The Service ruled, in six PLRS arising out of the same facts, that the contribution of property to an irrevocable trust was not a completed gift because o f the grantor’s retained powers over the trust property. Further, any distribution by a designated “Power of Appointment Committee” from the trust to either grantor was a return of the grantor’s property and not a gift for federal gift tax purposes by any member of the Committee. Similarly, any distribution of property by the Committee from the trust to any trust beneficiary other than the grantors was not a completed gift by any member of the Committee because the Committee members did not possess general powers of appointment over the trust property. However, distributions of property from the trust to a beneficiary other than the grantors would be completed gifts.
The powers held by the Committee members were not general powers of appointment and thus, trust property would not be includible in Committee members’ gross estates because such member would not be deemed to have held a general power of appointment over trust property within the meaning of Code Sec. 2041.
In addition, on the death of the grantors, the fair market value of the property in the trust would be includible in his gross estate for federal estate tax purposes.
Finally, the basis of all community property in the trust on the date of the death of the predeceased grantor would receive an adjustment in basis to the fair market value of such property at the date of death of the predeceased grantor.
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Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.