T.C. Memo. 2004-91

UNITED STATES TAX COURT

ESTATE OF SARAH W. GREVE, DECEASED, CHARLES E. GREVE & DAVID R.

GREVE, CO-EXECUTORS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16020-02. Filed April 5, 2004. 

Louis R. Salamon, for petitioner.

Julia L. Wahl, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined a deficiency of

$163,677.55 in Federal estate tax (estate tax) with respect to

the estate (estate) of Sarah W. Greve (decedent). The issues for

decision are:

(1) Is certain property with respect to which decedent had a
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1All section references are to the Internal Revenue Code

(Code) in effect on the date of decedent’s death. All Rule

references are to the Tax Court Rules of Practice and Procedure.

power of appointment at the time of her death includible in

decedent’s gross estate under section 2041(a)(1)?1 We hold that

it is.

(2) Is certain property with respect to which decedent had a

power of appointment at the time of her death includible in

decedent’s gross estate under section 2041(a)(2)? We hold that

it is.

FINDINGS OF FACT

Most of the facts have been stipulated and are so found.

Decedent was a resident of Pennsylvania at the time of her

death on December 27, 1998.

At the time the petition was filed, Charles E. Greve and

David R. Greve, decedent’s sons and the co-executors (executors)

of the estate, had a mailing address in Pittsburgh, Pennsylvania. 

On July 29, 1933, Sarah S. Wright (Ms. Wright), decedent’s

grandmother, executed her last will and testament (Ms. Wright’s

will) under which Ms. Wright, inter alia, created a testamentary

trust (testamentary trust). Ms. Wright’s will provided in

pertinent part as follows:

SECOND: I give and bequeath all of the bonds and

all of the corporate stocks which I may own at the time
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2At a time not disclosed by the record, Mellon Bank, N.A.,

became the successor to the Union Trust Company of Pittsburgh. 

3Mr. Wright’s children are decedent, Elizabeth Wright Anderson, Ann Wright Curran, Patricia Wright Caldwell, Nancy Roberts

Wright, and Robert McEldowney Wright, Jr.

of my death to THE UNION TRUST COMPANY OF PITTSBURGH,[2]

IN TRUST, NEVERTHELESS, for the following uses and

purposes to-wit:

To hold, manage, invest, re-invest, and keep

invested the same in such securities as the Trustee in

its sole discretion may deem fit without being limited

to those investments known as Trust Investments under

the Laws of the Commonwealth of Pennsylvania, and less

the expenses incident to the management of the trust

and a reasonable compensation to the Trustee, to pay

over the net income in equal shares to my children,

JOHN, HESTER, CLARA and ROBERT for and during the full

term of their natural lives. Upon the death of any of

my said children leaving issue, him or her surviving,

the income arising from that portion of th[e]

[p]rincipal to which said child [was] entitled to

receive the income at the time of his or her death

shall be paid over equally among such surviving issue

for and during the full term of their natural lives 

* * * [.] Upon the death of any issue of a deceased

child of mine while such issue may be entitled to

receive a portion of income herefrom, the principal of

the fund represented by that portion of the income

which such issue was receiving at the time of his or

her death shall be paid over free and discharged of any

trust to such persons and in such manner as he or she

shall by his or her Last Will and Testament designate

and appoint, and in the absence of such testamentary

disposition it shall be paid over to those persons who

are then his or her heirs under the then existing

Intestate Laws of the Commonwealth of Pennsylvania. 

On November 20, 1933, Ms. Wright died survived by four

children, one of whom was Robert Wright (Mr. Wright), decedent’s

father. On November 6, 1974, Mr. Wright died survived by six

children (collectively, Mr. Wright’s children).3 Between the
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date of Ms. Wright’s death and the date of Mr. Wright’s death,

Mr. Wright received a one-fourth share of the income from the

testamentary trust. Between the date of Mr. Wright’s death and

the date of decedent’s death on December 27, 1998, decedent

received a one-sixth share of the income from that trust. 

On May 11, 1976, Hester M. Wright (Hester Wright), one of

decedent’s aunts, executed a deed of trust (deed of trust) under

which she created an inter vivos trust (inter vivos trust). The

deed of trust provided in pertinent part as follows: 

HESTER M. WRIGHT, of the City of Pittsburgh,

Allegheny County, Pennsylvania, as the Settlor, and

MELLON BANK, N.A., a national banking association

authorized to engage in trust business in the Commonwealth of Pennsylvania, as the Trustee, hereby agree as

follows:

 ONE: The Settlor hereby transfers and delivers to

the Trustee * * * [certain property] together with all

her interest therein. The Trustee shall hold said

property, together with any additions thereto as hereinafter provided, as a Trust Estate, shall invest and

reinvest the same and shall distribute the net income

(hereinafter called “Income”) and principal as set

forth in the following provisions.

