Appendix — Robinson v. United States

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675 F.2d 774 (Sth Cir., 1982)

MYRA B. ROBINSON, Petitioner,

v.

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

No. 81-4078.

United States Court of Appeals,

Fifth Circuit.

May 14, 1982.

Taxpayer brought action against the Commissioner of

Internal Revenue chal- [775] lenging imposition of gift

tax upon her release of power of appointment over assets

of trust formed four years earlier as a conditi f her

taking under her husband’s will. The Unite? 2...es Tax

Court held that the release constituted a taxable gift of

remainder interest of the trust, and taxpayer appealed.

The Court of Appeals, Alvin B. Rubin, Circuit Judge,

held that: (1) taxpayer’s release of power of appointment

completed transfer of the trust assets to the beneficiaries

and constituted the taxable event under fed<. al gift tax

statute, and (2) consideration received by taxpayer at

time she transferred her marital community property to

the trust did not diminish her subsequent gift tax

liability.

Affirmed.

1. Wills [Key] 782(3)

Texas law permits husband to make a conditional

bequest to his wife, putting her to election of allowing

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him to direct in his will disposition of her share of com-

munity property.

2. Internal Revenue [Key] 4200

Whether or not taxpayer received a quid pro quo from

her deceased husbant’s bequest made under condition

that taxpayer place her share of community property in

a trust, her transfer of her interest in the marital com-

munity property to the trust pursuant to the will was not

a completed gift to remaindermen at that time because

she retained power to name new beneficiaries or change

interests of the beneficiaries as between themselves; her

release of her power of appointment four years later

completed the transfer that constituted a taxable event

under federal gift tax statute. 26 U.S.C.A. § 2512(b).

3. Internal Revenue [Key] 4200

Consideration received by taxpayer when, as a condi-

tion of taking under her husband’s will, she placed her

share of community property in a trust did not diminish

her gift tax liability for wholly gratuitous release of her

power of appointment four years later. 26 U.S.C.A.

§ 2512(b).

4. Statutes [Key] 223.2(29)

The estate and gift tax laws are to be applied in pari

materia.

5. Internal Revenue [Key] 4149

Corpus of trust created by taxpayer as a condition of

taking under her husband’s will would have been

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included in her gross estate had she died without releas-

ing her power of appointment. 26 U.S.C.A. § 2086(a)(2).

Edward R. Smith, Lubbock, Tex., for petitioner.

M. Carr Ferguson, Glenn L. Archer, Jr., Asst. Attys.

Gen., Michael L. Paup, Chief, Appellate Section, Rich-

ard Farber, Michael Roach, Attys., Tax Div., Dept. of

Justice, Kenneth W. Gideon, Chief Counsel, I.R.S.,

Washington, D.C., for respondent.

Appeal from the Decision of the United States Tax

Court.

Before CLARK, Chief Judge, RUBIN and TATE,

Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

The husband of a Texas-domiciled taxpayer died in

1972, leaving a will that required his wife, as a condition

of taking under the will, to elect to let his will direct the

disposition of her share of the community property. The

wife elected to take under the will, and, accordingly, she

placed her share of the community property in a trust,

reserving the income for life and retaining a power of

appointment that permitted her to make gifts to her chil-

dren, the surviving spouse of any deceased child, or to

charity. Four years later the wife released the retained

power of appointment. The Tax Court held that this

release constituted a taxable gift of the remainder inter-

est of the trust, and we affirm.

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[1] The taxpayer, Myra B. Rob‘ason, is the widow of

G. R. Robinson, who died testace in 1972. The Robinsons

had during their marriage accumulated a considerable

amount of property. Under Texas community property

law, Mrs. Robinson was the [776] owner of a present,

vested one-half interest in the property acquired during

the marriage’ When her husband died in 1972, her inter-

est in their community property was not part of his gross

estate for federal estate tax purposes’ Texas law, how-

ever, permits the husband to make a conditional bequest

to his wife, putting her to the election of allowing him to

direct in his will the disposition of her share of the com-

munity property. Estate of Vardell v. Commissioner, 307

"Texas Fam. Code Ann. $§ 5.01, 5.22 (Vernon 1975); Johanson, Revocable

Trusts, Widow's Election Wills, and Community Property: The Tax Prob-

lems, 47 Tex.L.Rev. 1247, 1263 (1969); see United States v. Stapf, 375 U.S.

118, 127, 84 S.Ct. 248, 256, 11 L.Ed.2d 196, 208 (1963); Cooper v. Texas Gulf

Indus., 513 S.W.2d 200, 201-202 (Tex.Sup.Ct. 1974); Land v. Marshall, 426

8. W.2d 841, 846 (Tex. Sup. Ct. 1968).

Although under prior Texas law, the husband exercised managerial control

over the entire community, Tex.Rev.Civ.Stat.Ann. art. 4619 (Vernon

1986), he had no right of testamentary disposition over his wife's half of the

property. The Texas Family Code was amended prior to Mrs. Robinson's

election to provide that the personal earnings of each spouse and certain

other categories of community property constitute sole management com-

munity property of the spouse whose property or efforts had created them,

and all other community property was joint management community prop-

erty. Tex.Fam.Code Ann. § 5.22 (Vernon 1975); see Cooper v. Texas Gulf

Indus., supra at 202. The rule that each spouse has a present, vested one-

half ownership interest in the marital community was not changed by the

amendment. /d.

*Commissioner v. Chase Manhattan Bank, 259 F 2d 231, 239 (5th Cir. 1968)

(applying Texas law), cert. denied, 359 U.S. 913, 79 S.Ct. 589, 3 L.Ed.2d

575 (1959); Johanson, supra note 1, at 1267 (“Although the husband's will

purports to dispose of the entire community interest in the assets, only the

value of his one-half community share is includible in his gross estate.”)

(footnote omitted).

,y — tS

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F.2d 688, 690 n.2 (5th Cir. 1962) (“The doctrine of election

by the surviving spouse where the will deals with the

entire community estate is well established under Texas

law.”).

Under the provisions of her husband’s will, Mrs.

Robinson was offered the choice of either accepting the

benefits provided for her in the will and permiiting the

provisions of the will to control the disposition of h«r

share of the community property, or receiving only a

specific bequest of personal effects if she retained her

one-half interest in the community property. Mrs.

Robinson filed a timely election to take under the provi-

sions of the will. Thereafter, her husband’s executors

transferred her share of the community property to a

trust known as the “Myra B. Robinson Trust” (the “W

trust”) and the assets « f her husband's estate, except his

separately bequeathed personal effects, to a trust known

as the “G. R. Robinson Estate Trust” (the “H trust”).

Mrs. Robinson was to receive all of the net income from

the W trust, plus an annuity from the H trust in the

amount of four percent of its initial value, after deduction

of debts, taxes and administrative expenses.

Under the W trust, in conformity with the will’s pro-

visions, Mrs. Robinson received the income for life, and

she had the power to appoint during her life any part of

the trust assets to any one or more of the children born

of her marriage to G. R. Robinson, or to the surviving

spouse of any deceased child, in such proportion as she

might see fit. In addition, she had the power to appoint

any part of the W trust during her life or by will to char-

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ity, in such proportion as she might see fit? On March 26,

1976, Mrs. Robinson released her power of appointment

under this clause of the will. The value of the corpus of

the W trust was then $881,601.38.

[777] The Commissioner determined that Mrs. Robin-

son’s release of her power of appointment was a taxable

gift of the remainder interest in the trust to the remain-

dermen named in the will of her husband. The Commis-

sioner computed the value of this gift, based on Mrs.

Robinson’s age, to be $276,717.04‘ Mrs. Robinson

received no consideration for this 1976 release, so the

entire value of the remainder interest at that time was

treated as a taxable gift.

After the Commissioner issued a notice of gift tax

deficiency, Mrs. Robinson petitioned the Tax Court for a

redetermination of her gift tax liability. The Tax Court,

75 T.C. 346 (1980), held that (1) the 1976 release consti-

tuted a taxable gift, (2) the value of the gift was not

*The pertinent provision of the will provides, in relevant part:

6. During the life of my wife, she shall have the power, by recordable

instrument delivered to the Trustee, to appoint any part or all of my

wife's Trust free from such Trust to any one or more of our issue (or to

the surviving spouse of any of our then deceased children) in such shares,

manner and proportions as she shall see fit. In addition, my wife shall

have the power, by recordable instrument delivered to the Trustee or by

Will, to appoint any part or all of my wife's Trust free from such Trust to

any one or more charities in such shares, manner and proportions as she

shal! see fit. Any such power described in this paragraph may be exer-

cised only in a gratuitous way and not in a way which imposes any con-

dition upon the recipient therenf* * *

‘Mrs. Robinson was born on December 20, 1919. The value of the corpus of

the W trust on the date of the release was $881,601.38. The Commissioner

multiplied this value by the remainder interest factor prescribed by Treas.

