Trust powers preserve incomplete gifts without giving committee members general powers

Plain-English summary

A married couple placed community property in an irrevocable trust and shared distribution powers with a power-of-appointment committee. The IRS concluded that the trust terms did not make either grantor or a committee member an owner under the specified grantor-trust rules, but left the IRC § 675 administrative-control issue for examination of actual operations. The grantors' contributions were incomplete gifts, distributions back to them were returns of their property, and distributions to other beneficiaries were gifts by the grantors rather than the committee members. The committee members did not hold general powers of appointment, so their deaths would not bring trust property into their estates on that basis. The community property would receive a fair-market-value basis adjustment when the first grantor died.

Ruling snapshot

• Question: What income, gift, estate, and basis consequences follow from the grantors' and committee members' shared powers over the trust?
• Outcome: mixed; the requested gift, power-of-appointment, and basis rulings were favorable, while the IRC § 675 issue was deferred
• Key authorities: IRC §§ 1014, 2036, 2038, 2041, 2501, 2511, 2514, 671-678

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201653006
Release Date: 12/30/2016
Index Number: 671.00-00, 2501.00-00,
2514.00-00, 2041.00-00,
1014.00-00 Person To Contact:
----------------------------, ID No. --------------
---------------------------------------------------
---------------------- Telephone Number:
-------------------------- --------------------
---------------------------------- Refer Reply To:
------------------------------------------ CC:PSI:B04 – PLR-108355-16
Date: August 16, 2016

Re: --------------------------------------------------------

Legend:

Date = --------------------------
Grantor = -------------------------------------------------
Spouse = ----------------------
Power of Appointment
Committee = -----------------------------------------------------------------------------
----------------------------------------------------------------------------------------

Trust = -------------------------------------------------------------------------

State 1 = ----------
State 2 = ------------
Trustee = ------------------------
Lifetime Beneficiaries = -------------------------------------------------

----------------------------------------------------------------------------------------------------------------

Child 1 = ------------------------------------------------
Child 2 = -----------------------------------------------
Child 3 = --------------------------------------------------
A = -------------------------------------------------------------
B = --------------------------------------------------------------
PLR-108355-16 2

C = -----------------------------------------------------------------------------
X = ---

Dear --------------:

   This letter responds to your authorized representative’s letter of February 10,

2016, requesting rulings under §§ 671, 2501, 2514, 2041, and 1014 of the Internal
Revenue Code.

   The facts submitted and representations made are as follows. On Date,

Grantors (Grantor and Spouse) created an irrevocable trust (Trust) for the benefit of
themselves, their children, Child 1, Child 2, Child 3, and grandchildren who have
attained the age of X. Child 1, Child 2, Child 3, and the grandchildren who have
attained the age of X are referred to collectively as Lifetime Beneficiaries. Child 1,
Child 2, and Child 3 are minors. A corporate trustee (Trustee) is the sole trustee. The
situs of Trust is State 1.

    Grantor and Spouse are married and reside in State 2, a community property

state. Trust provides that all property transferred to Trust is community property or will
be transmuted into community property. Moreover, any and all property transferred to
Trust prior to the death of the first spouse to die (Predeceased Grantor) is and shall
retain its character as community property.

   During Grantors’ lifetimes, Trustee must distribute such amounts of income

and/or principal to each Grantor and Lifetime Beneficiary as directed by the Power of
Appointment Committee and/or Grantor, as follows:

     (1) At any time, Trustee, pursuant to the direction of a majority of the
         Power of Appointment Committee, with the written consent of either
         Grantor, may distribute to or for the benefit of any one or more of the
         Grantors or the Lifetime Beneficiaries such amounts of income or
         principal (including the whole thereof) outright or in trust, for any
         purpose at any time and from time to time (Grantor’s Consent
         Power);

     (2) At any time, Trustee, pursuant to the direction of all of the Power of
         Appointment Committee members, other than the Grantors, may
         distribute to or for the benefit of any one or more of the Grantors or
         the Lifetime Beneficiaries such amounts of income or principal for any
         purpose at any time and from time to time (Unanimous Member
         Power); and

PLR-108355-16 3

   (3) At any time, either Grantor has the power, in a nonfiduciary capacity,
       at any time and from time to time, to distribute to or for the benefit of
       any one or more of the Lifetime Beneficiaries, such amounts of the
       principal (including the whole thereof) outright or in trust as the
       Grantor deems advisable to provide for the health, education,
       maintenance, or support of the Lifetime Beneficiaries (Grantor’s Sole
       Power). The Power of Appointment Committee may appoint income
       or principal equally or unequally and to or for the benefit of any one or
       more of the beneficiaries of Trust to the exclusion of others. Any net
       income not distributed by Trustee will be accumulated and added to
       principal.