(A) During the Settlor’s lifetime, the

Trustee shall pay the Income quarter-annually to her or

for her benefit and shall also pay to her such sums

from principal as she may direct in writing * * * 

(B) Upon the Settlor’s death, the Trustee

shall pay directly to the taxing authorities or through

the personal representative of her estate all estate,

inheritance and other taxes in the nature thereof 

* * *. The Trustee shall also pay to the Settlor’s

personal representative or shall expend directly, from

assets other than the proceeds of insurance, such sums

as said personal representative shall certify as necessary to supplement the Settlor’s probate estate in
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4The deed of trust granted to decedent and Mr. Wright’s

other children the power of appointment with respect to an amount

not to exceed $5,000 from the principal of the inter vivos trust

in any one calender year. For convenience, we shall hereinafter

refer to that amount as $5,000.

order to pay debts, funeral expenses, legacies and

administration expenses. Subject to such payment, the

trust shall continue as follows:

(1) During the lifetime of the Settlor’s

sister, CLARA E. WRIGHT, if she survives [t]he Settlor,

the Trustee shall pay the Income quarter-annually to

her or for her benefit * * *

(2) Upon the death of the survivor of

the Settlor and her said sister, the principal shall be

divided into six equal shares for the Settlor’s nieces

and nephew, ELIZABETH WRIGHT ANDERSON, SARAH WRIGHT

GREVE, ANN WRIGHT CURRAN, PATRICIA WRIGHT CALDWELL,

ROBERT McELDOWNEY WRIGHT, JR., and NANCY ROBERTS

WRIGHT, and each share shall be held as a separate

trust. If any of them is not then living, his or her

share shall be distributed as is hereinbelow provided.

 (a) During the lifetime of each of

them, the Trustee shall pay the Income from his or her

trust quarter-annually to or for the benefit of said

niece or nephew, and if the Trustee considers the

Income to be insufficient, in view of other funds

readily available for such purpose of which it has

knowledg[e] to provide for the welfare and comfortable

support of said niece or nephew and his or her family,

including educational and funera[l] expenses, the

Trustee is authorized in its discretion to use such

sums from principal as it deems advisable therefor. In

addition, the Trustee shall pay to said niece or nephew

such sums from prin[cipal] as he or she may request in

writing, not to exceed FIVE THOUSAND ($5,000) DOLLARS

in any one calendar year[4] on a noncumulative basi[s.]

On July 21, 1980, Hester Wright died. On a date not disclosed by the record on or after July 21, 1980, Clara E. Wright

(Clara Wright), one of decedent’s aunts, disclaimed her interest
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in the inter vivos trust.

On December 31, 1981, Mellon Bank, N.A., the trustee under

the deed of trust, and Mr. Wright’s children, who were Hester

Wright’s nieces and nephew, entered into an agreement to amend

the inter vivos trust (agreement to amend the inter vivos trust).

That agreement provided in pertinent part as follows:

WHEREAS, Hester M. Wright, settlor under the Deed

of Trust died July 21, 1980; and 

WHEREAS, Clara E. Wright, first life tenant under

the Deed of Trust, disclaimed all of her interest as

such life tenant, thereby accelerating the interests of

the Beneficiaries hereto as successor life tenants; and 

WHEREAS, the Beneficiaries desire that during the

term of this Agreement the Trustee hold and administer

the entire trust estate as one fund, rather than dividing the same into six separately held and administered

trust funds, one for each Beneficiary.

NOW, THEREFORE, the parties, intending to be

legally bound hereby, agree as follows:

1. Notwithstanding the provisions of Article ONE

(B)(2) that, on the death of the Settlor and her sister, the principal of the trust estate shall be divided

into six equal separate trusts, the Trustee shall

during the continuance of this Agreement hold, invest

and reinvest and otherwise administer the trust estate

as one fund, distributing the net income in equal

shares directly to the six Beneficiaries and not

through the separate trusts.

2. Notwithstanding the provisions of Article ONE

(B)(2)(a), the Trustee shall not, during the continuance of this Agreement, (i) make any distribution of

principal to any Beneficiary pursuant to its discretionary powers in this subparagraph or (ii) make any

distribution of principal to any Beneficiary pursuant

to such Beneficiary’s power to request sums from principal not to exceed $5,000 in any one calendar year,

except that at the request of the Attorney-in-Fact
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5We presume that Robert McE. Wright, Jr., is Robert

McEldowney Wright, Jr., decedent’s only brother and one of the

beneficiaries under the inter vivos trust.