Reg. § 25.2512-f), applicable to a single life, female, age 56, namely,

.31388 to determine the value of the remainder interest in the W trust and

hence the amount of the gift.

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reduced under I.R.C. § 2512(b) by the interest Mrs.

Robinson received in her husband’s property in 1972, and

(3) the powers held by Mrs. Robinson as trustee after

her renunciation of the power of appointment did not

give her sufficient dominion and control over the remain-

der interest in the W trust to render the gift incomplete.

On this appeal from the Tax Court’s decision, Mrs.

Robinson does not challenge the third holding.

[2] Whether or not Mrs. Robinson received a quid pro

quo from her husband’s bequest, her 1972 transfer of her

interest in the marital community property to the W

trust was not a completed gift to the remaindermen at

that time because Mrs. Robinson retained “the power to

name new beneficiaries or to change the interests of the

beneficiaries as between themselves.” Treas. Reg.

§ 25.2511-2(c)® “There can be no completed gift before

the donor surrenders dominion and control of the subject

matter of the gift.” 4 J. Rabkin & M. Johnson, Federal

Income, Gift and Estate Taxation § 51.04B(1) (1982).

[3] Although the parties stipulated in the Tax Court

that the value of whatever Mrs. Robinson surrendered

"See also Treas. Reg. § 25.2511-2(b); R. Stephens, G. Maxfield, S. Lind & D.

Calfee, Federal Estate and Gift Taxation § 4.08[7)[c] n.108 (4th ed. 1978)

(giving a widow a special power of appointment over the remainder to her

children would avoid any gift tax by the widow at the time of her election

because her transfer would be incomplete for gift tax purposes); Halbach,

The Community Property “Widow's Election” and Some of its Surprise

Counterparts, 107 Tr. & Est. 108, 109 (1968) (“If [the widow] retains a gen-

eral or special power of appointment, or other power which would normally

render a transfer incomplete for gift tax purposes, no taxable gift will

result unless and until the power is released or expires prior to the death

of the widow.”) (footnote omitted); Johanson, supra note 1, at 1310 (“res-

ervation of the power makes the election transfer incomplete for gift tax

purposes”) (footnote omitted).

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as a result of her election to take under her husband’s will

was less than the value of what she received under the

will’ we do not rest our finding that there was no taxable

gift in 1972 on I.R.C. § 2512(b)? If there was no taxable

gift by Mrs. Robinson because she did not relinquish

complete dominion and control over the trust property in

1972, I.R.C. § 2512(b), the section entitled, “Valuation of

Gifts?” cannot be applicable. Nor [778] is Mrs. Robinson

entitled under § 2512 to any reduction in her 1976 gift tax

liability for consideration received in 1972. Mrs. Robin-

son did receive an income interest in the H trust when

she transferred her share of the community property to

the W trust in 1972, but she received no consideration for

her release of the power of appointment in 1976. The con-

sideration received by Mrs. Robinson in 1972 does not

diminish her gift tax liability for the wholly gratuitous

release in 1976.

Therefore, the release by Mrs. Robinson of her power

to change the beneficiaries and their relative portions of

the remainder of the W trust in 1976 marked the cessa-

"The parties stipulated in the Tax Court that the value of the W trust at the

time of Mrs. Robinson's election was $731,741.94 and that the value of the

H trust at that time (absent a disputed adjustment for interest) was

$483,962.02. Mrs. Robinson contends that the value of what she gave up,

her remainder interest in the W trust, was $196,089.72 ($731,741.94 x .26661

(Treas. Reg. § 25.2512-9(f) ),and that is less than the value of what she

received by the election, a 4% interest in the H trust with a present value

of $236,622.58 ($483,962.02 x .04 x 12.2232) (Treas. Reg. § 25.2512-9(f ).

"LR.C. § 2512(b) provides:

Where property is transferred for less than adequate and full consider-

ation in money or money's worth, then the amount y which the value of

the property exceeded the value of the consideration shall be deemed a

gift, and shall be included in computing the amount of gifts made during

the calendar quarter.

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tion of her dominion and control over the remainder of

the trust and constituted a taxable gift. In an early case

interpreting the gift tax laws, the Supreme Court

reached a similar result. In Burnet v. Guggenheim, 288

U.S. 280, 53 S.Ct. 369, 77 L.Ed. 748 (1933), the Court

held there was a taxable gift when the settlor of a trust

who had reserved a power of revocation canceled the

power. “If a revocable deed of trust is a present transfer

by gift;” the Court said, “There is not another transfer

when the power is extinguished. If there is not a present

transfer upon the delivery of the revocable deed, then

there is such a transfer upon the extinguishment of the

power. There must be a choice, and a consistent choice,

between the one date and the other. Jd. at 285, 53 S.Ct.

at 370, 77 L.Ed. at 750. The Court concluded, “[t]o lay

the tax at once, while the deed is subject to the power,

is to lay it on a gift that may never become consummate

in any real or beneficial sense. To lay it later is to unite

benefit with burden. We think the voice of Congress has

ordained that this be done.” Jd. at 288, 53 S.Ct. at 372, 77

L.Ed. at 753. The Supreme Court reaffirmed this hold-

ing in Sanford’s Estate v. Commissioner, 308 U.S. 39,

48, 60 S.Ct. 51, 56, 84 L.Ed. 20, 22-23 (1939), stating “a

retention of control over the disposition of trust prop-

erty, whether for the benefit of the donor or others, ren-

ders the gift incomplete until the power is relinquished

whether in life or at death.”

Mrs. Robinson was the transferor of her share of the

marital community property to the W trust. She was the

settlor or creator of that trust and reserved a life income

interest for herself and the special power of appointment

over the remainder interest. Mrs. Robinson’s retained

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power to appoint the remainder of the W trust was in

legal effect a power to alter or amend the trust and not

a power to appoint. Treas.Reg. § 25.2514-1(b)(2), pro-

vides that “the term ‘power of appointment’ does not

include powers reserved by a donor to himself’* As Pro-

fessor Johanson has noted, “[s}ince the wife is regarded

as the transferor of her share of the community property,

her invasion power would be a reserved grantor power,”

hence of course rendering the gift incomplete.

If the power had not been created by Mrs. Robinson

(or reserved by her for herself), it would have been a spe-

cial power of appointment,” the release of which would

"Cf. Treas.Reg. § 20.2041-1(b\(2) (“the term ‘power of appointment’ does

not include powers reserved by the decedent to himself within the concept

of sections 2036 through 2038”).

"Johanson, supra note 1, at 1276 (footnote omitted). Accord, id. at 1267 (By

to allow the disposition of her community share to be controlled

by the terms of her husband's will, the wife in effect makes a transfer of

her interest to the trustee named in the will, under the trust terms pro-

vided therein.”) (footnote omitted). Professor Johanson adds: “Conse-

‘ -ently when the wife reserves what amounts to a general inter vivos

p 2 of appointment over the corpus of the W trust . . . the case should

be treated the same as [a] case . . . in which the wife in terms reserves the

power to revoke the trust. As in that situation, so also here the wife has

not, by electing, presently agreed to give anybody anything. /d. at 1304-

06. Accord, G. Bogert & G. Bogert, The Law of Trusis and Trustees § 282,

at 312 (rev. 2d ed 1977) (“The gift tax powers of appointment section

applies only to donated powers, those received by the holder from another,

and not to powers reserved by a donor in making an inter vivos transfer,

nor to the powers of 2a owner of an interest in property to dispose of his

interest.”) (footnote omitted).

“A general power of appointment means, with certain exceptions, “any

power of appointment exercisable in favor of the person possessing the

power... , his estate, his creditors, or the creditors of his estate.”

Treas. Reg. § 25.2514-1(c(1). A special power of appointment is any power

that is not a general power.

a >

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[779] not have been a taxable gift.’ However, the power

was created and held by her and it is not to be treated

like a special power of appointment created by a donor

and given to her.

