Subsection4.2B also provides that these shares of Trust are to be held in further trust in
accordance with the terms and provisions of Trust Agreement with the modifications set
out in the Proposed Codicil. The modifications relevant to this ruling provide as follows:
Section 4.2B.1 provides that the share of Trust created for each remainder
interest beneficiary will be held in a successor trust for the benefit of such remainder
interest beneficiary, who will then become the primary life beneficiary (as that term is
used in Trust Agreement).
Section 4.2B.1 also provides that, subject to section 4.2B.2, in the event that a
primary life beneficiary of a successor trust dies during the term of Trust and its
successortrusts, the successor trust will be further divided, on a per stirpesbasis, into
separate trusts for the benefit of the descendants of the deceased primary life
beneficiary, with each of the descendants becoming the primary life beneficiary of a new
successor trust. If a primary life beneficiary dies without descendants, the assets of his
successor trust will pass to a successor trust for the benefit of the primary life
beneficiary’s nearest ancestor.
Section 4.2B.2 provides that each primary life beneficiary of a successor trust will
have the power of appointment described in Article III, Section 1(e) of Trust Agreement
with respect to his successor trust. The primary life beneficiary may exercise the power
in the manner set forth in Article III, Section 1(e) of Trust Agreement; provided that he
may only exercise the power in favor of individuals who (i)are his lineal descendants,
his siblings, his nieces, nephews or cousins and (ii) are descendants of Taxpayer. In no
event may the primary life beneficiary exercise the power in favor of the primary life
beneficiary, his estate, his creditors, or the creditors of his estate.

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Section 4.2B.3 defines the term “successor trust” as a separate trust formed from
the division of Trust upon Taxpayer’s death or from the further division of a successor
trust as the result of the death of a primary life beneficiary (who is a descendant of
Taxpayer) after Taxpayer’s death, as such division is described in subparagraph 4.2B.1.
Section 4.2B.4 defines the term “primary life beneficiary’s nearest ancestor” as
the lowest-generation ancestor of the primary life beneficiary who (i) has at least one
then-living descendant and (ii) is the Taxpayer or a descendant of the Taxpayer.
Section 4.2B.5 provides that Article IV, Section 1 of Trust Agreement will apply to
the successor trusts by inserting the following provision after the word “above” and
before the word “plus”: the descendants of Settlor who were alive on Date, and the
descendants of A who were alive on Date.”
Section 4.2B.6 and .7 provide that Article V, Sections 4 and 5(b) of Trust
Agreement will apply to the successor trusts by inserting the words “primary life” before
the word “beneficiary” where it appears in those sections.
REQUESTED RULING
Taxpayer has requested a ruling that the exercise of his testamentary special
power to appoint Trust assets, pursuant to the terms of the Proposed Codicil, will not
cause distributions from Trust or successor trusts to be subject to the generation
skipping transfer tax.
LAW AND ANALYSIS
Section 2041(a)(2) of the Internal Revenue Code provides that the value of the
gross estate shall include the value of all property with respect to which the decedent
has at the time of his death exercised a general power of appointment created after
October21, 1942.
Section 2041(b) defines the term “general power of appointment” as a power that
is exercisable in favor of the decedent, the decedent's estate, the decedent's creditors,
or the creditors of the decedent's estate. A power to consume, invade, or appropriate
property for the benefit of the decedent that is limited by an ascertainable standard
relating to the health, education, support, or maintenance of the decedent is not a
general power of appointment.
Section 20.2041-1(c)(1) of the Estate Tax Regulations provides that a power of
appointment is 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 the holder's estate, or (b) expressly not

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exercisable in favor of the decedent or his creditors, or the decedent's estate, or the
creditors of his estate.
Section 2601 imposes a tax on every generation-skipping transfer (GST). The
term “generation-skipping transfer” is defined in §2611 as a taxable distribution, a
taxable termination, and a direct skip.
Section 1433(b)(2)(A) of the Tax Reform Act of 1986 (the Act) and
§ 26.2601-1(b)(1)(i) of the Generation-Skipping Transfer Tax Regulations, provide that
the generation-skipping transfer tax shall not apply to any generation-skipping transfer
under a trust that was irrevocable on September 25, 1985, but only to the extent that the
transfer is not made out of corpus added to thetrust after September 25, 1985 (or out of
income attributable to corpus so added).
In the present case, Trust was irrevocable prior to September 25, 1985. It is
represented that no additions, actual or constructive, have been made to Trust after
September 25, 1985.
Section 26.2601-1(b)(1)(v)(A) provides that, except as provided under
§ 26.2601-1(b)(1)(v)(B), where any portion of a trust remains in the trust after the
post-September25, 1985, release, exercise, or lapse of a power of appointment over
that portion of the trust, and the release, exercise, or lapse is treated to any extent as a
taxable transfer under chapter 11 or chapter 12, the value of the entire portion of the
trust subject to the power that was released, exercised, or lapsed is treated as if that
portion had been withdrawn and immediately retransferred to the trust at the time of the
release, exercise, or lapse. The creator of the power will be considered the transferor of
the addition except to the extent that the release, exercise, or lapse of the power is
treated as a taxable transfer under chapter 11 or chapter 12.
In the present case, Taxpayer’s power to appoint is not exercisable in favor of
Taxpayer, Taxpayer's creditors, Taxpayer’s estate, or the creditors of Taxpayer's estate.
Accordingly, Taxpayer’s power to appoint is not a general power of appointment.
Section 26.2601-1(b)(1)(v)(B) provides a special rule for certain limited powers of
appointment. Under this section, the release, exercise, or lapse of a power of
appointment (other than a general power of appointment as defined in §2041(b)) is not
treated as an addition to a trust if: (1) such power of appointment was created in an
irrevocable trust that is not subject to chapter 13 under §26.2601-1(b)(1); and (2) in the
case of an exercise, the power of appointment is not exercised in a manner that may
postpone or suspend the vesting, absolute ownership or power of alienation of an
interest in property for a period, measured from the date of creation of the trust,
extending beyond any life in being at the date of creation of the trust plus a period
of 21 years plus, if necessary, a reasonable period of gestation (the perpetuities period).
For these purposes, the exercise of a power of appointment that validly postpones or