  Each Grantor has consented to the exercise of the Grantor’s Consent Power and

the Grantor’s Sole Power by the other Grantor.

   The Power of Appointment Committee is initially composed of both Grantors, A,

B, and C. A, B, and C are personal representatives of Child 1, Child 2, and Child 3,
respectively, until each child reaches majority age. When a child reaches majority age,
the personal representative ceases to serve and the child becomes a member of the
Power of Appointment Committee. Further, when a grandchild attains age X, the
grandchild becomes a member of the committee. The members of the Power of
Appointment Committee in their capacities shall not serve or act in a fiduciary capacity.
The Power of Appointment Committee ceases to exist upon the earlier of the last to die
of Grantors, or the date the Power of Appointment Committee has less than two
members other than Grantors.

    While either Grantor is living, if at any time the Power of Appointment Committee

ceases to exist, an Independent Trustee may distribute any portion of trust property
outright or in trust to or for the benefit of any Lifetime Beneficiary as the Independent
Trustee determines is advisable for any purposes. An Interested Trustee may not make
distributions from the trust.

     All distributions of the income and principal from Trust prior to the death of the

first to die of Grantors to a Lifetime Beneficiary, will be funded equally from each
Grantor’s respective share of community property held in Trust. At the time of the death
of the first to die of Grantors (Predeceased Grantor), you represent that the
Predeceased Grantor will have a one-half community property interest held in Trust.

  Upon the death of the Predeceased Grantor, Trustee shall distribute the

Predeceased Grantor’s entire one-half interest in the trust property to any one or more
persons or charities, in equal or unequal proportions, other than the Predeceased
Grantor’s estate, the Predeceased Grantor’s creditors, or the creditors of the
PLR-108355-16 4

Predeceased Grantor’s estate, as Predeceased Grantor may appoint by will
(Predeceased Grantor’s Testamentary Power).

   Upon the death of the Predeceased Grantor, any remaining property held in

Trust that has not been effectively appointed by Will shall be distributed as follows: (a)
ten percent (10%) in equal shares in trust for each member of the Power of
Appointment Committee other than the Surviving Grantor; (b) ten percent (10%) to one
or more charities supported by Grantors during their lifetimes; and, (c) the balance in
further trust to Grantors’ then living descendants and charities in such shares as
Trustee determines in its sole discretion.

    Upon the death of the Surviving Grantor, Trustee shall distribute all of the

remaining trust property to any one or more persons or charities in equal or unequal
proportions, other than the Surviving Grantor’s estate, the Surviving Grantor’s creditors,
or the creditors of the Surviving Grantor’s estate, as the Surviving Grantor may appoint
by will (Surviving Grantor’s Testamentary Power).

     Upon the death of the Surviving Grantor, any remaining property held in Trust

that has not been effectively appointed by Will shall be distributed as follows: (a) ten
percent (10%) in equal shares in trust for each member of the Power of Appointment
Committee; (b) ten percent (10%) to one or more charities supported by Grantors during
their lifetimes; and, (c) the balance in further trust to Grantors’ then living descendants
and charities in such shares as Trustee determines in its sole discretion.

   You have requested the following rulings:

  1. As long as the Power of Appointment Committee is serving, no portion of the

items of income, deductions, and credits against tax of Trust shall be included in
computing the taxable income, deductions, and credits of Grantors or any member of
the Power of Appointment Committee under § 671.

  2. The contribution of property to Trust by Grantors will not be a completed gift

subject to federal gift tax.

   3. Any distribution of property by the Power of Appointment Committee from

Trust to either Grantor will not be a completed gift, subject to federal gift tax, by any
member of the Power of Appointment Committee.