(4, 5) Finally, Mrs. Robinson argues that the remain-

der interest in the W trust, over which she had a power

of appointment,” would not have been included in her

taxable estate at her death if the power had not been

exercised, and that, therefore, its surrender during her

life should not be taxable as a gift. Although Mrs. Robin-

son is correct in urging that the estate and gift tax laws

are to be applied in pari materia.” we hold that the major

premise of her argument is incorrect. The corpus of the

W trust would have been included in Mrs. Robinson’s

"Treas. Reg. § 25.2514-3(e) provides the following example:

The income is to be paid to L for life . . . . If in this example L had a

power to cause the corpus to be distributed only to X, L would have a

power of appointment which is not a general power of appointment, the

exercise or release of which would not constitute a transfer of property

for purposes of the gift tax.

‘We will continue to refer to Mrs. Robinson's power to affect the enjoyment

of the remainder interest in the trust as a power of appointment or special

power of appointment, although as we have noted, the power is in effect

a power to alter, amend, or revoke.

"In Sanford’s Estate v. Commissioner, 308 U.S. 39, 44, 60 S.Ct. 51, 56, 84

L.Ed. 20, 23 (1939), the Court stated

(there is nothing in the language of the statute, and our attention has

not been directed to anything in its legislative history to suggest that

Congress had any purpose tot: gifts before the donor had fully parted

with his interest in the property given, or that the test of the complete-

ness of the taxed gift was to be any different from that to be applied in

whether the donor has retained an interest such that it

becomes subject to the estate tax upon its extinguishment at death.

. . . The two (taxes) are in pari materia and must be construed together.

Accord, Jewett v. Commissioner, _. U.S. —, 102 S.Ct. 1082, 71 L.Ed.2d

170 (1982); Burnet v. Guggenheim, 288 U.S. 280, 286, 53 S.Ct. 369, 371, 77

L.Ed. 748, 751( 1983).

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gross estate had she died without releasing her power of

appointment." In Sanford’s Estate v. Commissioner, 308

U.S. 39, 43-44, 60 S.Ct. 51, 56, 84 L.Ed. 20, 22-23 (1939),

the Supreme Court held,

a transfer of property upon trust, with power

reserved to the donor either to revoke it and recap-

ture the trust property or to modify its terms so as

to designate new beneficiaries other than [herself] is

Indeed, I.R.C. § 2036(a)(2) requires inclusion ir the

gross estate of “the value of all property to the extent of

any interest therein of which the decedent has 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 . . . the right . . . to designate the

persons who shall possess or enjoy the property or the

income therefrom.”” In addition, I.R.C. § 2088 requires

inclusion of “the value of all property . . . [t]o the extent

of any interest therein of which the decedent has at any

_ time made a transfer (except in case of a bona fide sale

for an adequate and full consideration in money or

money’s worth), . . . where the enjoyment thereof was

subject at the date of death to any change through the

“E state of Vardell v. Commissioner, 307 F.2d 688 (5th Cir., 1962), discussed

by us infra, is not to the contrary. It held the corpus of the trust includable

in the wife's estate but allowed an offset for the value of what she received

under the election.

"See also 1.R.C. § 2086(aX2) requiring that the value of the gross estate

include property the decedent has at any time transferred retaining a life

estate.

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exercise of a power . . . by the decedent . . . to alter,

amend, revoke, or terminate.” See Estate of Vardell v.

Commissioner, 307 F.2d 688, 691 (5th Cir. 1962) (the

community interest of the decedent would have been

included in her gross estate because the “transfer by her

to the remaindermen was not completed until her [780]

death” under either I.R.C. § 2086 or I.R.C. § 2088).°

As a corollary to her argument based on an analogy to

the estate tax laws, Mrs. Robinson urges that, even if

the remainder interest in the W trust would be included

in her estate at death, she would be entitled to the ben-

efits of either the bona fide sale exceptions of § 2036 and

§ 2088, or the consideration offset in I.R.C. § 2043(a)."

Therefore, Mrs. Robinson urges that the dominion and

control provision of the estate tax laws do not dictate the

determination of estate tax liability when adequate and

full consideration was received at an earlier time for the

interest now attempted to be included in the estate,

relying on Estate of Vardell v. Commissioner, 307 F.2d

688, 694 (5th Cir. 1962). We there applied I.R.C.

§ 2043(a) “to permit credit for what [the widow] received

in consideration of the transfer of the remainder in her

community as against the value at her death of the prop-

erty transferred.” Thus, according to Mrs. Robinson,

“The remainder interest was not, by definition, property transferred for a

full and adequate consideration because, evidently, it was not transferred.

ae canes Seep Sb Dip cay Gaeety qovered Ap SR AEN

is

for a consideration in money or money's worth, but is not a bona fide sale

for an adequate and full consideration .. . , there shall be included in

the gross estate only the excess of the fair market value at the time of

death of the property otherwise to be included on account of such trans-

action, over the value of the consideration rece” ‘hereafter by the

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even if she made a gift in 1976 because of the release of

her power of appointment over the remainder in the W

trust, she should have no gift tax liability because, as the

parties stipulated, she received more property in 1972

than she gave up by reason of her election to take under

the will.

This argument, however, misperceives the relation-

ship between I.R.C. § 2043(a) and I.R.C. § 2512(b).

I.R.C. § 2043(a) provides that, if a transfer is not a bona

fide sale for adequate and full consideration, “there shall

be included in the gross estate only the excess of the fair

market value at the time of death . . . over the value of

the consideration received therefor by the decedent.”

The provision requires the valuation of the consideration

received by the decedent at the time the decedent made

the transfer, a time that necessarily predates the dece-

dent’s death. Sections 2036(a) and 2038(a) also look to a

time prior to the laying of the estate tax to determine if

the transfer, at the time it ws made, was for adequate

and full consideration.” These provisions were the basis

for our allowance of the offset in Estate of Vardell,

supra.

The gift tax, however, does not “value [the property)

at a moment of time antecedent to the time when the gift

became complete.” Goodman v. Commissioner, 156 F.2d

218, 219 (2d Cir. 1946). Section 2512(b) implies that the

consideration received at the moment of transfer of the

“1.R.C. § 2086(a) & 2088(a) both provide, in part: “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.” (Emphasis

added.) But see note 20 , infra.

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property is the consideration to be measured.” “[Tjhe

statute and applicable Treasury Regulations impel the

conclusion that taxable value for gift tax purposes is the

value of the gift to the donor at the moment it is made”

Goodman, 156 F.2d at 219 (emphasis added). In 1976,

wher the gift was made, Mrs. Robinson received no con-

sideration. We cannot look to 1972 to find consideration

for a wholly gratuitous release of a power four years

later. We imply no opinion concerning whether, having

released her power [781] over the remainder, the value

of the remainder interest in the W trust included in Mrs.

Robinson’s estate will be offset by consideration received

in 1972. That question is not now before us”

Mrs. Robinson’s release of her power of appointment

in 1976 fixed the rights of the remaindermen and thus

vested in them irrevocably what could otherwise have

been snatched from them by a whim. It literally com-

pleted what had before been inchoate, a mere hope. It is

this completed transfer that constitutes the taxable

event under the federal gift tax statute.

The decision of the Tax Court is AFFIRMED.

"1.R.C. § 2512(b) provides, in part: “Where property is transferred for less

than adequate and full consideraiion.. . ” (Emphasis added.)

Consideration offsets should, of course, be allowed in gift tax cases when

the consideration was received contemporaneously with the transfer and

when the donor did not retain sufficient dominion and control over the

transferred property to make the gift incomplete for gift tax purpuses.

See, ¢.g., Commissioner v. Siegel, 250 F.2d 339, 344-45 (9th Cir. 1967).

We note that various commentators have considered such a question. Pro-

fessor Johanson suggests that on the widow's death she should not be

entitled to a § 2043(a) consideration offset for the value she received at the

time of the election if she did not at the time of the election “receive a

measurable interest in her husband’s property” or if she did not “transfer

a measurable interest in her property to third persons.” Johanson, supra

note 1, at 1296. If a widow had the power to revoke the trust, then her

A-16

transfer of her interest in the marital community property to the W trust

by electing to take under the will did

not presently transfer a measurable interest to the remaindermen.

