internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 plr-162071-02 date date legend grantor grantor trust agreement date child child trustee trustee person person person person person trust date plr-162071-02 trust date family x family y trust company state date patriarch x patriarch y date probate_court state trustee dear sirs this letter responds to your letter dated date and prior correspondence requesting rulings under sec_2036 sec_2038 sec_2041 and sec_2601 of the internal_revenue_code grantor and grantor collectively referred to as the grantors executed trust agreement on date date is after date trust agreement creates a series of irrevocable trusts for the grantors’ children and grandchildren this letter_ruling relates to the trusts created in trust agreement for the benefit of the grantors’ children child and child trust agreement designates trustee as the initial family trustee and trustee as the initial independent_trustee because the trusts created under trust agreement provide for distributions to one or more generations of beneficiaries below the grantors’ generation the trusts are generation-skipping_transfer trusts the trustees represent that a portion of the donor’s and donor’s spouse’s generation-skipping_transfer_tax_exemption was allocated each year in the amount of the transfers to the trusts giving each trust an inclusion_ratio of zero for generation-skipping_transfer_tax purposes plr-162071-02 article of the trust agreement provides that the first property transferred to the trustees of an exempt family_trust in the name of a child of grantors’ shall constitute the initial principal of a separate family_trust for that child or for that child’s family if that child is deceased if a property transfer is made to more than one trust unless each trust’s share is already identified the property shall be divided into equal shares one for each trust each exempt family_trust that is to be created in the name of a child of grantors shall be administered under article of the trust agreement sec_1 of the trust agreement provides that during the remainder of the child’s lifetime the child is the primary beneficiary of the trust sec_1 a provides that during the continuance of the trust any part or all of its net_income and or principal may be distributed in the discretion of its independent_trustee s to or for the benefit of any one or more of the following permissible distributees i the primary beneficiary ii any one or more of the primary beneficiary’s descendants as secondary beneficiaries iii any unremarried surviving_spouse of any deceased descendant of the primary beneficiary as contingent beneficiaries iv any trust with certain exceptions for the primary benefit of any person s even a newly created trust and v any other entity owned and controlled by no one other than one or more of the permissible distributees the discretion to make or withhold distributions of income and principal as to the permissible distributees is an absolute discretion to be exercised in accordance with the independent trustee’s s’ own best judgment moreover at the end of each tax_year any income that is not thus distributed shall be added to principal to provide greater equality among the primary beneficiary’s descendants distributions made to a child of the primary beneficiary after age twenty-three or before that age to get married acquire a home etc are to be treated as advances on that child’s ultimate share of the trust as are all distributions to that child’s children sec_1 b of the trust agreement provides that with the approval of the then independent_trustee s of the trust the primary beneficiary shall have the power to appoint any part or all of that trust’s assets while living or effective at any later time during the trust’s continuance to anyone but the power shall not be used to benefit the primary beneficiary the beneficiary’s estate or the creditors of either sec_3_1 of the trust agreement provides that the family trustee of each trust other than either grantor or grantor shall have the right to remove any independent_trustee of that trust for any proper reason the individual independent_trustee of each trust shall have the right to remove any corporate independent_trustee as described in sec_3_3 of the trust agreement of that trust with or without cause the right to remove the family trustee of each trust with or without cause is held in the following order of preference by grantor and grantor acting together or after the incapacity or death of either grantor or grantor the other acting alone or their designee or the designee of the survivor of them as to each and every trust with regard to the trusts for the benefit of each child and members of that child’s family a that child age twenty-five or older or that child’s designee b each of that child’s descendants age twenty-five or older or the descendants’ designee but only as to any trust with respect to which that descendant or a member plr-162071-02 of the descendant’s family is the beneficiary or c as to each trust the family trustee of which is not then subject_to removal by anyone else as provided above that child’s descendants age twenty-one or older but only of the most senior generation having any eligible descendant acting by majority vote or if none the first in order of the following listed persons or the person’s designee i grantor 1's father person ii grantor 1's mother