IRS written determination 201429009

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: 201429009
Release Date: 7/18/2014
Index Number: 2036.00-00, 2038.00-00,
2041.00-00
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RE: ----------------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---------------, ID No. ----------------
Telephone Number:
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Refer Reply To:
CC:PSI:04
PLR-142744-13
Date:
March 18, 2014
Legend
Decedent=------------------------
Spouse=----------------------
Trust=----------------------------------
Date 1= --------------------
Date 2=---------------------
Daughter =---------------------
Son=----------------------
Grandchild 1=----------------------------
Grandchild 2=-----------------------------------
Grandchild 3 =----------------------------------
Grandchild 4=---------------------------------
Date 3=-------------------
Date 4=---------------------
Law Firm=------------------------------------------------------------
Accountant=----------------
Year =------
Dear ---------------------------------------:
This letter responds to your authorized representative’s letter of
September 27, 2013, and other submissions, requesting rulings concerning the
includibility of Family Trust in Decedent’s gross estate under §§ 2036, 2038, and 2041
of the Internal Revenue Code.
The facts and representations submitted are as follows.

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Decedent and Spouse created Trust, a joint revocable trust, on Date 1, restated
in its entirety on Date 2. Spouse predeceased Decedent on Date 3. Decedent died on
Date 4.
Article Four Section 1 of Trust provides that during Decedent’s and Spouse’s
joint lifetime, the trustee shall pay to or apply for the benefits of a trustor, all or such part
of the income and principal of such trustor’s separate share of the trust estate as such
trustor may direct. Under Article Four Section 3, when both Decedent and Spouse are
alive, each holds a power to revoke his or her separate share. After the first spouse
dies, the surviving trustor may amend any trust share over which the surviving trustor
has a general non-lapsing power of appointment over principal, with the exception of
retirement benefits.
Article Two Section 3 provides, in part, that unless clearly otherwise provided, as
to property that is transferred to the trustee while Decedent and Spouse are both living,
Decedent and Spouse shall hold the trust estate as tenants in common, each owning a
separate share consisting of an undivided one-half beneficial interest.
Decedent and Spouse entered into Property Agreement, dated Date 1, stating in
part, as to all joint tenancy property transferred or to be transferred into the name of
Trust, Decedent and Spouse agree that all trust property shall be characterized as
tenants in common rather than joint tenancy.
Under Article Seven Section 1, upon the first of Decedent and Spouse to die, the
trustee shall allocate and distribute the remaining trust estate into two separate shares
to be identified as the Survivor’s Share and the Family Share. The Survivor’s Share
shall consist of the surviving trustor’s separate share. The Family Share is to consist of
all assets of the deceased trustor’s separate share not distributed to the Survivor’s
Share. Each of Survivor’s Share and Family Share is to be administered as Survivor’s
Trust and Family Trust, respectively.
Article Eight contains provisions governing the Survivor’s Trust. Article Eight
provides that trustee shall pay to or apply for the benefit of the surviving trustor, in
monthly or other convenient installments but not less often than annually, so much of
the net income of the Survivor’s Trust as the surviving trustor directs. Any net income
not distributed will be accumulated and added to principal. Trustee shall also pay to or
apply for the benefit of the surviving trustor so much of the principal of the Survivor’s
Trust as the trustee deems proper for the surviving trustor’s comfort, welfare and
happiness. Trustee shall pay to the surviving trustor as much of the principal of the
Survivor’s Trust as the surviving trustor may from time to time demand in a signed
writing delivered to the trustee. Upon the death of the surviving trustor, the trustee shall
distribute all of the trust property, including the trust principal and accrued and
undistributed income, to any person or entity, and upon any trust, terms and conditions,
or to or in favor of the estate of the surviving trustor, as the surviving trustor may direct