Leoking at the transaction at the time of her decision (which is the crit-

ical point of ‘ime in determining whether she na» ~ade a transfer for a

consideration), there is no assurance that anything of value will pass to

the remaindermen for the wiie may revoke the trust. By electing, the

wife has not agreed to give anybody anything. Whether the children will

actually receive the remainder interest upon her death will turn on a

subsequent event — namely, whether or no: she revokes the trust. Her

decision to exercise or tc forego exercise of the revocation power will

come in the future; this decision will not be made for a consideration.

Johanson, supre note 1, at 1208. See also id. at 1311-12 (“a consideration

offset should be denied when the wife retains even a limited power of tes-

tamentary disposition”). Professor Johanson concludes his analysis by sug-

gesting that a § 2043(a) “consideration offset should be limited to election-

tranefers for gift tax purposes.” /d. at 1311. Accord, R. Stephens, G. Max-

field, S. Lind, D. Calfee, supra note 5, at § 4.08[7]ic] n. 108 (If at the time

of the widow's election she aid not make a completed gift, “the bargain or

exchange aspect of the widow's election seems to disappear and the crea-

tion of the trust may involve only a straight bequest by the husband and

a concurrent transfer by the wife to the trust for no consideration. Lack of

consideration for her transfer would increase the amount included in her

estate.”). But see Estate of Vardell v. Commissioner, 307 F.2d S88, 694 (Sth

Cir. 1962) (allowing consideration offset to reduce amount included in

estate ever though wife hed control over the property until she died).

A-17

75 T.C. 346 (1980)

Myra B. ROBINSON, PETITIONER

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 2384-79.

Filed December 8, 1980.

In 1972, petitioner elected to let her hus-

band’s will direct the disposition of her com-

munity property share. As a result, petitioner's

community share became the corpus of the W

trust. Petitioner is the trustee and income ben-

eficiary of the W trust and held the limited pow-

ers to appoint its corpus which she released in

1976. Held, petitioner’s 1976 release of her lim-

ited powers to appoint W trust corpus is a tax-

able gift of the remainder interest in her com-

munity share. Held, further, the value of the

gift is not reduced under sec. 2512(b), 1.R.C.

1954, by the interest petitioner received in her

husband’s property in 1972. Held, further, the

powers held by petitioner as trustee of the W

trust do not give her dominion and control suf-

ficient to render the gift incomplete.

Edward R. Smith, for the petitioner.

Glenn D. Wilkinson, for the respondent.

A-18

OPINION

Fay, Judge: Respondent determined a deficiency of

$58,676.97 in petitioner's Federal gift tax for the calen-

dar quarter ending March 31, 1976. The issues for deci-

sion are whether petitioner made a taxable gift when she

released certain powers held by her over a trust, and, if

a gift was made, what was its value.

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

Petitioner, Myra B. Robinson, resided in Big Spring,

Tex., when she filed her petition herein. Petitioner was

married to G. R. Robinson (hereinafter husband) who

died testate on February 27, 1972. His will gave peti-

tioner a choice — she could elect to let [347] her hus-

band’s will direct the disposition of her share of their

community property and take fully under the will or she

could retain her right to freely dispose of her community

property share and take only a specific bequest of per-

sonal effects under the will. On August 22, 1972, peti-

tioner filed an election with the County Court of Howard

County, Tex., to accept the will’s direction of the dispo-

sition of her community share. Neither party contests

the validity or the binding effect of such election.

Pursuant to her election and her husband’s will, peti-

tioner’s community property share became the corpus of

the “Myra B. Robinson Trust” (hereinafter wife's trust)

while her husband’s interest in the community and any

separate property he may have owned which was not

specifically bequeathed were placed in the “G. R. Robin-

son Estate Trust” (hereinafter husband's trust). The

terms o* the wife’s trust provide petitioner with a right

to all the net income of that trust for life, while under the

(ees

A-19

husband’s trust she has a right to an annual amount from

that trust equal to 4 percent of the initial corpus. Upon

petitioner’s death, the corpora of the two trusts are to be

combined and then divided into equal shares for certain

descendants of petitioner and her deceased husband.

Petitioner is trustee of both trusts!

As trustee of both trusts, petitioner has broad powers

of management including powers to sell, exchange,

pledge, or encumber the trusts; to invest in any property

whatsoever, including wasting assets; and to make oil,

gas, or mineral leases. Generally she can deal with the

trusts as if she were the fee simple owner, and the terms

of both trusts provide that they are to be construed in

favor of the validity of any act or omission by petitioner

as trustee. Petitioner, as trustee, also has the power in

her discretion to allocate revenues, receipts, proceeds,

disbursements, expenses, deductions, accruals, and

losses of each trust between corpus and income. Her

allocation need not be in accord with the Texas Trust Act,

Tex. Civ. Code Ann. tit. 125A, art. 74265b-1 et seq.

(Vernon 1960), which controls only if she does not exer-

cise her power. In addition, she may distribute from

either trust (looking to the wife’s trust first) amounts

necessary to [348] maintain her standard of living if the

mandatory distributions are not sufficient to do so.

Apart from her powers as trustee, petitioner had the

following powers over the wife’s trust:

‘The First National Bank of Midland (Texas) was nsmed as cotrustee, but

its sole duty as such was to exercise all rights pertaining to life insurance

contracts on the husband’s or individual trustee’s life. Tbz bank would

become a full cotrustee if petitioner remarried. She has rot done so.

A-20

During the life of my wife, she shall have the

pre et ee eee

, to appoint any part or all of my wife’s Trust

free from such Trust to any one or more of our issue

(or to the surviving spouse of any of our then

deceased children) in such shares, manner and pro-

portions as she shall see fit. In addition, my wife

shall have the power, by recordable instrument

delivered to the Trustee or by Will, to appoint any

part or all of my wife’s Trust free from such Trust to

any one or more charities in such shares, manner

and proportions as she shall see fit. Any such power

described in this paragraph may be exercised only

in a gratuitous way and not in a way which imposes

any condition upon the recipient thereof. * * *

Thus, petitioner could appoint any part of the wife’s trust

to designated appointees or to qualifying charities. On

March 26, 1976, petitioner executed a valid release of

these appointment powers.

When the wife’s trust was created, its value was

$731,741.94, and when petitioner released her powers to

appoint corpus, its value was $881,601.38. The husband’s

trust had a value of $483,962.02 when it was created?

Petitioner was born on December 20, 1919.

In his statutory notice of deficiency, respondent

asserted a gift tax deficiency of $58,676.97 based on his

determination that, when petitioner released her powers

to appoint, she made a taxable gift of the remainder in

the wife’s trust corpus (her community property share).

*Respondent contends the value of the husband's trust should be reduced by

$23,176.19 to represent interest on Federal estate tax and interest and pen-

alties on State inheritance tax paid by G. R. Robinson's estate. In light of

our ho! ting, infra, that, although completed gift was made, petitioner is

not entitled to a consideration offset, we need not address that contention.

A-21

The issue presented is whether petitioner's release of

certain powers in a testamentary trust, created under

her husband’s will but funded with her share of commu-

nity property, constituted a taxable gift under section

2512(a)? Respondent contends a gift was made and com-

putes its value as follows: $881,601.38 (value of wife’s

trust on date of the release) x 0.31388 (factor for [349]

remainder interest per sec. 25.2512-9(f), Table A(2), Gift

Tax Regs.) = $276,717.04. Petitioner contends the

release did not constitute a taxable gift because she was

neither the donor of the trust nor the creator of the pow-

ers. Alternatively, petitioner argues that if she is treated

as the transferor to the wife’s trust, she received ade-

quate and full consideration in money or money’s worth

in the form of her interest in the husband’s trust. We find

for respondent.

Petitioner first contends that she is the donee of spe-

cial powers of appointment under her husband’s will cit-

ing Self v. United States, 135 Ct. Cl. 371, 142 F. Supp.

939 (1956), and Commisioner v. Walston, 168 F.2d 211

(4th Cir. 1948), affg. 8 T.C. 72 (1947), for the proposition

that exercise of powers of appointment by the donee of

the powers is not a gift. However, in this case petitioner

is not the donee of her powers, rather she retained the

powers when she transferred her community share to

the wife’s trust.

In Siegel v. Commissioner, 26 T.C. 743 (1956), affd.