(hereinafter appointed), the Trustee shall make equal

distributions to each Beneficiary of such sums from

principal as shall not exceed $5,000 to each Beneficiary in any one calendar year.

3. By the execution of this Agreement, each

Beneficiary hereby appoints ROBERT McE. WRIGHT, JR.[5]

(the Attorney-in-Fact) as her [sic] attorney-in-fact

under the Deed of Trust and hereunder:

(a) to take any actions and make any decisions contemplated to be taken or made

by the Beneficiaries and to communicate

the same to the Trustee;

(b) to communicate to the Trustee the investment objectives of the Beneficiaries

with respect to the investment of the

principal of the trust fund;

(c) to request on behalf of the Beneficiaries equal distributions from principal

not to exceed $5,000 per Beneficiary in

any one calendar year, as contemplated

in paragraph 2 hereof; and 

(d) generally to make representations, give

consents and act on her [sic] behalf in

all dealings with the Trustee under the

Deed of Trust and hereunder.

Each Beneficiary further agrees that this appointment of the Attorney-in-Fact shall remain in full force

and effect until written notice of revocation is given

to the Trustee or until this Agreement is terminated as

hereinafter provided.

4. This Agreement shall terminate upon the happening of any of the following events:

(a) the death of any Beneficiary;

(b) written notice to the Trustee that any
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Beneficiary desires to terminate the

Agreement;

(c) written notice by the Trustee to the

Attorney-in-Fact that it desires to

terminate the Agreement;

(d) revocation by any Beneficiary of the

appointment of the Attorney-in-Fact.

If the Agreement shall be terminated by the death

of, notice of termination by, or revocation of appointment of Attorney-in-Fact by any Beneficiary, the remaining Beneficiaries may enter into a new agreement

with the Trustee upon the terms herein set forth for

the investment, reinvestment and administration of

their trusts as one fund as herein provided. The share

of the Beneficiary dying, giving notice of termination

or revoking the appointment of Attorney-in-Fact, shall

be withdrawn from this Agreement and shall be administered, distributed or otherwise disposed of according

to the terms of the Deed of Trust. Also upon final

termination of the Agreement (or any new agreement

referred to above), the trust fund administered under

this Agreement (or any new agreement) shall be divided

according to the terms of the Deed of Trust as if this

Agreement had not been entered into, it being understood that this Agreement is intended only to relate

[to] the administration and management of the trust

estate and not to affect the substantive rights of any

distributees under the Deed of Trust. The termination

of the Agreement shall not be an occasion requiring the

Trustee to file an account covering its administration

of the trust estate pursuant to this Agreement.

5. This Agreement shall not affect the Deed of

Trust in any other respect or the Trustee’s ultimate

duty to account. During the time this Agreement is in

effect, the Trustee’s compensation shall reflect the

fact that the trust estate is being administered as a

single account.

Between the date on which Clara Wright disclaimed her

interest in the inter vivos trust and the date of decedent’s

death on December 27, 1998, decedent received a one-sixth share

of the income from the inter vivos trust. 
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On August 16, 1993, decedent executed her will (decedent’s

will). Decedent’s will provided in pertinent part as follows:

I, SARAH W. GREVE, of Pittsburgh, Pennsylvania,

make, publish and declare this to be my last Will,

hereby revoking all prior wills.

FIRST: I give to my children living at my

death, so much of my tangible personal property (together with any insurance thereon) as they may select

in approximately equal shares. If any dispute should

arise among them about such selection, my Executors

shall have final authority to decide the same. Any

such property not so selected, shall be sold and the

proceeds added to my estate hereinafter disposed of.

SECOND: I give my remaining entire estate in

equal shares to my children, per stirpes, subject to

the minority [relating to beneficiaries under the age

of 18] provisions hereinafter provided.

When decedent died on December 27, 1998, she was survived by

six children.

At a time not disclosed by the record after decedent’s death

and before September 24, 1999, Mellon Bank, N.A., distributed

decedent’s one-sixth share of the principal of the testamentary

trust to decedent’s children. At a time not disclosed by the

record after decedent’s death and before September 24, 1999,

Mellon Bank, N.A., distributed decedent’s one-sixth share of the

principal of the inter vivos trust to decedent’s children. 