    4. Any distribution of property by the Power of Appointment Committee from

Trust to any beneficiary of Trust, other than to either Grantor, will not be a completed
gift subject to federal gift tax, by any member of the Power of Appointment Committee,
other than the Grantors.
PLR-108355-16 5

   5. No member of the Power of Appointment Committee upon his or her death will

include in his or her estate any property held in Trust because such member is deemed
to have a general power of appointment within the meaning of § 2041 over property
held in Trust.

  6. The basis of all community property in Trust on the date of the death of the

Predeceased Grantor will receive an adjustment in basis to the fair market value of such
property at the date of death of the Predeceased Grantor.

RULING 1

    Section 671 provides that where it is specified in subpart E of part I of subchapter

J that the grantor or another person shall be treated as the owner of any portion of a
trust, there shall then be included in computing the taxable income and credits of the
grantor or the other person those items of income, deductions, and credits against tax of
the trust which are attributable to that portion of the trust to the extent that such items
would be taken into account under chapter 1 in computing taxable income or credits
against the tax of an individual.

  Section 672(a) provides, for purposes of subpart E, that the term “adverse party”

means any person having a substantial beneficial interest in the trust which would be
adversely affected by the exercise or nonexercise of the power which he possesses
respecting the trust.

   Sections 673 through 677 specify the circumstances under which the grantor is

treated as the owner of a portion of a trust.

   Section 673(a) provides that the grantor shall be treated as the owner of any

portion of a trust in which the grantor has a reversionary interest in either the corpus or
the income therefrom, if, as of the inception of that portion of the trust, the value of such
interest exceeds five percent of the value of such portion.

   Section 674(a) provides, in general, that the grantor shall be treated as the owner

of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the
income therefrom is subject to a power of disposition, exercisable by the grantor or a
nonadverse party, or both, without the approval or consent of any adverse party.

   Section 674(b) provides that § 674(a) shall not apply to the power in § 674(b)(5)

regardless of by whom held.

   Section 674(b)(3) provides that § 674(a) shall not apply to a power exercisable

only by will, other than a power in the grantor to appoint by will the income of the trust
where the income is accumulated for such disposition by the grantor or may be so
PLR-108355-16 6

accumulated in the discretion of the grantor or a nonadverse party, or both, without the
approval or consent of any adverse party.

  Section 674(b)(5) provides that § 674(a) shall not apply to a power to distribute

corpus to or for a beneficiary, provided that the power is limited by a reasonably definite
standard.

   Under § 675 and applicable regulations, the grantor is treated as the owner of

any portion of a trust if, under the terms of the trust agreement or circumstances
attendant to its operation, administrative control is exercisable primarily for the benefit of
the grantor rather than the beneficiary of the trust.

     Section 676(a) provides that the grantor shall be treated as the owner of any

portion of a trust, whether or not he is treated as such owner under any other provision
of part I, subchapter J, chapter 1, where at any time the power to revest in the grantor
title to such portion is exercisable by the grantor or a nonadverse party, or both.

    Section 677(a) provides, in general, that the grantor shall be treated as the owner

of any portion of a trust, whether or not he is treated as such owner under § 674, whose
income without the approval or consent of any adverse party is, or, in the discretion of
the grantor or a nonadverse party, or both, may be (1) distributed to the grantor or the
grantor’s spouse; (2) held or accumulated for future distribution to the grantor or the
grantor’s spouse; or (3) applied to the payment of premiums on policies of insurance on
the life of the grantor or the grantor’s spouse.

   Section 678(a) provides that a person other than the grantor shall be treated as

the owner of any portion of a trust with respect to which: (1) such person has a power
exercisable solely by himself to vest the corpus or the income therefrom in himself, or
(2) such person has previously partially released or otherwise modified such a power
and after the release or modification retains such control as would, within the principles
of §§ 671-677, inclusive, subject a grantor of a trust to treatment as the owner thereof.

    Based solely on the facts and representations submitted, we conclude that an

examination of Trust reveals none of the circumstances that would cause either Grantor
to be treated as the owner of any portion of Trust under §§ 673, 674, 676, or 677 as
long as the Power of Appointment Committee remains in existence and Trust remains a
United States person. Because none of the members of the Power of Appointment
Committee has a power exercisable by himself, none shall be treated as the owner of
any portion of the Trust under § 678(a).