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suspends the vesting, absolute ownership or power of alienation of an interest in
property for a term of years that will not exceed 90years (measured from the date of
creation of the trust) will not be considered an exercise that postpones or suspends
vesting, absolute ownership or the power of alienation beyond the perpetuities period.
The last sentence of §26.2601-1(b)(1)(v)(B) provides that if a power is exercised by
creating another power, it is deemed to be exercised to whatever extent the second
power may be exercised.
Section26.2601-1(b)(1)(v)(D), Example 4illustrates this rule. In Example 4, on
March1, 1985, T established an irrevocable trust (Trust 1) as defined in
§ 26.2601-1(b)(1)(ii). Under the terms of the trust instrument, the trustee is required to
distribute the entire income annually to T’s child, C, for life, then to T’s grandchild, GC,
for life. GC has the power to appoint any or all of the trust assets to Trust 2 which is an
irrevocable trust (as defined in §26.2602-1(b)(ii)) that was established on
August1, 1985. The terms of Trust 2’s governing instrument provide that the trustee
shall pay income to T’s great grandchild, GGC, for life. Upon GGC’s death, the
remainder is to be paid to GGC’s issue. GGC was alive on March1, 1985, when
Trust1 was created. C died on April1, 1986. On July1, 1987, GC exercised the power
of appointment. The exercise of GC’s power does not subject future transfers from
Trust 2 to tax under chapter 13 because the exercise of the power in favor of Trust2
does not suspend the vesting, absolute ownership, or power of alienation of an interest
in property for a period, measured from the date of creation of Trust1, extending
beyond the life of GGC (a beneficiary under Trust2 who was in being at the date of
creation of Trust1) plus21 years. The result would be the same if Trust2 had been
created after the effective date of chapter13.
In the present case, Taxpayer's power of appointment over the assets of Trust
was created under Trust Agreement, an irrevocable trust not subject to chapter13
under §26.2601-1(b). Therefore, the first requirement of §26.2601-1(b)(1)(v)(B) is
satisfied.
The second requirement of §26.2601-1(b)(1)(v)(B), is also satisfied in the
present case. Under Section 4.2B.5 of the Proposed Codicil to Taxpayer’s Will, by
reference to Article IV, Section 1 of Trust, all successor trusts to Trust must terminate
no later than21 years after the death of a class of persons all of whom were lives in
being at the date of the creation of Trust. These include Taxpayer and Taxpayer’s
siblings who are the initial primary life beneficiaries of the trusts created under Trust
Agreement, as well as the other descendants of Settlor who were alive on Date, and the
descendants of A who were alive on Date.
Thus, Taxpayer’s proposed exercise of his power of appointment over the
property in Trust will not postpone or suspend the vesting, absolute ownership or power
of alienation of any interest in the Trustproperty for a period, measured from Date, the

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date Trust was created, extending beyond any life in being at the date of creation of
Trust plus a period of21 years.
Taxpayer’s exercise of his power of appointment over the property in Trust will
also create powers of appointment over the property in the successor trusts.
Section4.2B.2 grants each primary life beneficiary of a successor trust a testamentary
power to appoint his successor trust estate in trust to his descendants, his siblings, and
his nieces, nephews or cousins who are also Taxpayer’s descendants. In no event,
however, may the primary life beneficiary of a successor trust appoint his successor
trust estate in favor of his estate, his creditors, or the creditors of his estate. In addition,
successor trusts created under any primary life beneficiary’s power of appointment will
terminate under Section 4.2B.5 of the Proposed Codicil no later than21 years after the
death of a class of persons all of whom were lives in being at the date of the creation of
Trust. These include Taxpayer and Taxpayer’s siblings who are the initial primary life
beneficiaries of the trusts created under Trust Agreement, as well as the other
descendants of Settlor who were alive on Date, and the descendants of A who were
alive on Date.
Thus, under the terms of the Proposed Codicil, any exercise of a power of
appointment by the primary life beneficiary of a successor trust will not postpone or
suspend the vesting, absolute ownership or power of alienation of any interest in the
Trust property for a period, measured from Date, the date Trust was created, extending
beyond any life in being at the date of creation of Trustplus a period of21 years.
Accordingly, based upon the facts submitted and representations made, we
conclude that Taxpayer’s exercise, pursuant to the Proposed Codicil, of his power to
appoint the Trustassets will not be a constructive addition to either Trustor successor
trusts to Trust and will not cause distributions from Trustor its successor trusts to be
subject to the generation-skipping transfer tax.
Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

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In accordance with the power of attorney on file in our office, a copy of this letter
has been sent to your authorized representative.
Sincerely,
Leslie H. Finlow
Senior Technician Reviewer, Branch 4
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for 6110 purposes