person iii grantor 1's uncle person iv grantor 2's father person and v grantor 2's sister person d person 3's descendants who are then age twenty-one or older but only of the most senior generation having any eligible descendant similarly acting by a majority of them or e person 4's descendants who are then age twenty-one or older but only of the most senior generation having any eligible descendant similarly acting by a majority of them all in that order of preference and as to each other trust the family trustee of which is not then subject_to removal by anyone else grantors’ descendants age twenty-one or older but only of the most senior generation having any eligible descendant acting by majority vote designees must be approved by the independent_trustee s of all trusts as to which the designator or a member of the designator’s family is a beneficiary sec_3_2 of the trust agreement provides that a second independent_trustee meeting the qualifications set forth in the technical provisions may be appointed at any time for any trust and vacancies in that office may be filled or left vacant by its then family trustee if the trustee deems it advisable sec_3_3 of the trust agreement provides that vacancies in the initial office of independent_trustee as to each trust shall be filled by a qualified_successor independent_trustee appointed by the family trustee of that trust or if the vacancy is not filled within thirty days or if there is no family trustee when the vacancy occurs the person s having the right to remove the family trustee of that trust or if the vacancy is not filled within thirty days of the person s being notified that the vacancy had not been or because there was no family trustee could not be filled by the family trustee the then beneficiary or beneficiaries of that trust or if the vacancy is not filled within sixty days of the beneficiary or all of the beneficiaries being notified that the vacancy had not been filled the court having jurisdiction over that trust each independent_trustee must be a properly independent person bank or trust company after the death or incapacity of both grantors and as to any trust the primary beneficiary of which has not attained at least thirty-five years of age or who is then incapacitated the independent_trustee or one of the independent trustees must be a bank or a_trust company the person s having removal rights over the family trustee of any trust may stipulate the circumstances under which one or the only independent_trustee of that trust must or need not be a bank or trust company sec_3_4 of the trust agreement provides that vacancies in the office of family trustee as to each trust may be filled by any person then age twenty-five or older or left vacant all as determined by the person s having removal rights over that family trusteeship plr-162071-02 addendum a of the trust agreement executed simultaneously incorporates certain technical provisions that are intended to be a part of the trust agreement as though they were set forth verbatim in the agreement addendum a is a part of the original trust agreement sec_5 b of the trust technical provisions provides that all other provisions to the contrary notwithstanding trust and trust unless earlier terminated shall in any and all events terminate on the day prior to the expiration of twenty-one years after the death of the last survivor of a group of individuals composed of a those whose names appear in the instrument other than solely as trustees witnesses notaries etc b the grantors’ parents and c those of the lineal_descendants of any of the individuals described in paragraphs a and b above who are living at the effective date of the initial transfer on date the grantors funded trust under the trust agreement trust is a_trust for the benefit of child on date the grantors funded trust under the trust agreement trust is a_trust for the benefit of child on date family x and family y entered into a participation_agreement and later filed the articles of association for trust company a limited banking association in state as part of that agreement the initial participants adopted bylaws to provide for the orderly management of trust company trust company was formed to provide specialized services to individuals and families facing the same challenges in trust management as family x and family y the bylaws and participation_agreement were amended and restated on date additional modifications have been proposed that are the subject of this private_letter_ruling request excerpts from the bylaws and participation_agreement in this letter reflect the date modifications and the proposed modifications trust company initially had two classes of shares class a and class b each of which represent fifty percent of the total voting power of all trust company’s outstanding shares family x owns all of the class a shares and family y owns all of the class b shares the class a shares were initially issued to and are still held by two trusts not the subject of this letter_ruling whose grantor and beneficiaries are members_of_family x and whose trustees are unrelated to members_of_family y the class b shares were initially issued to a voting_trust of which eleven trusts for the benefit of the members_of_family y are the beneficial owners grantor and grantor are members_of_family x on date the articles of association of trust company were amended to authorize the issuance