   We further conclude that an examination of Trust reveals none of the

circumstances that would cause administrative controls to be considered exercisable
primarily for the benefit of either Grantor under § 675. Thus, the circumstances
PLR-108355-16 7

attendant to the operation of Trust will determine whether either Grantor will be treated
as the owner of any portion of Trust under § 675. This is a question of fact, the
determination of which must be deferred until the federal income tax returns of the
parties involved have been examined by the office with responsibility for such
examination.

RULINGS 2 AND 3

   Section 2501(a)(1) provides that a tax is imposed for each calendar year on the

transfer of property by gift during such calendar year by any individual, resident or
nonresident. Section 2511(a) provides that the gift tax applies whether the transfer is in
trust or otherwise, whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.

  Section 25.2511-2(b) of the Gift Tax Regulations provides that a gift is complete

as to any property, or part thereof or interest therein, of which the donor has so parted
with dominion and control as to leave in the donor no power to change its disposition,
whether for his own benefit or for the benefit of another. But if upon a transfer of
property (whether in trust or otherwise) the donor reserves any power over its
disposition, the gift may be wholly incomplete, or may be partially complete and partially
incomplete, depending upon all the facts in the particular case. Accordingly, in every
case of a transfer of property subject to a reserved power, the terms of the power must
be examined and its scope determined.

  Section 25.2511-2(b) provides an example, where the donor transfers property to

another in trust to pay the income to the donor or accumulate it in the discretion of the
trustee, and the donor retains a testamentary power to appoint the remainder among
the donor's descendants. The regulation concludes that no portion of the transfer is a
completed gift. However, if the donor had not retained a testamentary power of
appointment, but instead provided that the remainder should go to X or his heirs, the
entire transfer would be a completed gift.

   Section 25.2511-2(c) provides that a gift is incomplete in every instance in which

a donor reserves the power to revest the beneficial title in himself or herself. A gift is
also incomplete if and to the extent that a reserved power gives the donor the power to
name new beneficiaries or to change the interests of the beneficiaries as between
themselves unless the power is a fiduciary power limited by a fixed or ascertainable
standard.

   Under § 25.2511-2(e), a donor is considered as himself having a power if it is

exercisable by the donor in conjunction with any person not having a substantial
adverse interest in the disposition of the transferred property or the income therefrom.
PLR-108355-16 8

A trustee, as such, is not a person having an adverse interest in the disposition of the
trust property or its income.

   Section 25.2511-2(f) provides that the relinquishment or termination of a power to

change the beneficiaries of transferred property, occurring otherwise than by death of
the donor, is regarded as the event which completes the gift and causes the gift tax to
apply.
Section 25.2511-2(g) provides that if a donor transfers property to himself as
trustee (or to himself and some other person, not possessing a substantial adverse
interest, as trustees), and retains no beneficial interest in the trust property and no
power over it except fiduciary powers, the exercise or nonexercise of which is limited by
a fixed or ascertainable standard, to change the beneficiaries of the transferred
property, the donor has made a completed gift and the entire value of the transferred
property is subject to the gift tax.

    Section 25.2511-2(e) does not define "substantial adverse interest." Section

25.2514-3(b)(2) provides, in part, that a taker in default of appointment under a power
has an interest that is adverse to an exercise of the power. Section 25.2514-3(b)(2)
also provides that a co-holder of a power is considered as having an adverse interest
where he may possess the power after the possessor's death and may exercise it at
that time in favor of himself, his estate, his creditors, or the creditors of his estate.