250 F.2d 339 (9th Cir. 1957), a surviving widow elected

to accept the disposition of her interest in community

property according to her nusband’s will and received a

*All section references are to the Internal Revenue Code of 1954, as

amended, unless otherwise indicated.

A-22

life estate in the entire community. We held that the

electing widow made a taxable gift of the remainder

interest in her community share to the extent (if any) its

value exceeded the value of the interest she received in

her husband’s community share. In other words, she was

treated as transferring the remairder in her community

share in exchange for a life estate in her deceased hus-

band’s community share‘ In this case, petitioner, like the

surviving widow in Siegel, received an interest in her

husband’s property in exchange for transferring her

community share into the wife’s trust. Thus, we have no

problem concluding that petitioner was the transferor of

her community share. See also Lehman v. Commis-

sioner, 109 F.2d 99 (2d Cir. 1940), affg. 39 B.T.A. 17

(1939), cert. denied 310 U.S. 637 (1940).

Nor do we have any problem concluding that the lim-

ited powers to appoint corpus are interests petitioner

retained when she made the transfer. Such is clear from

an analysis of the [350] widow’s election cases arising

under section 2036. See Estate of Christ v. Commis-

sioner, 480 F.2d 171 (9th Cir. 1978), affg. 54 T.C. 493

(1970); Vardell’s Estate v. Commissioner, 307 F.2d 688

(5th Cir. 1962), revg. 35 T.C. 50 (1960). Vardell involved

the estate of a widow who elected to accept the disposi-

tion of her community property share according to her

husband’s will ana received a life estate in the entire

community. We held that, upon her death, the entire

date of death value of her community share was included

in her gross estate under section 2036 since she had

“In Siegel v. Commissioner, 26 T.C. 743 (1966), affd. 250 F.2d 389 (9th Cir.

1957), the amount of the gift was reduced by a $35,000 specific bequest

made to the widow-taxpayer under her husband's will.

A-23

transferred her share but retained a life interest. The

Fifth Circuit Court of Appeals reversed only to the

extent that the included value should be reduced under

section 2043(a) by the date of transfer value of her life

interest in her husband’s community share since it was

consideration in money or money’s worth for the trans-

fer. The value of the widow’s life interest in her own com-

munity share was not consideration because that was an

interest she retained, not one that was transferred to

her. The above analysis applies to petitioner's limited

powers of appointment as well. They are powers she

retained when the trust was created. In summary, we

find that petitioner transferred her community share to

the wife’s trust but retained limited powers to appoint

that trust’s corpus.

Petitioner’s second contention is that even if she was

the transferor of her community share, she received

adequate and full consideration in money or money’s

worth since the interest she received in the husband’s

trust was greater in value than the remainder interest in

her community property when she elected to accept her

husband’s will. In Turman v. Commissioner, 35 T.C.

1123 (1961), we held that, if the interest an electing

widow receives in her husband's property exceeds the

value of what she relinquishes, no taxable gift is made.

See sec. 2512(b). However, in Turman the electing

widow actually parted with the remainder in her com-

munity share. In this case, petitioner did not part with

the remainder interest in her community share when the

trust was created. She still controlled it via her powers

of appointment. We are willing to accept that the interest

petitioner received in her husband’s property was in

A-24

exchange for the transfer of her community share to the

wife’s trust, but that transfer was very limited. Peti-

tioner retained a life income interest and limited powers

of appointment. She gave up very little, and what she

received cannot be viewed as full and [351] adequate

consideration for the completed transfer of her remain-

der interest simply because she did not transfer it. Thus,

we conclude that petitioner did not receive adequate and

full consideration for the transfer of the remainder in her

community share when she elected to accept her hus-

band’s will.

Given our findings that petitioner transferred her com-

munity share to the wife’s trust and retained limited

powers of appointment, we must evaluate the effect of

petitioner’s release of those limited powers of appoint-

ment. The essence of a completed gift is the relinquish-

ment of dominion and control by the transferor. Sec.

25.2511-2(b), Gift Tax Regs. When petitioner’s release

became effective, she no longer could alter the beneficial

interests of the remainder interest in her community

share. She relinquished dominion and control, and the

transfer of the remainder became complete® See gener-

ally Latta v. Commissioner, 212 F.2d 164 (3d Cir. 1954),

affg. a Memorandum Opinion of this Court, cert. denied

848 U.S. 825 (1954); sec. 25.2512-2, Gift Tax Regs.

A gift is valued at the time it is completed (sec.

25.2512-1, Gift Tax Regs.), and the value of the remain-

der interest in petitioner's community share when she

‘Since releasing her powers to appoint, petitioner has only a life income

interest in the wife's trust and powers as trustee to administer the trusts

and to distribute to herself amounts necessary to maintain her standard of

living.

A-25

released her limited powers to appoint was $276,717.04.

That is the amount of the gift unless petitioner received

some offsetting consideration. See sec. 2512(b). Peti-

tioner asserts that the interest in her husband’s com-

munity share which she received should offset the value

of the remainder in her community share which passed

beyond her control when she released her powers to

appoint. We cannot agree.

Section 2512(b) provides:

Pacdcaet ns eer o Heteomtngraane be

consideration in money or money’s

worth, a, teactis oad tar aa the ton oh

property exceeded the value of the consideration

be deemed a gift, and shall be included in com-

puting the amount of gifts made during the calendar

quarter.

It is apparent from the language of section 2512(b) that

the amount of a gift is reduced only by consideration

received for the transfer which constitutes the gift. At

the time of her [352] husband’s death, petitioner

received a limited life interest in her husband’s property

in exchange for transferring her community share into

the wife’s trust subject to the powers she retained. She

received the interest in her husband’s property regard-

less of whether she just held the appointment powers,

exercised them, or released them. She received nothing

for later releasing her powers to appoint. Petitioner’s

transfer of her community share to the wife’s trust and

the release of her limited powers to appoint are two sep-

arate transfers. We see no reason why consideration for

transfer of one interest should serve as consideration for

another separate transfer. See generally Estate of Stein-

A-26

man v. Commissioner, 69 T.C. 804 (1978). Thus, we con-

clude that the amount of petitioner’s gift of the remain-

der in her community share cannot be reduced by the

value of the interest she received in her husband’s

property.

We feel some sympathy for petitioner’s position. If she

had been able to retain only a life estate in her commu-

nity share when she elected, no gift would have been

made and no part of her community share would be

includable in her gross estate under section 2036 since

the date of election value of her interest in her husband’s

community share exceeded the date of election value of

the remainder interest in her community share. But she

retained more. Even though the net effect of her release

was the same as if she had never had the power, the fact

remains that she did have it. The result may be unfor-

tunate, but it is unavoidable.

We have held that petitioner made a completed taxa-

ble gift of the remainder interest in her community prop-

erty share when she released limited powers to appoint

that share. Normally our inquiry would end at that point.

However, the broad powers held by petitioner as trustee

of both trusts merit discussion.

Petitioner, as trustee of both trusts, has broad powers

of management including powers to sell, exchange,

pledge, or encumber the trusts and to invest in any prop-

erty whatsoever including wasting assets. She also has

the power in her discretion to allocate revenues,

receipts, proceeds, disbursements, expenses, deduc-

tions, accruals, and losses of each trust between corpus

and income. Petitioner is the income beneficiary of the

A-27

wife’s trust, the corpus of which is her community share.

If she could use her administrative powers as trustee to

divert the wife’s trust corpus to herself, she could still

control the [353] amount of the remainder interest, and

a purported gift of the remainder would not be complete.

For example, she could by either selling the assets and

allocating all gain to income or by investing solely in

wasting assets divert the entire corpus to herself as

income beneficiary. Therefore, a remaining issue is

whether the administrative powers held by petitioner

are sufficiently broad to give her continuing dominion

and control.

While the administrative powers given petitioner are

broadly written, they must be examined in light of the

testator’s intent and the applicable State law to deter-

mine if they really are unlimited. See generally Greer v.

United States, 448 F.2d 937 (4th Cir. 1971); Miami Beach

First National Bank v. United States, 443 F.2d 116 (5th

Cir. 1971): Old Colony Trust Co. v. United States, 423

F.2d 601 (ist Cir. 1970); Estate of Speer v. Commis-

sioner, 57 'T.C. 804 (1972); Atwell v. United States, 339 F.

Supp. 425 (S.D. Tex. 1972); Doss v. United States, 326 F.