of shares of class e stock the class e stock will have no voting rights except as set forth in sec_4 b of the bylaws and participation_agreement relating to the authorization of additional class e shares and the amendment of the restrictions on transfer of ownership of the class e shares under the amendment class a shares may only be transferred to class a permitted transferees class b shares may only be transferred to class b permitted transferees plr-162071-02 and class e shares may only be transferred with the approval the holders of more than sixty-five percent of the issued and outstanding class e shares section of the bylaws and participation_agreement of trust company provides in part that there shall initially be nine directors of trust company the board_of directors may expand the number of director positions notwithstanding the foregoing trust company shall not have less than five or more than fifteen directors section a of the bylaws and participation_agreement of trust company provides that no officer or director of trust company shall participate in a decision of trust company nor be present during any board or committee discussion of or vote on such a decision involving the exercise of any discretionary power other than investment powers with respect to any trust of which trust company is a trustee if the officer director or spouse of the officer or director is a grantor or donor to the trust a current or contingent beneficiary of the trust or a descendant or spouse or former spouse of a descendant of either patriarch x or patriarch y section a however shall apply only to a_trust a current or contingent beneficiary of which is a descendant or a spouse or former spouse of a descendant of either patriarch x or patriarch y section b provides that no officer or director of trust company shall participate in a decision of trust company nor be present during any board or committee discussion of or vote on such a decision involving the exercise of any incidents_of_ownership of any life_insurance_policy insuring the life of the officer or director section dollar_figure further provides that a director that is subject_to the restrictions of section dollar_figure with respect to a decision of trust company although absent from at least that part of the meeting shall be deemed present for the purpose of determining whether a quorum is present for that part of the meeting section dollar_figure of the bylaws and participation_agreement provides that an independent director is a director who is neither an employee of trust company nor with respect to a particular trust of which trust company is a trustee related or subordinate within the meaning of sec_672 to any individual described in section a or the board_of directors and the participants shall take all necessary actions to cause there to be in office at all times at least one director who is not precluded under section dollar_figure or section dollar_figure from participating in the making of any decisions of trust company described in section section dollar_figure of the bylaws and participation_agreement provides that subject_to the requirements of applicable law and to enable directors to comply when advisable with taxation laws restrictions on self-dealing or other matters a director is authorized to renounce either revocably or irrevocably for any period of time by an instrument in plr-162071-02 writing delivered to and accepted by trust company his or her right and power to participate in the making of any trust company decision involving the exercise of any discretionary power other than investment or administrative_powers not affecting any beneficiary’s beneficial_enjoyment with respect to any trust of which trust company is a trustee the current trustees propose to modify trust agreement to update each trust’s administrative provisions and to revise each trust’s trustee selection and trustee succession provisions to better provide for the long-term management of the trusts some of the modifications to the trusts redesignate substantive provisions from one article to another in order to provide uniformity in the structure of the family x trusts in addition to the proposed modifications the current trustees intend to appoint trust company to serve as an independent_trustee sec_3_1 of the trust agreement will provide that any one or more of the three trustee offices may either be occupied or left vacant provided at least one of the two independent_trustee offices must at all times be occupied sec_3_1 will provide that two of the trustee positions are independent_trustee offices one may be occupied by an individual and the other by a corporate independent_trustee sec_3_1 will provide that the third trustee position will be the family trustee office sec_3_2 of the trust agreement will provide that the family trustee may remove the corporate independent_trustee for the reasons set forth in sec_3_2 of the trust technical provisions the individual independent_trustee may remove the corporate independent_trustee with or without cause sec_3_2 of the trust technical provisions will describe the circumstances in which the family trustee may remove the corporate independent_trustee sec_3_2 will provide that the removal power may not be exercised in a manner contrary to the specific restrictions on fiduciary actions listed in sec_4 a of the trust technical provisions sec_3_2 of the trust technical