   In Estate of Sanford v. Commissioner, 308 U.S. 39 (1939) the taxpayer created a

trust for the benefit of named beneficiaries and reserved the power to revoke the trust in
whole or in part, and to designate new beneficiaries other than himself. Six years later,
in 1919, the taxpayer relinquished the power to revoke the trust, but retained the right to
change the beneficiaries. In 1924, the taxpayer relinquished the right to change the
beneficiaries. The Court stated that the taxpayer’s gift is not complete, for purposes of
the gift tax, when the donor has reserved the power to determine those others who
would ultimately receive the property. Accordingly, the Court held that the taxpayer's
gift was complete in 1924, when he relinquished his right to change the beneficiaries of
the trust. A’s retention of a power to change the beneficial interests in a trust causes
the transfer to the trust to be incomplete for gift tax purposes, even though the power
may be defeated by the actions of third parties. Goldstein v. Commisisoner, 37 T.C.
897 (1962). See also Estate of Goelet v. Commissioner, 51 T.C. 352 (1968).

   In this case, each Grantor retained the Grantor’s Consent Power over the income

and principal of Trust. Under § 25.2511-2(e), a donor is considered as himself having a
power if it is exercisable by him in conjunction with any person not having a substantial
adverse interest in the disposition of the transferred property or the income therefrom.
The Power of Appointment Committee members are not takers in default for purposes
of § 25.2514-3(b)(2). They are merely co-holders of the power. Under § 25.2514-
3(b)(2), a co-holder of a power is only considered as having an adverse interest where
PLR-108355-16 9

he may possess the power after the possessor's death and may exercise it at that time
in favor of himself, his estate, his creditors, or the creditors of his estate. In this case,
the Power of Appointment Committee ceases to exist upon the last to die of Grantors.
Accordingly, the Power of Appointment Committee members do not have interests
adverse to either Grantor under § 25.2514-3(b)(2) and for purposes of § 25.2511-2(e).
Therefore, each Grantor is considered as possessing the power to distribute income
and principal to any beneficiary himself or herself because he or she retained the
Grantor’s Consent Power.

   Each Grantor also retained the Grantor’s Sole Power over the principal of Trust.

Under § 25.2511-2(c), a gift is incomplete if and to the extent that a reserved power
gives the donor the power to name new beneficiaries or to change the interests of the
beneficiaries as between themselves unless the power is a fiduciary power limited by a
fixed or ascertainable standard. In this case, the Grantor’s Sole Power gives each
Grantor the power to change the interests of the beneficiaries. Even though each
Grantor's power is limited by an ascertainable standard, i.e., health, education,
maintenance and support, each Grantor's power is not a fiduciary power. Accordingly,
the retention of the Grantor’s Consent Power and the Grantor’s Sole Power causes the
transfer of property to Trust to be incomplete for federal gift tax purposes.

   Further, each Grantor retained either a Predeceased Grantor’s Testamentary

Power or a Surviving Grantor’s Testamentary Power (depending upon the order of
death) to appoint the property in Trust to any persons, other than to the Grantor’s
estates, Grantor’s creditors, or the creditors of Grantor’s estates. Under § 25.2514-
3(b)(2), the retention of a testamentary power to appoint the remainder of a trust is
considered a retention of dominion and control over the remainder. Accordingly, the
retention of this power causes the transfer of property to Trust to be incomplete with
respect to the remainder for federal tax purposes.

   Finally, the Power of Appointment Committee members possess the Unanimous

Member Power over income and principal. This power is not a condition precedent to
Grantors’ powers. Each Grantor’s powers over the income and principal are presently
exercisable and not subject to a condition precedent. Each Grantor retains dominion
and control over the income and principal of Trust until the Power of Appointment
Committee members exercise their Unanimous Member Powers. Accordingly, the
Unanimous Member Power does not cause the transfer of property to be complete with
respect to the income interest for federal gift tax purposes. See Goldstein v.
Commissioner, 37 T.C. 897 (1962); Estate of Goelet v. Commissioner, 51 T.C. 352
(1968),

  Accordingly, based on the facts submitted and the representations made, we

conclude that the contribution of property to Trust by Grantors is not a completed gift
subject to federal gift tax. Any distribution from Trust to Grantors is merely a return of
PLR-108355-16 10

Grantors’ property. Therefore, we conclude that any distribution of property from Trust
by the Power of Appointment Committee to either Grantor will not be a completed gift
subject to federal gift tax, by any member of the Power of Appointment Committee.
Further, upon the death of either Grantor, the fair market value of the property in Trust is
includible in his or her respective gross estate for federal estate tax purposes.