Supp. 1320 (N.D. Tex. 1971) The trust in this case must

be evaluated under Texas law. See Wilson v. Smith, 373

S.W.2d 514 (Tex. Civ. App. 1968), cert. denied 379 U.S.

973 (1965). The Texas Trust Act, Tex. Civ. Code Ann. tit

“See also Gardiner v. United States, 458 F.2d 1266 (9th Cir. 1972); Rand v.

United States, 445 F.2d 1166 (2d Cir. 1971); Peoples Trust Co. of Bergen

County v. United States, 444 F.2d 198 (3d Cir. 1971); Florida Bank at Lake-

land v. United States, 443 F.2d 467 (6th Cir. 1971); First National Bank m

Palm Beach v. United States, 443 F.2d 480 (5th Cir. 1971); United States v.

Poweil, 307 F.?\ 821 (10th Cir. 1962); Estate of King v. Commissioner, 37

T.C. 978 (1962). Cf. Estate of Rolin v. Commissioner, 68 T.C. 919 (1977),

affd. 588 F.2d 368 (2d Cir. 1978).

A-28

125A, art. 7425b-1 et seq. (Vernon 1960), provides rules

for the administration of trusts; however, it operates

only to supplement rather than to supplant an express

trust’s terms. St. Marks Episcopal Church v. Lowry,

271 S.W.2d 681 (Tex. Civ. App. 1954). Therefore, broad

powers to sell, invest, and allocate are not contrary to

that Act, but that alone does not give petitioner unbri-

dled discretion.

The wife’s trust contains no broad exculpatory clause

releasing petitioner from her obligations as a fiduciary or

holding her harmless for any mismanagement. See Cor-

pus Christi National Bank v. Gerdes, 551 S.W.2d 521

(Tex. Civ. App. 1977)’ As the [354] Texas Supreme

Court said in Johnson v. Peckham, 132 Tex. 148, 120

S.W.2d 786 (1938):

When persons enter into fiduciary relations each

consents, as a matter of law, to have his conduct

toward the other measured by the standards of the

finer loyalties exacted by courts of equity. That is a

sound rule and should not be whittled down by

exceptions. [132 Tex. at 152, 120 S.W.2d at 788.]

Thus, petitioner owes a duty to treat the remaindermen

fairly — she cannot use the administrative powers to

deplete corpus to their detriment without violating her

fiduciary duties. Doss v. United States, 326 F. Supp. 1320

(N.D. Tex. 1971). See also Langford v. Shamburger, 417

S.W.2d 438 (Tex. Civ. App. 1967); Thorman v. Carr, 408

"The only exculpatory language in G. R. Robinson's will relieves petitioner

from liability for loss or depreciation in esta‘ e or trust property unless such

loss or depreciation is due to gross neglect, bad faith, or fraud. This is not

the same as broad language relieving a trustee for any act or omission. See

a a i a

A-29

S.W.2d 259 (Tex. Civ. App. 1966); Nathan v. Hudson,

376 S.W.2d 856 (Tex. Civ. App. 1964). As previously

noted, petitioner is not only the trustee, but she is also

the income beneficiary. A depletion of corpus to increase

the income interest would directly benefit her. In Texas,

a trustee is not permitted to benefit from her own actions

at the expense of the trust or let her self-interest conflict

with her fiduciary obligations. Slay v. Burnett Trust, 143

Tex. 621, 187 S.W.2d 377 (1945). See generally Dickson

v. Dickson, 544 S.W.2d 200 (Tex. Civ. App. 1976);

Nathan v. Hudson, supra. We do not believe a Texas

court of equity would permit petitioner to exercise her

administrative powers in a manner detrimental to the

remaindermen.

Our analysis of the scope of petitioner’s administrative

powers conforms with the testator’s intent which is the

touchstone in construction of will and testamentary trust

provisions in Texas. See Bradford v. Rain, 562 S.W.2d

514 (Tex. Civ. App. 1978). A will must be construed in its

entirety giving due regard to all its provisions and not

just to isolated parts. Doss v. United States, supra;

Houston v. Harberger, 377 S.W.2d 673 (Tex. Civ. App.

1964). Petitioner was the trustee and the income benefi-

ciary. She held broad administrative powers, limited

powers tu appoint, and a power to invade to maintain her

standard of living. Had the testator intended her to be

able to manipulate the adiainistrative powers to give

herself the lion’s share of the trust, her power to invade

only for her maintenance and the limits on her powers to

appoint would be mere verbiage. Reading the will as a

whole, it is clear that the testator intended petitioner to

have powers broad enough to do almost anything with

A-30

the wife’s trust corpus except give it all to herself. Thus,

we conclude that petitioner was given broad powers as

trustee to ease administra-[355 tion but not to allow her

by unbridled administrative acts to endanger the

remainder interests. See generally Estate of Pardee v.

Commissioner, 49 T.C. 140 (1967). In short, petitioner’s

powers as trustee do not give her sufficient dominion and

control to render the gift of the remainder in her com-

munity share incomplete.

To reflect the foregoing,

Decision will be entered for the resz-ondent.

A-31

STATUTES, RULES, AND REGULATIONS

U. S. CONSTITUTION Article 3

Section 2, Clause 2. Supreme Court, Original and Appel-

late Jurisdiction

In all Cases affecting Ambassadors, other public Min-

isters and Consuls, and those in which a State shall be

Party, the Supreme Court shall have original Jurisdic-

tion. In all other Cases before mentioned, the Supreme

Court shall have appellate Jurisdiction, both as to Law

and Fact, with such Exceptions, and under such Regu-

lations as the Congress shall make.

SUPREME COURT RULE 17

Rule 17. Considerations Governing Review on Certiorari

1. A review on writ of certiorari is not a matter of

right, but of judicial discretion, and will be granted only

when there are special and important reasons therefor.

The following, while neither controlling nor fully meas-

uring the Court’s discretion, indicate the character of

reasons that will be considered.

(a) When a federal court of appeals has rendered a

decision in conflict with the decision of another federal

court of appeals on the same matter; or has decided a

federal question in a way in conflict with a state court

of last resort; or has so far departed from the accepted

and usual course of judicial proceedings, or so far sanc-

tioned such a departure by a lower court, as to call for

an exercise of this Court’s power of supervision.

A-32

(c) When a state court or a federal court of appeals

has decided an important question of federal law which

has not been, but should be, settled by this Court, or

has decided a federal question in a way in conflict with

applicable decisions of this Court.

28 U.S.C. 1254

§ 1254. Courts of appeals; certiorari; appeal; certified

questions

Cases in the courts of appeals may be reviewed by the

Supreme Court by the following methods:

(1) By writ of certiorari granted upon the petition of

any party to any civil or criminal case, before or after

rendition of judgment or decree;

REVENUE ACT of 1932

Sec. 501. Imposition of tax.

Sec. 501. (a) For the calendar year 1932 and each cal-

endar year thereafter a tax, computed as provided in

section 502, shall be imposed upon the transfer during

such calendar year by any individual, resident or nonres-

ident, of property by gift.

Sec. 501. (b) The tax shall apply whether the transfer

is in trust or otherwise, whether the gift is direct or

indirect, and whether the property is real or personal,

tangible or intangible; but, in the case of a nonresident

not a citizen of the United States, shall apply to a trans-

fer only if the property is situated within the United

States. The tax shall not apply to a transfer made on or

before the date of the enactment of this Act.

A-33

Sec. 501. (c) The tax shall not apply to a transfer of

property in trust where the power vo revest in the donor

title to such property is vested in the donor, either alone

or in conjunction with any person not having a substan-

tial adverse interest in the disposition of such property

or the income therefrom, but the relinquishment or ter-

mination of such power (other than by the donor’s death)

shall be considered to be a transfer by the donor by gift

of the property subject to such power, and any payment

of the income therefrom to a beneficiary other than the

donor shall be considered to be a transfer by the donor

of such income by gift.

Sec. 503. Transfer for less than adequate and full

consideration.

Where property is transferred for less than an ade-

quate and full consideration in money or money’s worth,

then the amount by which the value of the property

exceeded the value of the consideration shall, for the

purpose of the tax imposed by this title, be deemed a

gift, and shall be included in computing the amount of

gifts made during the calendar year.

INTERNAL REVENUE CODE OF 1954

SEC. 2085. TRANSACTIONS IN CONTEMPLATION

OF DEATH.