On January 4, 1999, the Register of Wills of Allegheny

County, Pennsylvania, admitted decedent’s will to probate. On

that date, the executors received letters testamentary with

respect to decedent’s estate.
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On September 24, 1999, the executors of decedent’s will

filed in the Orphans’ Court of Allegheny County, Pennsylvania,

what is identified as a disclaimer (purported disclaimer). The

purported disclaimer provided in pertinent part as follows:

We are Charles E. Greve and David R. Greve. On

January 4, 1999, your Honorable Register granted Letters Testamentary to us as Co-Executors under the Last

Will and Testament of our late mother, Sarah W. Greve,

she having died on December 27, 1998. 

In our capacities as Executors under the Last Will

and Testament of Sarah W. Greve, we hereby disclaim the

following:

1. The Power of Appointment and the right to

exercise same which was granted to Sarah W.

Greve under the Last Will and Testament of

Sarah S. Wright, Deceased, said Last Will and

Testament having been executed on July 29,

1933.

(a) The asset which would have been the

subject of said Power of Appointment

which we disclaim herein is a one sixth

(1/6) share of the corpus of a Testamentary Trust created under said Last Will

and Testament of Sarah S. Wright, such

share of the corpus previously being

held, in trust, by Mellon Bank, N.A.,

Successor to the Union Trust Company of

Pittsburgh.

2. Any Power of Appointment and any right to

exercise same which was granted to Sarah W.

Greve under a Deed of Trust of Hester M.

Wright dated May 11, 1976, [and amended by

the agreement dated December 31, 1981] [the

agreement to amend the inter vivos trust].

(a) The asset which would have been the

subject of said Power of Appointment

which we disclaim herein is a one sixth

(1/6) share of the corpus of a Deed of

Trust created by Hester M. Wright, such
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share of the corpus previously being

held, in trust, by Mellon Bank, N.A.

On September 27, 1999, the estate filed Form 706, United

States Estate (and Generation-Skipping Transfer) Tax Return

(decedent’s estate tax return). Decedent’s estate tax return did

not include as part of decedent’s total gross estate any amount

with respect to the testamentary trust. Nor did that return

include as part of decedent’s total gross estate any amount with

respect to the inter vivos trust. In Schedule H, Powers of

Appointment (Schedule H), included as part of decedent’s estate

tax return, a notation stated “See attached explanation”. The

estate attached to decedent’s estate tax return a document

identified as an Explanation as to Schedule H-Powers of Appointment (explanation as to Schedule H). The explanation as to

Schedule H provided in pertinent part as follows:

At no time between July 29, 1933, and the date of

her death did Sarah W. Greve, the Decedent herein, have

any knowledge or understanding whatsoever that she

possessed a power of appointment under the Testamentary

Trust established under the Last Will and Testament of

her grandmother, Mrs. Wright. For that reason, there

was absolutely no mention of such Power of Appointment

in the Last Will and Testament of Sarah W. Greve and

there was no specific testamentary disposition of the

assets as to which she had such Power of Appointment.

Rather, Sarah W. Greve made, in her Last Will and

Testament, * * * a general residuary bequest and devise

to her children, per stirpes. 

* * * * * * *

In mid September 1999, when counsel for the Estate

of Sarah W. Greve began to prepare this Return, he

discovered that it might be concluded by the Internal
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Revenue Service that the assets which were the subject

of said Power of Appointment are includable in the

gross Estate of Sarah W. Greve. For this reason, on

September 24, 1999, Charles E. Greve and David R.

Greve, the Executors of the Estate of Sarah W. Greve

filed a Disclaimer, as to the Estate of Sarah W. Greve,

as to said Power of Appointment with the Register of

Wills of Allegheny County, Pennsylvania; and, on that

same date, such Disclaimer was delivered to Mellon

Bank, N.A., per Attorney Collins. * * * 

The assets in said Trust and the fair market value

of those assets on the date when Sarah W. Greve died

are shown on a document, issued by Mellon Bank, N.A.,

entitled “Account Assets”. * * * The fair market value

of a one sixth (1/6) share of said assets is

$314,612.42.

It is the position of the Estate of Sarah W. Greve

that said $314,612.42 should not be included in the

taxable Estate of Sarah W. Greve because Sarah W. Greve

did not specifically exercise her Power of Appointment

in the manner as directed in the Will of Mrs. Wright.

It is the position of the six (6) children of

Sarah W. Greve that said $314,612.42 passed to them, in

equal shares, pursuant to the Will of Mrs. Wright

because they are the only heirs of Sarah W. Greve under

the Intestate Laws of the Commonwealth of Pennsylvania.