provisions will provide that the notice of removal will set forth the reason s for the removal of the corporate independent_trustee the reasons need not be such as to justify judicial removal and include the following i the family trustee believes the expense of administering the trust can be reduced or its investment needs can be better served by a trustee change ii a personality conflict or difference of opinion as to the investment philosophy to be followed by the trust has arisen with the trustee or the trust officer assigned iii the trustee’s reports are not responsive to the needs of the family trustee iv the trust would be more conveniently administered in another location or v the trustee’s services are being adversely affected by ineffectiveness unavailability trust officer turnover or inexperience sec_3_2 of the trust agreement will provide that the family trustee may remove the then acting individual independent_trustee for the reasons set forth in plr-162071-02 sec_3_2 of the trust technical provisions sec_3_2 of the trust technical provisions will describe the circumstances in which the family trustee may remove the individual independent_trustee sec_3_2 will provide that the power may not be exercised in a manner contrary to the specific restrictions on fiduciary actions listed in sec_4 a of the trust technical provisions sec_3_2 will provide that the notice of removal will set forth the reason s for removal that must meet the criteria and in general be similar to those described in sec_3_2 except for sub- sec_3_2 in addition sec_3_2 will provide that the individual independent_trustee may be removed if the trustee’s services are being adversely affected by age health ineffectiveness unavailability or inexperience sec_3_2 of the trust agreement will provide that the right to remove the family trustee of each trust with or without cause is held by the top control list person s who shall be the first in order and is eligible to act sec_3_2 will provide the control list for any trust having multiple current beneficiaries who are descendants of the grantors sec_3_2 will provide that first level of the control list includes grantor and grantor acting together or after the death or incapacity of either of them the other acting alone or their designees or the designees of the last of them to die sec_3_2 will provide that the second level of the control list includes the most senior generation descendant s of grantor and grantor who or each of whom is an ancestor of any of that trust’s current beneficiaries or the ancestor’s or ancestors’ designees sec_3_2 will provide that the third level of the control list includes that trust’s most senior generation current beneficiary or beneficiaries who or each of whom is a descendant of grantor and grantor or the beneficiary’s or beneficiaries’ designees sec_3_2 will provide that the fourth level of the control list includes person or her designees sec_3_2 will provide that the fifth level of the control list includes person or his designees sec_3_2 will provide that the sixth level of the control list includes person or his designees sec_3_2 will provide that the seventh level of the control list includes person or his designees sec_3_2 will provide that the eighth level of the control list includes person or her designees sec_3_2 will provide that the last level of the control list includes the most senior generation eligible descendant s of the closest ancestor of any of that trust’s current beneficiaries who or each of whom has one or more eligible descendants provided that each most senior generation descendant is a descendant of patriarch x or if none a descendant of grantor 2's grandparents or the descendant’s or descendants’ designees an individual is eligible to act as a family trustee control list person if he or she is not incapacitated and at least twenty-five years old or at least twenty-one years old if he or she is one of the most senior generation descendants of a particular individual when two or more persons occupy a place on a control list their removal appointment and other actions must be by a majority of them sec_3_2 of the trust technical provisions will provide in part that when only two people hold a right or power with respect to a_trust the two must act together unanimously plr-162071-02 sec_3_3 of the trust agreement will provide that whenever a vacancy exists in the office of family trustee for any trust created under the trust instrument the control list person s then having and while continuing to have the right to remove the family trustee of that trust may at any time select and appoint an individual age twenty-five or older even the appointor himself or herself to fill the vacancy that until thus filled shall remain vacant sec_3_3 of the trust agreement will provide that whenever a vacancy exists in i the office of the sole remaining independent_trustee of any trust or ii one of the two independent_trustee offices if the office is required to be kept filled under the provisions of sec_3_5 the office shall be promptly filled by a qualified_successor to that office or to either office if there is not stipulation then in effect under sec_3_5 the successor independent_trustee shall be selected and appointed by the family trustee of the trust if the vacancy is not filled within thirty days or if there is no family trustee when the vacancy occurs the successor independent_trustee