California Code of Regulations › Title 18 - Public Revenues › Division 2.5 - State Controller › Chapter 1 - Inheritance Tax › Article 4.4 - Powers of Appointment › Section 13692.5 - Powers Joint with Person Having an Adverse Interest

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
A general power of appointment does not include a power
					 which is not exercisable by the donee except in conjunction with or 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 donee, his estate, his creditors or 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 Revenue and Taxation Code Section
					 13953,
					 or if it is not susceptible to valuation under said provision, in accordance
					 with the general principles set forth in Revenue and Taxation Code Section
					 13951.
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 the power. However, a
					 coholder is considered as having an adverse interest where he may possess the
					 power after the decedent's death and may exercise it at that time in favor of
					 himself, his estate, his creditors or the creditors of his estate. Thus, for
					 example, if X, Y and Z held a power jointly to appoint among a group of persons
					 which includes themselves and if on the death of X the power will pass to Y and
					 Z jointly, then Y and Z are considered to have interests adverse to the
					 exercise of the power in favor of X. Similarly, if on Y's death the power will
					 pass to Z, Z is considered to have an interest adverse to the exercise of the
					 power in favor of Y.
The application of these principles respecting a joint
					 holder with an adverse interest may be further illustrated in the following
					 examples in each of which it is assumed that the value of the interest in
					 question is substantial.
EXAMPLE (1).
The donee and R were trustees of a trust which provided for
					 income to be paid to the donee for life, then to M for life and the remainder
					 to go to R. The trustees had power to distribute corpus to the donee. Since R's
					 interest was substantially adverse to an exercise of the power in favor of the
					 donee the latter did not have a general power of appointment. If M and the
					 donee were the trustees, M's interest would likewise have been adverse.
EXAMPLE (2).
The donee and L were trustees of a trust which provided
					 that income be paid to L for life, then to M for life and the remainder to be
					 paid to the donee. The trustees had power to distribute corpus to the donee
					 during the life of L. Since L's interest was adverse to an exercise of the
					 power in favor of the donee, the latter did not have a general power of
					 appointment. If the donee and M were the trustees, M's interest would likewise
					 have been adverse.
EXAMPLE (3).
The donee and L were trustees of a trust under which the
					 income was to be paid to L for life. The trustees could designate whether
					 corpus was to be distributed after L's death to the donee or to M. L's interest
					 was not adverse to an exercise of the power in favor of the donee as his life
					 interest in the income would not be affected and the donee therefore had a
					 general power of appointment.
EXAMPLE (4).
C (creator) leaves property to T (trustee) in trust to pay
					 the income to D (donee) for life with power in D to invade or appoint the
					 corpus to himself at any time with the consent of R (remainderman). If there is
					 no invasion or appointment, the property passes to R at D's death. Here R
					 (remainderman) has an obvious adverse interest to the exercise of the power in
					 favor of D (donee) because if the power is so exercised, R (remainderman) loses
					 his remainder interest. Since the power is within the exception, it is not a
					 general power and therefore not subject to tax in D's estate.
EXAMPLE (5).
C (creator) leaves property to T (trustee) in trust to pay
					 income to D (donee) for life with power to D (donee) and X acting jointly to
					 distribute corpus to D (donee). X has no other interest in the property, but
					 the trust provides that upon D's death X shall have the power to appoint the
					 property to anyone including himself. D (donee) does not have a taxable general
					 power because X's interest is obviously adverse. By outliving D (donee) X can
					 by virtue of his succession to the power obtain the property for
					 himself.
NOTE: Reference: Section
					 13692,
					 Revenue and Taxation Code.