Alternatively, if it is determined that the general residuary bequest in the Last Will and Testament

of Sarah W. Greve constituted such an exercise, it is

the position of the Estate of Sarah W. Greve that a

proper and appropriate Disclaimer as to said Power of

Appointment was timely filed.

The explanation as to Schedule H did not discuss any potential

issue with respect to the power of appointment that decedent had

with respect to $5,000 of the principal of the inter vivos trust.

Respondent issued a notice of deficiency (notice) to dece-
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6In the notice, respondent determined to allow all of the

expenses that the estate claimed in Schedule J, Funeral Expenses

and Expenses Incurred in Administering Property Subject to

Claims, included as part of decedent’s estate tax return. The

parties stipulated that as a result of the instant case the

estate has incurred certain additional expenses that are deductible.

7The parties stipulated that the value of one-sixth of the

principal of the testamentary trust on the date of decedent’s

death was $320,732.11, and not $314,612.

dent’s estate.6 In that notice, respondent determined that

decedent had a general power of appointment with respect to onesixth of the principal of the testamentary trust and that decedent exercised that power in decedent’s will. Consequently,

respondent increased decedent’s total gross estate by $314,612,

which was the date-of-death value that the estate attributed to

such power in the explanation as to Schedule H and which respondent accepted.7 In the notice, respondent further determined

that at the time of her death decedent had the power to withdraw

$5,000 from the principal of the inter vivos trust and that that

power was a general power of appointment. Consequently, respondent increased decedent’s total gross estate by $5,000.

OPINION

The parties do not address section 7491(a). The estate

filed decedent’s estate tax return on September 27, 1999. We

presume that respondent’s examination of that return commenced

after July 22, 1998, and that section 7491(a) is applicable in

the instant case. The estate has failed to establish that it
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8We conclude that the estate’s position on brief that decedent had a special power of appointment, and not a general power

of appointment, with respect to one-sixth of the principal of the

testamentary trust raises a new issue. However, respondent does

not object to, and we find no prejudice to respondent as a result

of, the estate’s raising that issue for the first time on brief. 

9The estate acknowledges that if the Court were to find that

decedent had a general power of appointment with respect to onesixth of the principal of the testamentary trust, under Pennsylvania law decedent exercised that power through the residuary

clause in her will. In that event, the estate would concede that

the portion of that principal subject to that power is includible

in decedent’s gross estate under sec. 2041(a)(1). The estate’s

position with respect to Pennsylvania law, see sec. 20.2041-1(d),

Estate Tax Regs., accurately reflects that under Pennsylvania law

an individual who has a general power of appointment may exercise

that power through the residuary clause in that individual’s

will. See 20 Pa. Cons. Stat. Ann. sec. 2514 (13) (West Supp.

(continued...)

satisfies section 7491(a)(2)(A) and (B) with respect to any

factual issue relating to respondent’s deficiency determinations

that remains in this case. On the record before us, we conclude

that the estate’s burden of proof on any such issue, see Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933), does not

shift to respondent under section 7491(a). 

We turn first to the power of appointment that decedent had

with respect to one-sixth of the principal of the testamentary

trust. For the first time on brief, the estate advances the 

position that, pursuant to the testamentary trust, decedent had a

special power of appointment, and not a general power of appointment, with respect to that portion of the principal of that

trust.8 The estate does not cite any Code section, Treasury

regulation, or caselaw in support of its position.9 Instead, the
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9(...continued)

2003); In re Estate of Jaekel, 424 Pa. 433, 438 (1967).

estate argues:

Pursuant to said Testamentary Trust [the testamentary trust created in Ms. Wright’s will], the death of

any of the six children of Robert Wright had the effect

of terminating the Trust as to the principal comprising

said Testamentary Trust represented by that portion of

the income therefrom which such child had been receiving prior to her death. 

Pursuant to said Testamentary Trust, the recipient(s) of that principal were, as to such deceased

child of Robert Wright, here, Mrs. Greve, such persons

as Mrs. Greve shall by her Last Will and Testament,

designate and appoint.

* * * * * * *

It is respectfully submitted that the above described Trust termination language constituted a special and not a general power of appointment in favor of

Mrs. Greve.

Pursuant to the clear language of said Trust

termination provision, Mrs. Greve was required to

designate and appoint persons to take that principal. 

The word “designate” is defined, in Websters New Collegiate Dictionary, as to distinguish or to indicate and

set apart for a specific purpose or to denote. The

word “appoint” is defined, in Websters New Collegiate

Dictionary, as to fix or set officially or to name

officially.