shall be selected and appointed by the top control list person s for the trust if the vacancy is not filled within thirty days of when the top control list person or all of those persons first becomes aware that the vacancy had not been or could not be filled the successor shall be selected and appointed by the representative beneficiary or the representative beneficiaries of the trust if the vacancy is not filled within sixty days of when the representative beneficiary or all of them first becomes aware that the vacancy had not been filled the successor shall be selected and appointed by the court having jurisdiction over the trust sec_3_3 of the trust agreement will provide that whenever a_trust has only one independent_trustee then acting and its other independent_trustee office is not then required to be kept filled or left vacant under sec_3_5 that trust’s then family trustee may at any time appoint a second independent_trustee meeting the qualifications of the vacant office until such appointment is made or until the circumstances change the other independent_trustee office shall remain vacant sec_3_4 of the trust agreement will provide that a corporate independent_trustee shall be an independent bank or trust company as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will provide that to be eligible to serve as an independent_trustee of a specific trust under the trust agreement a bank or trust company must have certain corporate independent_trustee qualifications sec_3_4 of the trust technical provisions will provide that the corporate independent_trustee position must be filled by a bank or trust company with respect to which no donor to or current or contingent beneficiary of that trust personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the bank or trust company plr-162071-02 sec_3_4 of the trust technical provisions will provide that the bank or trust company must maintain and enforce firewall rules prohibiting any individual who is connected to the bank or trust company including an officer director employee or one percent shareholder as defined in the document from participating in a decision of the bank or trust company involving the exercise of either a any incidents_of_ownership with respect to any insurance on the life of such individual whether owned by the bank or trust company or owned by any trust as to which the bank or trust company is acting as an independent_trustee and or b any discretionary power other than investment or administrative_powers not affecting any current or contingent beneficiary’s enjoyment of that trust the effect of which would be to make or withhold any distribution from or to grant or withhold permission to enjoy any asset of that trust in favor of i any individual if the connected individual is a living donor or an individual related to a living donor or ii a current or contingent beneficiary or any individual whom the beneficiary is then under an obligation to support if the connected individual is the beneficiary or an individual related to the beneficiary but the paragraph b restriction shall not apply to any individual who would be eligible to serve as an individual independent_trustee of that trust under paragraph b of sec_3_4 substituting for this purpose one percent for fifty percent in subparagraph b of sec_3_4 sec_3_4 of the trust technical provisions will provide that a one percent shareholder shall mean any individual who holds voting rights whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with the voting rights of any trust of which the individual is a donor or a current or contingent beneficiary represent more than one percent of the voting rights of all of the then issued and outstanding shares of the bank or trust company sec_3_4 of the trust technical provisions will provide that an individual shall be considered to be related to a living donor or current or contingent beneficiary if related in any of the following classifications spouse ancestor lineal descendant brother or sister sec_3_4 of the trust agreement will provide that each individual independent_trustee shall be an independent and experienced individual who is not related to nor employed by any trust donor or beneficiary as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will provide that to be eligible to serve as an independent_trustee of a specific trust under the trust agreement an individual must have certain individual independent_trustee qualifications sec_3_4 will provide the individual may not be either a a donor to or a current or contingent beneficiary of the trust nor related to a donor or beneficiary who is then living in any of the following classifications spouse ancestor lineal descendant brother or sister or b an employee of a donor to or current or contingent beneficiary of the trust or of any corporation firm or partnership i in which a donor or beneficiary is an executive or ii with respect to which a donor or beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by plr-162071-02 that trust are more than fifty percent of the total voting rights relating to the control of the corporation firm or partnership sec_3_5 of the trust agreement will provide that the top control list person s for any present or future trust under the agreement may by stipulation require that under certain circumstances a the office of either individual or corporate independent_trustee for the trust