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3
by his or her last will or living trust agreement. No exercise of this general power of
appointment shall be effective unless it refers to this trust agreement and expressly
indicates an intention to exercise this general power of appointment.
Article Nine contains provisions governing the Family Trust. Article Nine
provides that trustee shall pay to or apply for the benefit of the surviving trustor, in
monthly or other convenient installments but not less often than annually, so much of
the net income of the Family Trust as the trustee in its discretion deems proper for the
surviving trustor’s health, education, maintenance and support. Any net income not
distributed will be accumulated and added to principal. The Decedent and Spouse
recommended that the trustee first exhaust the principal from the Survivor’s Trust before
making discretionary payments of principal to the surviving trustor from the Family
Trust. Trustee shall also pay to or apply for the benefit of the surviving trustor so much
of the principal of the Family Trust as the trustee in itsdiscretion deems proper for the
surviving trustor’s health, education, maintenance and support. Notwithstanding any
other provision in Trust, each calendar year the surviving trustor shall have the power to
withdraw principal from the Family Trust in an amount not to exceed the greater of five
thousand dollars or five percent of the assets of the Family Trust, valued as of the end
of the preceding calendar year. This power is noncumulative and to the extent it is not
exercised by the end of January of each calendar year, it shall lapse. This power shall
exist each year until the death of the surviving trustor.
Upon the death of the surviving trustor, Survivor’s Trust and Family Trust shall
terminate and the trustee shall hold and administer the trust assets in further trust as
provided.
Article Eleven contains provisions governing the Survivor’s Trust and Family
Trust after both Spouse and Decedent have died. Article Eleven Section 1 provides that
upon the death of the surviving trustor, the trustee shall divide the trust property into
separate shares for Daughter, Son, and Grandchild 1, Grandchild 2, Grandchild 3,
Grandchild 4, (collectively, Grandchildren) in specified amounts. The trustee of Son’s
share is to distribute to Son all the net incomeand principal free of trust. As to
Daughter’s share, the trustee in the trustee’s discretion shall apply to or for the benefit
of Daughter so much of the income and principal as the trustee deems advisable for
Daughter’s health, education, maintenance and support. Any net income not distributed
will be accumulated and added to principal. Upon Daughter’s death, the trustee shall
distribute the balance of the trust share to daughter’s then living descendants per
stirpes. Each Grandchild’s share is to be administered as follows: The trustee in the
trustee’s discretion shall apply to or for the benefit of such beneficiary so much of the
income and principal as the trustee deems advisable for the beneficiary’s health and
education. Any net income not distributed will be accumulated and added to principal.
When such beneficiary reaches the age of 30 years, the trustee shall distribute all of the
accumulated net income and principal of such trust share to such beneficiary, free of
trust. If a beneficiary dies before complete distribution of the trust’s share, then the

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trustee shall distribute the balance of the trust share to the beneficiary’s then living
descendants per stirpes. Daughter, Son, and the Grandchildren survived Decedent.
Article Thirteen Section 6 provides that the trustee is not required to make a
physical segregation or division of the various trust shares created under Trust except
as segregation or division may be required by reason of the termination and distribution
of any of the trusts or trust shares or as required elsewhere in the trust agreement.
However, the trustee is required to keep separate accounts and records for different
undivided interests.
Spouse died on Date 3, survived by Decedent, Daughter, Son, and
Grandchildren. Decedent became the sole trustee and beneficiary of Survivor’s Trust
and Family Trust. Under the terms of Survivor’s Trust, Decedent was eligible to
withdraw income and principal as desired and possessed a testamentary general power
of appointment over the Survivor’s Trust. Under the terms of Family Trust, Decedent
was eligible to receive distributions of income and principal limited to an ascertainable
standard of health, education, maintenance and support. Decedent also held a lapsing
right to annually withdraw the greater of five thousand dollars or five percent
(5 or 5 Power) of the Family Trust’s principal. Family Trust became irrevocable upon
Spouse’s death. Survivor’s Trust remained a revocable trust.
It is represented that under Trust the Survivor’s Trust should have been funded
with Decedent’s fifty percent beneficial interest as a tenant in common of property held
in Trust and the Family Trust should have been funded with Spouse’s fifty percent
beneficial interest as a tenant in common of property held in Trust.
After Spouse’s death, Law Firm incorrectly advised Decedent, as trustee of the
Survivor’s Trust and Family Trust, and Accountant that “the ‘survivor’s trust’ will not be
funded from the family trust; 100% of the trust assets remain as the family trust and are
not split.” Accordingly, Decedent, as trustee, failed to segregate the assets of the
Survivor’s Trust and Family Trust, and, instead, administered them as a combined trust.
During Decedent’s lifetime, Decedent,as trustee, adhered to a “buy and hold”
investment strategy for the Survivor’s Trust and Family Trust, purchasing securities,
reinvesting all dividends, and retaining holdings indefinitely. In Year, prior to Decedent’s
death, Decedent retained new estateplanning counsel who determined Decedent had
been improperly advised regarding the funding and administration of Trust and its
subtrusts, Survivor’s Trust and Family Trust. Corrective measures were immediately
taken during Decedent’s life and continued after his death to properly allocate assets to
the Survivor’s Trust and Family Trust. Through a forensic review of the historical
financial records, Decedent was able to ascertain and track the assets which should
have been allocated to the Family Trust atSpouse’s death.
It is represented that Decedent, as trustee, distributed certain items of income
and principal from Survivor’s Trust and Family Trust as provided under the terms of