It is respectfully submitted that nowhere in her

Will did Mrs. Greve fulfill the express requirement in

said Trust termination language that she had to “designate and appoint” persons to take the specified portion

of the principal in said Testamentary Trust over which

she had control by her Will.

In summary, Mrs. Greve did not receive a general

power of appointment in the Testamentary Trust created

by Mrs. Wright. What she received was the right to

specifically designate and appoint those persons who

would take principal. She completely failed so to do;
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as such, pursuant to said Testamentary Trust * * * that

principal is not an asset of the Estate of Mrs. Greve

for federal estate tax purposes. [Reproduced literally.]

It is respondent’s position that decedent had a general

power of appointment with respect to one-sixth of the principal

of the testamentary trust; under Pennsylvania law decedent

exercised that power through the residuary clause in her will;

and consequently that portion of the testamentary trust is

includible in decedent’s gross estate under section 2041(a)(1). 

Section 2041 provides in pertinent part as follows:

SEC. 2041. POWERS OF APPOINTMENT.

(a) In General.--The value of the gross estate

shall include the value of all property--

(1) Powers of appointment created on or 

before October 21, 1942.-–To the extent of any 

property with respect to which a general power of

appointment created on or before October 21, 1942, is

exercised by the decedent--

(A) by will * * * 

* * * * * * *

(b) Definitions.–-For purposes of subsection (a)--

(1) General power of appointment.–-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 * * * 

The regulations under section 2041 provide the following

definition of the term “power of appointment”:

(b) Definition of “power of appointment”–-(1) In

general. The term “power of appointment” includes all

powers which are in substance and effect powers of
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appointment regardless of the nomenclature used in

creating the power and regardless of local property law

connotations. For example, if a trust instrument

provides that the beneficiary may appropriate or consume the principal of the trust, the power to consume

or appropriate is a power of appointment. * * *

Sec. 20.2041-1(b)(1), Estate Tax Regs.

The regulations under section 2041(b)(1) elaborate as

follows on the definition of the term “general power of appointment” set forth in that section:

(c) Definition of “general power of appointment”–-

(1) In general. The term “general power of appointment” as defined in section 2041(b)(1) means any power

of appointment exercisable in favor of the decedent,

his estate, his creditors, or the creditors of his

estate, except (i) joint powers, to the extent provided

in § § 20.2041-2 and 20.2041-3 * * * 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 his estate, or

(b) Expressly not exercisable in favor of the

decedent or his creditors, or the decedent’s estate or

the creditors of his estate.

Sec. 20.2041-1(c)(1), Estate Tax Regs.

Although the estate’s position on brief regarding the power

of appointment with respect to one-sixth of the principal of the

testamentary trust is difficult to understand, as best we can

comprehend it, the estate’s position is that, because the testamentary trust gave to decedent the power to “designate and

appoint” in her will the persons to take one-sixth of the princi-
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pal of the testamentary trust, decedent had a special power of

appointment. We reject the estate’s position. 

The testamentary trust created under Ms. Wright’s will

provided in pertinent part as follows:

Upon the death of any of my said children leaving

issue, him or her surviving, the income arising from

that portion of th[e] [p]rincipal to which said child

[was] entitled to receive the income at the time of his

or her death shall be paid over equally among such

surviving issue for and during the full term of their

natural lives * * * [.] Upon the death of any issue of

a deceased child of mine while such issue may be entitled to receive a portion of income herefrom, the

principal of the fund represented by that portion of

the income which such issue was receiving at the time

of his or her death shall be paid over free and discharged of any trust to such persons and in such manner

as he or she shall by his or her Last Will and Testament designate and appoint, and in the absence of such

testamentary disposition it shall be paid over to those

persons who are then his or her heirs under the then

existing Intestate Laws of the Commonwealth of Pennsylvania. [Emphasis added.]

The above-quoted underscored language in the testamentary

trust gave decedent the unlimited power to appoint through her

will one-sixth of the principal of that trust in favor of whomever decedent desired. We conclude that the foregoing power is a

general power of appointment (i.e., a power of appointment

exercisable in favor of decedent’s estate, decedent’s creditors,

or the creditors of decedent’s estate). See sec. 2041(b)(1);

Martin v. United States, 780 F.2d 1147, 1148 (4th Cir. 1986); see

also sec. 20.2041-1(c)(1)(a) and (b), Estate Tax Regs. As

discussed supra note 9, the estate acknowledges that if the Court
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10The estate may also be arguing on brief that decedent did

not exercise the power of appointment that decedent had with

respect to one-sixth of the principal of the testamentary trust

because she did not specifically name any beneficiaries of that

power in her will. We reject any such argument. Decedent’s will

provided in pertinent part as follows:

SECOND: I give my remaining entire estate in

equal shares to my children, per stirpes * * *.