shall while circumstances continue be kept filled and b the other independent_trustee office shall be i kept filled ii left vacant or iii be filled or left vacant as the family trustee may from time to time determine sec_4 a of the trust technical provisions will provide that all trustees at any time acting with respect to any trust under the trust agreement when exercising their powers and discretions as trustees shall act as fiduciaries and not as the holders of powers for their own benefit specifically sec_4 a provides that any power that any trustee of any trust s established under trust agreement may have to remove any trustee s shall be exercisable in accordance with the terms and procedures set forth regarding removal furthermore unless a trustee removal power is expressly referred to or described either a as an absolute right and power that the powerholder may exercise to remove a trustee from office that is exercisable by the powerholder with or without cause or b as a power that is not held or not intended to be held in a fiduciary capacity all trustee removal rights shall be exercisable only in furtherance of trust purposes and not as a means of obtaining the personal goals of the powerholder or a_trust beneficiary by influencing through trustee removal the manner in which discretions granted exclusively to the trustee s subject_to removal are to be exercised sec_4 a b will provide a procedure for a removed trustee to obtain judicial review regarding whether a decision to remove a trustee was in furtherance of trust purposes or intended to achieve personal goals sec_5 b of the trust technical provisions will provide that all other provisions of the agreement to the contrary notwithstanding each trust that comes into existence under the agreement shall be subject_to the following limitations on its duration unless earlier terminated each trust under the agreement except any trust all of the assets of which are then unqualifiedly withdrawable by its primary beneficiary shall in any and all events terminate on the rule_against_perpetuities required termination_date applicable to that trust sec_5 b will provide that the required termination_date on which the trust shall terminate shall be the day prior to the expiration of twenty-one years after the death of the last survivor of a group of individuals composed of the grantors’ parents and their lineal_descendants who were living on date for trust and date for trust respectively on date probate_court in state issued an order affecting the trusts that are the subject of this private_letter_ruling the order approves an interim trustee succession plan proposed by the trustees and agreed to by the adult beneficiaries of the various trusts and a guardian ad litem representing the minor and unborn beneficiaries the agreement signed by the parties defines a_trust restructuring period that begins on date the trust restructuring period ends after the internal revenue plr-162071-02 service issues a private_letter_ruling and probate_court issues a final order approving the trust restructuring plan the date probate_court order provides that during the trust restructuring period the requirement that allows or requires whether or not by stipulation a bank or trust company independent_trustee to be appointed as sole or co- independent_trustee is suspended in addition the order appoints trustee to fill the second independent_trustee office if a vacancy occurs in a co-independent trustee office during the trust restructuring period the vacancy shall be filled by a qualified_individual or left vacant in the discretion of the person s who hold the power to appoint a successor independent_trustee under the applicable_section of the original trust agreement the trustees have requested the following rulings the implementation of the proposed trust restructuring plan will not cause the value of the assets of the trusts created under trust agreement to be included in the gross_estate of any grantor or beneficiary under sec_2036 sec_2038 or sec_2041 and the implementation of the proposed trust restructuring plan will not result in any change in the inclusion_ratio of any of the trusts created under trust agreement for purposes of the generation-skipping_transfer_tax ruling sec_2036 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 the case of a bona_fide sale for an 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 that does not in fact end before his death - the possession or enjoyment of or the right to the income from the property or 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 sec_2036 provides in part that for the purposes of sec_2036 a corporation shall be treated as a controlled_corporation if at any time after the transfer of the property and during the three-year period ending on the date of the decedent’s death the decedent owned with the application of sec_318 or had the right either alone or in conjunction with any person to vote stock possessing at least twenty percent of the total combined voting power of all classes of stock sec_20_2036-1 provides in part that if a decedent reserved the unrestricted power to remove or discharge a trustee at any time and to appoint himself as trustee the decedent is considered as having the powers of the trustee sec_2038 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 plr-162071-02 any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise where 