RULINGS 4 AND 5

   Section 2514(b) provides that the exercise or release of a general power of

appointment created after October 21, 1942, shall be deemed a transfer of property by
the individual possessing such power.

  Section 2514(c) provides that the term "general power of appointment" means a

power which is exercisable in favor of the individual possessing the power (possessor),
the possessor's estate, the possessor's creditors, or the creditors of the possessor's
estate.

  Section 25.2514-1(c)(1) provides that a power of appointment is not a general

power if by its terms it is exercisable only in favor of one or more designated persons or
classes other than the possessor or his creditors, or the possessor's estate or the
creditors of the estate or expressly not exercisable in favor or the possessor or his
creditors, or the possessor’s estate or the creditors of his estate.

  Section 2514(c)(3)(A) provides that, in the case of a power of appointment

created after October 21, 1942, if the power is exercisable by the possessor only in
conjunction with the creator of the power, such power is not deemed a general power of
appointment.

  Section 2514(c)(3)(B) provides, that in the case of a power of appointment created

after October 21, 1942, if the power is not exercisable by the possessor except in
conjunction with a person having a substantial interest in the property subject to the
power, which is adverse to the exercise of the power in favor of the possessor, such
power shall not be deemed a general power of appointment. For purposes of
§ 2514(c)(3)(B), a person who, after the death of the possessor, may be possessed of a
power of appointment (with respect to the property subject to the possessor's power)
which he may exercise in his own favor shall be deemed as having an interest in the
property and such interest shall be deemed adverse to such exercise of the possessor's
power.

  Section 25.2514-3(b)(2) provides, in part, that a coholder of a power has no

adverse interest merely because of his joint possession of the power nor merely
because he is a permissible appointee under a power. However, a co-holder of a power
is considered as having an adverse interest where he may possess the power after the
PLR-108355-16 11

possessor's death and may exercise it at that time in favor of himself, his estate, his
creditors, or the creditors of his estate. Thus, for example, if X, Y, and Z held a power
jointly to appoint among a group of persons which includes themselves and if on the
death of X the power will pass to Y and Z jointly, then Y and Z are considered to have
interests adverse to the exercise of the power in favor of X. Similarly, if on Y's death the
power will pass to Z, Z is considered to have an interest adverse to the exercise of the
power in favor of Y.

   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 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
by a disposition which 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.

   Under § 2041(b)(1), the term "general power of appointment" is defined, in

relevant part, to mean a power which is exercisable in favor of the decedent, his estate,
his creditors, or the creditors of his estate.

  Section 2041(b)(1)(C)(i) provides, however, that in the case of a power of

appointment created after October 21, 1942, if the power is not exercisable by the
decedent except in conjunction with the creator of the power, such power is not deemed
a general power of appointment.

   Section 2041(b)(1)(C)(ii) provides, however, that in the case of a power of

appointment created after October 21, 1942, if the power is not exercisable by the
decedent except in conjunction with a person having a substantial interest in the
property, subject to the power, which is adverse to the exercise of the power in favor of
the decedent -- such power shall not be deemed a general power of appointment. For
purposes of § 2041(b)(1)(C)(ii), a person who, after the death of the decedent, may be
possessed of a power of appointment (with respect to the property subject to the
decedent's power) which he may exercise in his own favor shall be deemed as having
an interest in the property and such interest shall be deemed adverse to such exercise
of the decedent's power.

   Section 20.2041-3(c)(2) of the Estate Tax Regulations provides, in part, that a

co-holder of a power of appointment has no adverse interest merely because of his joint
possession of the power nor merely because he is a permissible appointee under a
power. However, a co-holder of a power is considered as having an adverse interest
where he may possess the power after the decedent's death and may exercise it at that
time in favor of himself, his estate, his creditors, or the creditors of his estate. Thus, for
example, if X, Y, and Z held a power jointly to appoint among a group of persons which
PLR-108355-16 12

includes themselves and if on the death of X the power will pass to Y and Z jointly, then
Y and Z are considered to have interests adverse to the exercise of the power in favor
of X. Similarly, if on Y's death the power will pass to Z, Z is considered to have an
interest adverse to the exercise of the power in favor of Y.