(a) General Rule. — The value of the gross estate shall

include the value of all property to the extent of any

interest therein of which the decedent has at any time

made a transfer (except in case of a bona fide sale for an

adequate and full consideration in money or money’s

worth), by trust or otherwise, in contemplation of his

death.

ea

A-34

(b) Application of General Rule. — If the decedent

within a period of 3 years ending with the date of his

death (except in case of a bona fide sale for an adequate

and full consideration in money or money’s worth) trans-

ferred an interest in property, relinquished a power, or

exercised or released a general power of appointment,

such transfer, relinquishment, exercise, or release shall,

unless shown to the contrary, be deemed to have been

made in contemplation of death within the meaning of

this section and sections 2038 and 2041 (relating to revoc-

able transfers and powers of appointment); but no such

transfer, relinquishment, exercise, or release made

before such 3-year period shall be treated as having been

made in contemplation of death.

SEC. 2086. TRANSFERS WITH RETAINED LIFE

ESTATE.

(a) General Rule. — The value of the gross estate shall

include the value of all property to the extent of any

interest therein of which the decedent has at any time

made a transfer (except in case of a bona fide sale for 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 which

does not in fact end before his death —

(1) the possession or enjoyment of, or the right to

the income from, the property, or

(2) the right, either alone or in conjunction with any

person, to designate the persons who shall possess or

enjoy the property or the income therefrom.

(b) Limitation on Application of General Rule. — This

section shall not apply to a transfer made before March

A-35

4, 1931; nor to a transfer made after March 3, 1931, and

before June 7, 1932, unless the property transferred

would have been includible in the decedent’s gross estate

by reason of the amendatory language of the joint reso-

lution of March 3, 1931 (46 Stat. 1516).

SEC. 2037. TRANSFERS TAKING EFFECT AT

DEATH.

(a) General Rule.-— The value of the gross esiate shall

include the value of all property to the extent of any

interest therein of which the decedent has at any time

after September 7, 1916, made a transfer (except in case

of a bona fide sale for an adequate and full consideration

in money or money’s worth), by trust or otherwise, if —

(1) possession or enjoyment of the property can,

through ownership of such interest, be obtained only

by surviving the decedent, and

(2) the decedent has retained a reversionary interest

in the property (but in the case of a transfer made

before October 8, 1949, only if such reversionary inter-

est arose by the express terms or the instrument of

transfer), and the value of such reversionary interest

immediately before the death of the decedent exceeds

5 percent of the value of such property.

(b) Special Rules. — For purposes of this section, the

term “reversionary interest” includes a possibility that

property transferred by the decedent —

(1) may return to him or his estate, or

(2) may be subject to a power of disposition by him,

but such term does not include a possibility that the

income alone from such property may return to him or

become subject to a power of disposition by him. The

value of a reversionary interest immediately before the

A-36

death of the decedent shall be determined (without

regard to the fact of the decedent's death) by usual meth-

ods of valuation, including the use of tables of mortality

and actuarial principles, under regulations prescribed by

the Secretary or his delegate. In determining the value

of a possibility that property may be valued as if it were

a possibility that such property may return to the dece-

dent or his estate. Notwithstanding the foregoing, an

interest so transferred shall not be included in the dece-

dent’s gross estate under this section if possession or

enjoyment of the property could have been obtained by

any beneficiary during the decedent’s life through the

exercise of a general power of appointment (as defined in

section 2041) which in fact was exercisable immediately

before the decedent’s death.

SEC. 2038. REVOCABLE TRANSFERS.

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

include the value of all property —

(1) Transfers after June 22, 19386. — To the extent of

any interest therein of which the decedent has at any

time made a transfer (except in case of a bona fide sale

for an adequate and full consideration in money or

money’s worth), by trust or otherwise, where the

enjoyment thereof was subject at the date of his death

to any change through the exercise of a power (in

whatever capacity exercisable) by the decedent alone

or by the decedent in conjunction with any other per-

son (without regard to when or from what source the

decedent acquired such power), to alter, amend,

revoke, or terminate, or where any such power is

relinquished in contemplation of decedent's death.

A-37

(2) Transfers on or before June 22, 1936. — To the

extent of any interest therein of which the decedent

has at any time made a transfer (except in case of a

bona fide sale for an adequate and full consideration in

money or money’s worth), by trust or otherwise,

where the enjoyment thereof was subject at the date

of his death to any change through the exercise of a

power, eitl.c: vy the decedent alone or in conjunction

with any person, to alter, amend, or revoke, or where

the decedent relinquished any such power in contem-

plation of his death. Except in the case of transfers

made after June 22, 1936, no interest of the decedent

of which he has made a transfer shall be included in tre

gross estate under paragraph (1) unless it is includible

under this paragraph.

(b) Date of Existence of Power. —For purposes of this

section, the power to alter, amend, revoke, or terminate

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 altera-

tion, amendment, revocation, or termination takes effect

only on the expiration of a stated period after the exer-

cise of the power, whether or not on or before the date

of the decedent’s death notice has been given or the

power has been exercised. In such cases proper adjust-

ment shall be made representing the interests which

would have been excluded from the power if the dece-

dent had lived, and for such purpose, if the notice has not —

been given or the power has not been exercised on or

before the date of his death, such notice shall be consid-

ered to have been given, or the power exercised, on the

date of his death.

A-38

(c) Effect of Disability in Certain Cases.

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. —

** *

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

extent of any property with respect to which the dece-

dent has at the time of his death a general power of

appointment created after October 21, 1942, or with

respect to which the decedent has at any time exer-

cised or released such a power of appointment by a dis-

position which is of such nature that if it were a trans-

fer of property owned by the decedent, such property

would be includible in the decedent’s gross estate

under sections 2035 to 2038, inclusive. A disclaimer or

renunciation of such a power of appointment shall not

be deemed a release of such power. For purposes of

this paragraph (2), the power of appointment shall be

considered to exist on tho 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.

(3) Creation of another power in certain cases. — To

the extent of any property with respect to which the

decedent —

(A) by will, or

A-39

(B) by a disposition which is of such nature that if it

were a transfer of property owned by the decedent

such property would be includible in the decedent’s

gross estate under section 2035, 2036, or 2037, exer-

cises a power of appointment created after October 21,

1942, by creating another power of appointment which

under the applicable local law can be validly exercised

sv as to postpone the vesting of any estate or interest

in such property, or suspend the absolute ownership or

power of alienation of such property, for a period

ascertainable without regard to the date of the crea-

tion of the first power.

(b) Definitions. — For purposes of subsection (a) —

(1) General power of appointment. — The term “gen-

eral power of appointment” means a power which is

exercisable in favor of the decedent, his estate, his

creditors, or the creditors of his estate; except that—

(A) A power to consume, invade, or appropriate

property for the benefit of the decedent which is lim-

ited by an ascertainable standard relating to the

health, education, support, or maintenance of the

decedent shall not be deemed a general power of

appointment.

(B) A povver of appointment created on or before

October 21, 1942, which is exercisable by the dece-

dent only in conjunction with another person shall

not be deemed a general power of appointment.

(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—

(i) If the power is not exercisable by the dece-

dent except in conjunction with the creator of the

4-40

power—such power shall not be deemed a general

power of appointment.

(ii) If the power is not exercisable by the dece-

dent 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 prop-

erty 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 inter-

est shall be deemed adverse to such exercise of

the decedent’s power.

(iii) If (after the application of clauses (i) and

(ii)) the power is a general power of appointment

and is exercisable in favor of such other person

—such power shall be deemed a general power of

appointment only in respect of a fractional part of

the property subject to such power, such part to

be determined by dividing the value of such prop-

erty by the number of such persons (including the

decedent) in favor of whom such power is

exercisable.

For purposes of clauses (ii) and (iii), a power shall be

deemed to be exercisable in favor of a person if it is

exercisable in favor of such person, his estate, his

creditors, or the creditors of his estate.

A-4l

SEC. 2043. TRANSFERS FOR INSUFFICIENT

CONSIDERATION.

(a) In General. — If any one of the transfers, trusts,

interests, rights, or powers enumerated and ‘iescribed in

sections 2035 to 2038, inclusive, and section 2041 is made,

created, exercised, or relinquished for a consideration in

money or money’s worth, but is not a bona fide sale for

an adequate and full consideration in money or money’s

worth, there shall be included in the gross estate only the

excess of the fair market value at the time of death of the

property otherwise to be included on account of such

transaction, over the value of the consideration received

therefor by the decedent.