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 the power to alter amend revoke or terminate or where any power is relinquished during the three-year period ending on the date of decedent’s death sec_20_2038-1 provides in part that if a decedent had the unrestricted power to remove or discharge a trustee at any time and appoint himself trustee the decedent is considered as having the powers of the trustee sec_2041 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 date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 provides in part that a power in a donee to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has not power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment revrul_95_58 1995_2_cb_191 holds that a decedent grantor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate plr-162071-02 successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus was not included in the decedent’s gross_estate under sec_2036 or sec_2038 the ruling notes that the eighth circuit in 973_f2d_1409 8th cir concluded that the decedent had not retained dominion and control_over assets transferred to a_trust by reason of his power to remove and replace the trustee with a party that was not related or subordinate to the decedent accordingly the court held that under sec_25_2511-2 the decedent made a completed_gift when he created the trust and transferred assets to it sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in order for to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property for purposes of sec_2036 and sec_2038 it is immaterial in what capacity the power was exercisable by the decedent in the present case only the independent_trustee s possess the power to make discretionary distributions from trust and trust sec_3_2 of the trust agreement and technical provisions governing both trusts will authorize the removal of the independent_trustee s by either the family trustee that may include the grantors or a beneficiary of the trusts or the other independent_trustee that may include trust company sec_3_3 of the trust agreement and technical provisions will describe how vacant trustee positions will be filled sec_3_3 of the trust agreement will provide that if a vacancy occurs in an independent_trustee office and that office is required to be filled under sec_3_5 the appointment of a successor trustee will be made in order of preference by the family trustee the top control list person the representative beneficiary or a court having jurisdiction over the trust sec_3_3 of the trust agreement will provide that if a vacancy in the office of an independent_trustee is not required to be filled under sec_3_5 the family trustee may fill the vacancy or allow the office to remain vacant in either case the person or corporation filling the independent_trustee office must fill the requirements of the office as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will preclude a donor to or a current or contingent beneficiary of a_trust from serving as the individual independent_trustee in addition sec_3_4 of the trust technical provisions will preclude any donor to or current or contingent beneficiary of a_trust from participating in discretionary plr-162071-02 distribution decisions if they are connected to a bank or trust company serving as the corporate independent_trustee sec_3_4 and sec_3_4 of the trust technical provisions will further preclude any individual related to a living donor or beneficiary as spouse ancestor lineal descendant brother sister or employee from serving as the individual independent_trustee of a_trust in addition the sections preclude these individuals from participating in discretionary distribution decisions if they are connected to a bank or trust company serving as the corporate independent_trustee sec_3_4 will provide that no employee of any corporation firm or partnership in which a donor or beneficiary is an executive or with respect to which a donor or beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the corporation firm or partnership may serve as the individual independent_trustee sec_3_4 requires that the corporate independent_trustee be a bank or trust company in which no donor to or current or contingent beneficiary of the trust personally holds voting rights that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the bank or trust company sec_3_4 will also include a firewall provision precluding anyone connected to the bank from participating in discretionary distribution decisions in favor of any individual if the connected individual is or is related to a living donor a current or contingent beneficiary or any individual whom the beneficiary is then under an obligation to support if the connected individual is or is related to the beneficiary unless the connected individual meets the requirements of an individual independent_trustee and is not an employee of any corporation firm or partnership in which a donor or beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than one percent of the total voting rights relating to the control of the corporation firm or partnership the provisions described above thus prohibit the grantors from participating directly or indirectly in discretionary distribution decisions in addition the provisions prohibit any individual beneficiary from participating directly or indirectly in discretionary distribution decisions finally the provisions preclude anyone