   The power held by the Power of Appointment Committee members under the

Grantor’s Consent Power is a power that is exercisable only in conjunction with the
creators, either Grantor (or the survivor thereof). Accordingly, under §§ 2514(b) and
2041(a)(2), the Power of Appointment Committee members do not possess general
powers of appointment by virtue of possessing this power. Further, the power held by
the Power of Appointment Committee members under the Unanimous Member Power is
not a general power of appointment for purposes of §§ 2514(b) and 2041(a)(2). As in
the examples in §§ 25.2514-3(b)(2) and 20.2041-3(c)(2), the Power of Appointment
Committee members have substantial adverse interests in the property subject to this
power. Accordingly, any distribution made from Trust to a beneficiary, other than to
either Grantor, pursuant to the exercise of these powers, the Grantor's Consent Power
and the Unanimous Member Power, are not gifts by the Power of Appointment
Committee members. Instead, such distributions are gifts by the Grantors.

   Based on the facts and representations made, we conclude that any distribution

of property from Trust by the Power of Appointment Committee members to any
beneficiary of Trust, other than either Grantor, will not be a completed gift subject to
federal gift tax, by any member of the Power of Appointment Committee. Further, we
conclude that any distribution of property from Trust to a beneficiary, other than to either
Grantor, will be completed gifts by the Grantors. Finally, we conclude that the powers
held by the Power of Appointment Committee are not general powers of appointment for
purposes of § 2041(a)(2) and, accordingly, no member of the Power of Appointment
Committee upon his or her death will include in his or her estate any property held in
Trust because such member is deemed to have a general power of appointment within
the meaning of § 2041 over property held in Trust.

RULING 6

   Section 1014(a) provides, in part, that, except as otherwise provided in this

section, the basis of property in the hands of a person acquiring the property from a
decedent or to whom the property passed from a decedent will, if not sold, exchanged,
or otherwise disposed of before the decedent's death by such person, be the fair market
value of the property at the date of the decedent's death.

 Section 1014(b)(6) provides that, in the case of decedents dying after

December 31, 1947, property which represents the surviving spouse's one-half share of
community property held by the decedent and the surviving spouse under the
community property laws of any State, is considered, for purposes of section 1014(a), to
PLR-108355-16 13

have been acquired from or to have passed from the decedent if at least one-half of the
whole of the community interest in such property was includible in determining the value
of the decedent's gross estate.

   Section 2036(a) 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 adequate and full
consideration in money or money's worth), by trust or otherwise, under which he has
retained for his life or for any period not ascertainable without reference to his death or
for any period which does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from, the property, or (2) the right, either alone
or in conjunction with any person, to designate the persons who shall possess or enjoy
the property or the income therefrom.

   Section 2038(a)(1) provides that the value of the decedent's 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
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 what
source the decedent acquired such power), to alter, amend, revoke, or terminate, or
where any such power is relinquished during the three-year period on the date of the
decedent's death.

   Grantors reside in State 2, a community property state. Trust provides that all

transferred property to Trust is community property or will be transmuted into
community property. Moreover, any and all property transferred to Trust prior to the
death of the Predeceased Grantor is and shall retain its character as community
property. As concluded above, upon the death of each of Grantor, his or her respective
interest in Trust as either the Predeceased Grantor or the Surviving Grantor will be
includible in his or her respective gross estate for federal estate tax purposes.

  Accordingly, based upon the facts submitted and representations made, we

conclude that the basis of all community property in Trust on the date of death of the
Predeceased Grantor will receive an adjustment in basis to the fair market value of such
property at the date of death of the Predeceased Grantor.

  Except as specifically ruled herein, we express no opinion on the federal tax

consequences of the transaction under the cited provisions or under any other
provisions of the Code. Specifically, we express no opinion on the trust provisions
permitting Trustee to distribute income or principal to trustees of other trusts
(decanting).
PLR-108355-16 14

  This ruling is directed only to the taxpayer who requested it. Section

6110(k)(3) provides that it may not be used or cited as precedent.

                                     Sincerely,


                                     Lorraine E. Gardner
                                     Lorraine E. Gardner
                                     Senior Counsel, Branch 4
                                     Office of Associate Chief Counsel
                                     (Passthroughs and Special Industries)

Enclosure
Copy for section 6110 purposes