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5
each trust. All distributions of income were properly reported on Decedent’s individual
federal and state income tax returns. Trustee also filed amended state and federal
fiduciary income tax returns (Forms 1041) for Family Trust as well as original
Forms 1041 for Survivor’s Trust. It is further represented that distributions of principal
made to Decedent were from sufficient funds allocated to Survivor’s Trust and no
principal distributions were made from Family Trust.
The executors of Decedent’s estate request a ruling that the value of the assets
of Family Trust are not includible in the gross estate of Decedent, with the exception of
the value of the 5 or 5 Power held by Decedent at his death, under §§ 2036, 2038, and
2041.
LAW AND ANALYSIS
Section 2036(a) of the Internal Revenue Code provides that the value of the
gross estate shall include the value of any property of which the decedent has made a
transfer (except in the case of a bona fide sale for an adequate and full consideration in
money or money's worth) in which the decedent has retained for his life thepossession
or enjoyment of, or the right to the income from the property, or the right to designate
the persons who shall possess or enjoy the property or the income from the property.
Section 2038(a)(1) provides that the value of the gross estate shall include the
value of all property to the extent of any interest therein of which the decedent has at
any time made a transfer (except in case of a bona fide sale for an adequate and full
consideration in money or money's worth), by trust or otherwise, where the enjoyment
thereof was subject at the date of his death to any change through the exercise of a
power (in whatever capacity exercisable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from whatsource the
decedent acquired such power), to alter, amend, revoke, or terminate, or where any
such power is relinquished during the 3-year period on the date of the decedent's death.
Section 2041(a)(2) provides that the value of the gross estate shall include the
value of all property to the extent of any property with respect to which the decedent has
at the time of his death a general power of appointment created after October 21, 1942,
or with respect to which the decedent has at any time exercised or released such a
power of appointment by a disposition that is of such nature that if it were a transfer of
property owned by the decedent, such property would be includible in the decedent's
gross estate under §§ 2035 to 2038, inclusive.
Section 2041(b)(1) provides that the term “general power of appointment” means
a power which is exercisable in favor of the decedent, his estate, his creditors, or the
creditors of his estate; except that a power to consume, invade, or appropriate property
for the benefit of the decedent which is limited by an ascertainable standard relating to

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the health, education, support, or maintenance of the decedent shall not be deemed a
general power of appointment.
In Rev. Rul. 78-74, 1978-1 C.B. 287, the decedent was the income beneficiary of
a trust created by his father. The trust terminated upon the death of the decedent and
all assets became payable to the decedent’s issue. Prior to his death, the decedent
transferred stock to the trust. The Service concluded that since thevalue of the stock
could be readily ascertained, the portion of the trust includible in the decedent’s gross
estate as a retained interest equals the value of the stock at the time of the decedent’s
death. In the revenue ruling, the Service compared the facts in the ruling to the facts in
two cases, Estate of Kinney v. Commissioner, 39 T.C. 728 (1963), acq., 1964-2 C.B. 6,
and Estate of Bell v. Commissioner, 66 T.C. 729 (1976), acq., 1977-2 C.B. 1.
In Estate of Kinney v. Commissioner, the decedent transferred shares of stock to
a trust of which the decedent was the trustee and income beneficiary. At the time of the
decedent's death these shares were still part of the trust corpus. The Tax Court held
that the portion of the trust includible in the decedent’s estate under § 2036 was the
value of the stock contributed by the decedent and still retained in the trust. In
Estate of Bell v. Commissioner, the decedent’s husband and decedent transferred
property to a trust to benefit their daughter. The court held that decedent’s trustee
powers over the trust gave her unbridled discretion to distribute the trust corpus for
purposes of § 2038. In determining the value of the portion of the trust includible in the
decedent’s gross estate, the court considered two principles: 1) Where property
transferred by several grantors to a trust is commingled with other property and cannot
be identified, a proportionate formula may be appropriate; 2) If specific property
transferred by a decedent is capable of identification, however, the value of such
specified property should be included in the gross estate. The court in Bellalso opined
that, conversely, where someone other than the decedent has transferred specific
assets to a trust which can be identified or traced, it is only reasonable that their value
should be excluded in making the required allocations. In Bell, the parties stipulated to
the securities transferred to the trust other than by the decedent.
The facts in the present case are similar to those inKinneyand Bell. The assets
of Survivor’s Trust and Family Trust were not segregated after Spouse’s death, but
rather were administered as a combined trust. As to the Survivor’s Trust, Decedent
served as the trustee and was also the unlimited income andprincipal beneficiary.
Decedent could amend the Survivor’s Trust during his lifetime and also held a
non-lapsing general power of appointmentover the assets in the Survivor’s Trust. As to
the Family Trust, Decedent served as the trustee and was also the income and principal
beneficiary, as limited by an ascertainable standard. Decedent also held a 5 or 5 Power
over the assets in the Family Trust. Before Decedent’s death, the Decedent, as trustee,
took corrective measures to properly allocate assets to the Survivor’s Trust and
Family Trust. Consequently, through a forensic review of the historical financial

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7
records, Decedent was able to ascertain and track the assets which should have been
allocated to the Family Trust at Spouse’s death.
Accordingly, based on the facts submitted and representations made, we
conclude that the value of the assets of Family Trust are not includible in the gross
estate of Decedent, with the exception of the value of the 5 or 5 Power held by
Decedent at his death, under §§ 2036, 2038, and 2041.
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.
In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.
Sincerely,
Lorraine E. Gardner
Senior Counsel, Branch 4
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)