closely related to a donor or a current or contingent beneficiary from participating in discretionary distribution decisions furthermore under the trust company bylaws and participation_agreement the grantors beneficiaries and other family members are all eligible to participate as a director of trust company however section dollar_figure expressly prohibits any officer or director from participating in a decision of trust company involving the exercise of a discretionary power other than investment powers of any trust of which the officer director or spouse of the officer or director is a grantor or donor to the trust or a current or contingent beneficiary of the trust in addition family members are prohibited from participating in trust company decisions relating to discretionary distributions from plr-162071-02 trusts where the current or contingent beneficiary of the trust or his or her spouse is a descendant of either patriarch x or patriarch y therefore the grantors and the beneficiaries of the trusts created under trust agreement are sufficiently prohibited from participating in decisions regarding discretionary distributions from their own trusts in addition the structure of the bylaws prohibits the grantors and beneficiaries of the family x and family y trusts from participating in trust company’s exercise of discretion to make distributions from any of either family’s trusts preventing the possibility of outside reciprocal agreements that may indirectly give members_of_family x effective_control over the discretionary distributions from trust and trust the combination of the firewall provisions in the revised trust agreement trust technical provisions and the trust company bylaws preclude a donor of any of the trusts from having the retained dominion and control as contemplated by sec_2036 or sec_2038 neither grantor therefore will be considered as having the powers of the trustees under sec_20_2036-1 or sec_20_2038-1 solely as a result of possessing directly or indirectly the power to remove and or to replace either independent_trustee under trust agreement in addition although both grantors may be shareholders in and participate in the daily activities of trust company they are precluded from participating in discretionary distribution decisions made by trust company with respect to trusts created under trust agreement accordingly based on the facts submitted and the representations made we conclude that the implementation of the proposed trust restructuring plan including the appointment of trust company as trustee of the trusts and trust company’s future exercise of discretionary powers over distributions to the beneficiaries of the trusts will not result in the inclusion of any portion of the trusts in the estate of a grantor under sec_2038 or sec_2038 furthermore the combination of provisions also preclude a beneficiary from having the power to affect the beneficial_enjoyment of the trust property as contemplated by sec_2041 no beneficiary therefore will be considered as having the powers of the trustee under sec_20_2041-1 solely as a result of possessing directly or indirectly the power to remove and or replace either independent_trustee under trust agreement in addition although beneficiaries may be shareholders in and participate in the daily activities of trust company they are precluded from participating in discretionary distribution decisions made by trust company with respect to trusts created under trust agreement accordingly based on the facts submitted and the representations made we conclude that the implementation of the proposed trust restructuring plan including the appointment of trust company as trustee of the trusts and trust company’s future exercise of discretionary powers over distributions to the beneficiaries of the trusts will not result in the inclusion of any portion of the trusts in the estate of a beneficiary under sec_2041 ruling sec_2601 imposes a tax on every generation-skipping_transfer plr-162071-02 sec_2611 defines the term generation-skipping_transfer to include a taxable_distribution taxable_termination and a direct_skip the trusts created under trust agreement are generation-skipping_transfer trusts because they provide for distributions to one or more generation of beneficiaries below the grantors’ generations the taxpayers represent that prior to the proposed modifications a portion of the donor’s and donor’s spouse’s generation-skipping_transfer_tax_exemption was allocated each year in the amount of the transfers to the trusts giving each trust an inclusion_ratio of zero for generation-skipping_transfer_tax purposes a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust in this case the proposed modifications do not shift a beneficial_interest in any trust to a beneficiary who occupies a lower generation than the person s who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust we therefore conclude that the proposed modifications will not change the inclusion_ratio of trust or trust except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination pursuant to the power_of_attorney on file with this office a copy of this letter is being sent your attorney plr-162071-02 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely james f hogan acting branch chief branch office of associate chief_counsel passthroughs and special industries enclosure copy of this letter for sec_6110 purposes