California Code of Regulations › Title 18 - Public Revenues › Division 2.5 - State Controller › Chapter 1 - Inheritance Tax › Article 4.4 - Powers of Appointment › Section 13696 - General Power of Appointment Held at Death by Deceased Donee

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) In General.
Pursuant to Revenue and Taxation Code Section
					 13696
					 (effective as to decedents who died on or after September 17, 1965) if a donee
					 has a general power of appointment over property at the time of his death the
					 exercise or nonexercise thereof is treated as a transfer subject to inheritance
					 tax. If there is an exercise the transfer is taxed to the person or persons to
					 whom the property is appointed. If the power is not exercised the transfer is
					 taxed to those to whom the property passes by virtue of the nonexercise, i.e.,
					 the takers in default. An exercise or release of the power before death is
					 taxable to the extent indicated in Revenue and Taxation Code Section
					 13697
					 (see Section
					 13697). The exercise of the
					 limited power of appointment is subject to tax at the death of a decedent only
					 if the donor who created the power died prior to 5:00 p.m. of June 25, 1935,
					 and the power was exercised thereafter (see Revenue and Taxation Code Section
					 13695).
					 Similarly the exercise of a general power under such circumstances was subject
					 to tax as to donees who died prior to September 17, 1965. All general powers
					 held by a decedent who died on or after September 17, 1965 are subject to tax
					 as indicated above. (See Section
					 13692.1 through
					 13692.6 for definitions of various
					 terms used herein).
(b)
				  Existence of Power at Death.
Under Revenue and Taxation Code Section
					 13696
					 a power of appointment is considered to exist on the date of a deceased donee's
					 death even though the exercise of the power is subject to the precedent giving
					 of notice, or even though the exercise of he power takes effect only on the
					 expiration of a stated period after its exercise, whether or not on or before
					 the decedent's death notice has been given or the power has been exercised.
					 However, a power which by its terms is exercisable only upon the occurrence
					 during the decedent's lifetime of an event or a contingency which did not in
					 fact take place or occur during such time is not a power in existence on the
					 date of the decedent's death. For example, if a decedent was given a general
					 power of appointment exercisable only after he reached a certain age, only if
					 he survived another person, or only if he died without descendants, the power
					 would not be in existence on the date of the decedent's death if the condition
					 precedent to its exercise had not occurred.
(c) Exercise or Nonexercise of Power of
				  Appointment.
For purposes of Revenue and Taxation Code Section
					 13696
					 the exercise or nonexercise of a power of appointment held at death by a donee
					 determines the person or persons against whom the inheritance tax is assessed.
					 In the case of an exercise the tax is upon a transfer from the donee to the
					 person or persons who are appointed to take the property. If the power is not
					 exercised the tax determination is based on a transfer to the person or persons
					 who take in default of the exercise of the power. The general law requirements
					 regarding the exercise of a power of appointment must be met. These are
					 contained in Chapter 4 (commencing with Section
					 1384.1) of Part 4, Division 2 of
					 the Civil Code. For the effect of a failure to make an effective appointment
					 see Chapter 5 (commencing with Section
					 1389.1) of Part 4, Division 2 of
					 the Civil Code.
The term "exercise" means an act on the part of the donee
					 of a power of appointment of designating the person or persons who are to
					 receive the property subject to the power. A power of appointment is considered
					 as exercised for purposes of Revenue and Taxation Code Section
					 13696
					 even though the exercise is in favor of the taker in default of appointment. A
					 power of appointment is also considered as exercised even though the
					 disposition cannot take effect until the occurrence of an event after the
					 exercise takes place, if the exercise is irrevocable and, as of the time of the
					 exercise, the condition was not impossible of occurrence. For example, if
					 property is left in trust to A for life, with a power in B to appoint the
					 remainder by will, and B dies before A, exercising his power by appointing the
					 remainder to C if C survives A, B is considered to have exercised his power if
					 C is living at B's death. On the other hand, a testamentary power of
					 appointment is not considered as exercised if it is exercised subject to the
					 occurrence during the decedent's life of an express or implied condition which
					 did not in fact occur. Thus, if in the preceding example, C dies before B, B's
					 power of appointment would not be considered to have been exercised. Similarly,
					 if a trust provides for income to A for life, remainder as A appoints by will,
					 and A appoints a life estate in the property to B and does not otherwise
					 exercise his power, but B dies before A, A's power is not considered to have
					 been exercised.
For purposes of Revenue and Taxation Code Section
					 13696
					 the mere right to exercise a general power of appointment existing in the donee
					 of the power at his death is sufficient to establish a taxable transfer from
					 the donee to the appointees of an exercise of the power or to the takers in
					 default of an exercise. In the case of a default of exercise there need be no
					 showing of an actual intention on the part of the donee to decline, refuse or
					 otherwise specify that the power is not being exercised. Being an inheritance
					 tax, the incidence of tax is upon the transfer of property interests to the
					 ultimate beneficiaries occasioned by the donee's exercise or nonexercise of the
					 power.
NOTE: Reference: Section
					 13696,
					 Revenue and Taxation Code.