As discussed supra note 9, the estate has acknowledged, and we

have found, that under Pennsylvania law an individual who has a

general power of appointment may exercise that power through the

residuary clause in that individual’s will.

11We conclude that the estate’s position on brief that under

sec. 2041(b)(1)(C)(ii) decedent did not have at the time of her

death a general power of appointment with respect to $5,000 of

the principal of the inter vivos trust raises a new issue. 

However, respondent does not object to, and we find no prejudice

(continued...)

were to find that decedent had a general power of appointment

with respect to one-sixth of the principal of the testamentary

trust, under Pennsylvania law decedent exercised that power

through the residuary clause in her will, and one-sixth of the

principal of that trust (i.e., $320,732.11) is includible in

decedent’s gross estate under section 2041(a)(1).10

We turn now to the power of appointment that decedent had

with respect to $5,000 of the principal of the inter vivos trust. 

For the first time on brief, the estate advances the position

that, pursuant to the agreement to amend the inter vivos trust,

under section 2041(b)(1)(C)(ii) decedent did not have at the time

of her death a general power of appointment with respect to

$5,000 of the principal of that trust.11 In support of its
- 20 -

11(...continued)

to respondent as a result of, the estate’s raising that issue for

the first time on brief.

position, the estate argues: 

By an Agreement executed on December 31, 1981,

between Mellon, the Trustee as to the Deed of Trust and

the six beneficiaries named in the Deed of Trust:

A. The six separate trusts for each such beneficiary were merged into one fund.

B. No principal whatsoever from such single fund

could be distributed to any beneficiary except that at the request of Robert E. Wright,

the attorney in fact for each beneficiary,

Mellon was required to make equal distributions of principal to each beneficiary not to

exceed $5,000.00 to each.

C. Although all said beneficiaries had the power

to direct said attorney in fact to request

such distribution of principal, no one of

them had such right.

The effect of the above provisions is that Mrs.

Greve could only withdraw $5,000.00 per year from the

now single trust established in the Deed of Trust in

conjunction with five persons each of whom having a

substantial interest in such single trust and each of

whom, for this purpose, having an interest in such

single trust which was adverse to exercise of the power

in favor of Mrs. Greve. 

Clearly, no one beneficiary of such single trust

was given the right to unilaterally withdraw principal

therefrom to the exclusion of any other beneficiary

because any such unilateral withdrawal would adversely

affect the other beneficiaries.

* * * * * * *

It is respectfully submitted, by reason of * * * 

[section 2041(b)(1)(C)(ii)] that Mrs. Greve did not

possess a general power of appointment as to said

$5,000.00 and that such sum is not an asset of her
- 21 -

gross Estate. [Reproduced literally.]

It is respondent’s position that decedent had at the time of

her death a general power of appointment with respect to $5,000

of the principal of the inter vivos trust and that consequently

$5,000 is includible in decedent’s gross estate under section

2041(a)(2). In support of that position, respondent argues:

Petitioner contends that by virtue of an agreement

executed by all of the then living beneficiaries of the

inter vivos trust and the trustee after the death of

the settlor, Decedent did not have the right to withdraw $5,000 of trust principal at her death and therefore did not possess a general power of appointment

over that amount. Respondent disagrees as to the

effect of the agreement.

The agreement entered into by the beneficiaries

did bar the beneficiaries from withdrawing $5,000 of

trust principal while the agreement was in effect. 

However, the agreement terminated by its terms on the

happening of any of four events, including the death of

a beneficiary. Pursuant to the terms of the agreement,

when a beneficiary died, her share was withdrawn from

the agreement and disposed of according to the original

trust document. The agreement terminated when Decedent

herein died, if not earlier, and Decedent possessed at

her death the right to withdraw $5,000 of trust principal. Accordingly, that amount is includible in her

estate pursuant to I.R.C. § 2041(a)(2). [Fn. ref.

omitted.]

Section 2041 provides in pertinent part as follows:

SEC. 2041. POWERS OF APPOINTMENT.

(a) In General.--The value of the gross estate

shall include the value of all property--

* * * * * * *

(2) Powers created after October 21, 1942.--To

the extent of any property with respect to which the 

decedent has at the time of his death a general power 
- 22 -

of appointment created after October 21, 1942 * * * 

Section 2041(b)(1)(C)(ii) excepts, inter alia, the following

power of appointment from the definition of the term “general

power of appointment” in section 2041(b)(1):

(C) In the case of a power of appointment

created after October 21, 1942, which is

exercisable by the decedent only in conjunction

with another person--

* * * * * * *

(ii) 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 exercise

of the power in favor of the decedent–-such power

shall not be deemed a general power of

appointment. For the purposes of this clause 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.

The regulations under section 2041(b)(1)(C)(ii) elaborate as

follows on the power of appointment described in that section:

(c) Joint powers created after October 21, 1942. 

The treatment of a power of appointment created after

October 21, 1942, which is exercisable only in

conjunction with another person is governed by section

2041(b)(1)(C), which provides as follows:

* * * * * * *

(2) Such power is not considered a general power

of appointment if it is not exercisable by the decedent

except with the consent or joinder of 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, his estate, his creditors, or
- 23 -

the creditors of his estate. An interest adverse to

the exercise of a power is considered as substantial if

its value in relation to the total value of the

property subject to the power is not insignificant. 

For this purpose, the interest is to be valued in

accordance with the actuarial principles set forth in §

20.2031-7 or, if it is not susceptible to valuation

under those provisions, in accordance with the general

principles set forth in § 20.2031-1. A taker in

default of appointment under a power has an interest

which is adverse to an exercise of the power. A

coholder of the 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 coholder 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. 

Sec. 20.2041-3(c), Estate Tax Regs.

In support of its position that, pursuant to the agreement

to amend the inter vivos trust, under section 2041(b)(1)(C)(ii)

decedent did not have at the time of her death a general power of

appointment with respect to $5,000 of the principal of the inter

vivos trust, the estate relies on the agreement to amend the

inter vivos trust which was entered into by Mellon Bank, N.A.,

and decedent and Mr. Wright’s other children, who were Hester

Wright’s nieces and nephew. We reject the estate’s position.

The deed of trust provided in pertinent part as follows: 

(a) * * * In addition, the Trustee shall pay to

said niece or nephew such sums from prin[cipal] as he

or she may request in writing, not to exceed FIVE

THOUSAND ($5,000) DOLLARS in any one calendar year on a

noncumulative basi[s.]

The agreement to amend the inter vivos trust provided in
- 24 -

12The estate has failed to carry its burden of establishing

(continued...)

pertinent part as follows:

4. This Agreement shall terminate upon the

happening of any of the following events:

(a) the death of any Beneficiary;

(b) written notice to the Trustee that any

Beneficiary desires to terminate the

Agreement;

(c) written notice by the Trustee to the

Attorney-in-Fact that it desires to

terminate the Agreement;

(d) revocation by any Beneficiary of the

appointment of the Attorney-in-Fact.

If the Agreement shall be terminated by the death

of * * * any Beneficiary * * * The share of the

Beneficiary dying * * * shall be withdrawn from this

Agreement and shall be administered, distributed or

otherwise disposed of according to the terms of the

Deed of Trust. * * *

We note initially that the agreement to amend the inter

vivos trust provided that it was intended to relate only to the

administration and management of the principal of that trust and

not to affect the substantive rights of any distributees under

the deed of trust. Moreover, assuming arguendo that each of the

beneficiaries of the inter vivos trust other than decedent had an

interest in $5,000 of the principal of that trust that was

substantial and that was adverse to decedent’s interest and that

the agreement to amend the inter vivos trust had not terminated

before decedent’s death,12 pursuant to its terms, that agreement
- 25 -

12(...continued)

that the agreement to amend the inter vivos trust had not terminated before decedent’s death by (1) written notice by any

beneficiary to the trustee that that beneficiary desired to

terminate that agreement, (2) written notice by the trustee to

the attorney-in-fact that the trustee desired to terminate that

agreement, and/or (3) revocation by any beneficiary of the

appointment of the attorney-in-fact.

to amend terminated upon decedent’s death, and decedent’s share

(i.e., $5,000 of the principal of the inter vivos trust) was

withdrawn from that agreement and was disposed of according to

the terms of the deed of trust. Thus, even under the foregoing

assumptions, we conclude that decedent had a general power of

appointment in favor of herself with respect to $5,000 of the

principal of the inter vivos trust. See sec. 2041(b)(1). On the

record before us, we find that decedent had at the time of her

death a general power of appointment with respect to $5,000 of

the principal of the inter vivos trust. We hold that $5,000 is

includible in decedent’s gross estate under section 2041(a)(2). 

We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

To reflect the foregoing, 

Decision will be entered

under Rule 155.