(b) Marital Rights Not Treated as Consideration. —

For purposes of this chapter, a relinquishment or prom-

ised relinquishment of dower or curtesy, or of a statutory

estate created in lieu of dower or curtesy, or of other

marital rights in the decedent’s property or estate, shall

not be considered to any extent a consideration “in

money or money’s worth.”

SEC. 2501. IMPOSITION OF TAX.

(a) Taxable Transfers. —

(1) General rule. — For the first calendar quarter of

calendar year 1971 and each calendar quarter there-

after a tax, computed as provided in section 2502, is

hereby imposed on the transfer of property by gift

during such calendar quarter by any individual, resi-

dent or nonresident.

A-42

SEC. 2511. TRANSFERS IN GENERAL.

(a) Scope. — Subject to the limitations contained in

this chapter, the tax imposed by section 2501 shall apply

whether the transfer is in trust or otherwise, whether

the gift is direct or indirect, and whether the property is

real or personal, tangible or intangible; but in the case of

a nonresident not a citizen of the United States, shall

apply to a trarsfer only if the property is situated within

the United States.

SEC. 2512. VALUATION OF GIFTS.

(a) If the gift is made in property, the value thereof at

the date of the gift shall be considered the amount of the

gift.

(b) Where property is transferred for less than an

adequate and full consideration in money or money’s

worth, then the amount by which the value of the prop-

erty exceeded the value of the consideration shall be

deemed a gift, and shall be included in computing the

amount of gifts made during the calendar quarter.

SEC. 2514. POWERS OF APPOINTMENT.

(a) Powers Created on or Before October 21, 1942.

(b) Powers Created After October 21, 1942. — The

exercise or release of a general power of appuintment

created after October 21, 1942, shall be deemed a trans-

fer of property by the individual possessing such power.

A disclaimer or renunciation of such a power of appoint-

ment shall not be deemed a release of such power.

(c) Definition of General Power of Appointment. — For

purposes of this section, the term “general power of

appointment” means a power which is exercisable in

favor of the individual possessing the power (hereafter

in this subsection referred to as the “possessor’”), his

A-43

estate, his creditors, or the creditors of his estate; except

that —

(1) A power to consume, invade, or appropriate

property for the benefit of the possessor which is lim-

ited by an ascertainable standard relating to the

health, education, support, or maintenance of the pos-

sessor shall not be deemed a general power of

appointment.

(2) A power of appointment created on or before

October 21, 1942, which is exercisable by the possessor

only in conjunction with another person shall not be

deemed a general power of appointment.

(3) In the case of a power of appointment created

after October 21, 1942, which is exercisable by the pos-

sessor only in conjunction with another person —

(A) if the power is not exercisable by the posses-

sor except in conjunction with the creator of the

power — such power shall not be ¢c »emed a general

power of appointment;

(B) if the power is not exercisable by the posses-

sor 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 possessor — such power shall not be

deemed a general power of appointment. For the

purposes of this subparagraph a person who, after

the death of the possessor, may be possessed of a

power of appointment (with respect to the property

subject to the possessor’s power) which he may

exercise in his own favor shall be deemed as having

an interest in the property and such interest shall be

deemed adverse to such exercise of the possessor’s

A-44

power,

(C) if (after the application of subparagraphs (A)

and (B)) the power is a general power of appoint-

ment and is exercisable in favor of such other person

— such power shall be deemed a general power of

appointment only in respect of a fractional part of

the property subject to such power, such part to be

determined by dividing the value of such property

by the number of such persons (including the pos-

sessor) in favor of whom such power is exercisable.

For purposes of subparagraphs (B) and (C), a power

shall be deemed to be exercisable in favor of a person

if it is exercisable in favor of such person, his estate,

his creditors, or the creditors of his estate.

TREASURY REGULATIONS

§ 25.2511-1 Transfers in general

(g) (1) Donative intent on the part of the transferor is

not an essential element in the application of the gift tax

to the transfer. The application of the tax is based on the

objective facts of the transfer and the circumstances

under which it is made, rather than on the subjective

motives of the donor. However, there are certain types

of transfers to which the tax is not applicable. It is appli-

cable only to a transfer of a beneficial interest in prop-

erty. It is not applicable to a transfer of bare legal title

to a trustee. A transfer by a trustee of trust property in

which he has no beneficial interest does not constitute a

gift by the trustee (but such a transfer may constitute a

gift by the creator of the trust, if until the transfer he

had the power to change the beneficiaries by amending

A-45

or revoking the trust). The gift tax is not applicable to a

transfer for a full and adequate consideration in money

or money’s worth, or to crdinary business transactions,

described in § 25.2512-8.

** *

(h) The following are exainples of transactions result-

ing in taxable gifts and in each case it is assumed that the

transfers were not made for an adequate and full consid-

eration in money or money’s worth:

(1) A transfer of property by a corporation to B is a

gift to B from the stockholders of the corporation. If B

himself is a stockholder, the transfer is a gift to him

from the other stockholders but only to the extent it

exceeds B’s own interest in such amount as a share-

holder. A transfer of property by B to a corporation

generally represents gifts by B to the other individual

shareholders of the corporation to the extent of their

proportionate interests in the corporation. However,

the.< may be an exception to this rule, such as a trans-

fer made by an individual to a charitable, public, polit-

ical or similar organization which may constitute a gift

to the organization as a single entity, depending upon

the facts and circumstances in the particular case.

(2) The transfer of property to B if there is imposed

upon B the obligation of paying a commensurate annu-

ity to C is a gift to C.

(3) The payment of money or the transfer of prop-

erty to B in consideration of B’s promise to render a

service to C is a gift to C, or to both B and C, depend-

ing on whether the service to be rendered to C is or is

not an adequate and full consideration in money or

money’s worth for that which is received by B. See sec-

A-46

tion 2512(b) and the regulations thereunder.

(4) If A creates a joint bank account for himself and

B (or a similar type of ownership by which A can

regain the entire fund without B’s consent), there is a

gift to B when B draws upon the account for his own

benefit, to the extent of the amount drawn without any

obligation to account for a part of the proceeds to A.

Similarly, if A purchases a United States savings bond

registered as payable to “A or B)” there is a gift to B

when B surrenders the bond for cash without any

obligation to account for a part of the proceeds to A.

(5) If A with his own funds purchases property and

has the title conveyed to himself and B as joint owners,

with rights of survivorship (other than a joint owner-

ship described in example (4)) but which rights may be

defeated by either party severing his interest, there is

a gift to B in the amount of half the value of the prop-

erty. However, see § 25.2515-1 relative to the creation

of a joint tenancy (or tenancy by the entirety) between

husband and wife in real property with rights of sur-

vivorship which, v™uess the donor elects otherwise is

not considered as a transfer includible for Federal gift

tax purposes at the time of the creation of the joint

tenancy. See § 25.2515-2 with respect to determining

the extent to which the creation of a tenancy by the

entirety constitutes a taxable gift if the donor elects to

have the creation of the tenancy so treated. See also

§ 25.2523(d)-1 with respect to the marital deduction

allowed in the case of the creation of a joint tenancy or

a tenancy by the entirety.

(6) If A is possessed of a vested remainder interest

in property, subject to being divested only in the event

A-47

he should fail to survive one or more individuals or the

happening of some other event, an = vocable assign-

ment of all or any part of his inter « would result in

a transfer includible for Federal gift tax purposes. See

especially paragraph (e) of § 25.2512-5 for the valua-

tion of an interest of this type.

(7) If A, without retaining a power to revoke the

trust or to change the beneficial interests therein,

transfers property in trust whereby B is to receive the

income for life and at his death the trust is to terminate

and the corpus is to be returned to A, provided A sur-

vives, but if A predeceases B the corpus is to pass to

C, A has made a gift equal to the total value of the

property less the value of his retained interest. See

paragraph (e) of § 25.2512-5 for the valuation of the

donor’s retained interest.

(8) If the insured purchases a life insurance policy,

or pays a premium on a previously issued policy, the

proceeds of which are pavable to a beneficiary or ben-

eficiaries other than his estate, and with respect to

which the insured retains no reversionary interest in

himself or his estate and no power to revest the eco-

nomic benefits in himself or his estate or to change the

beneficiarics or their proportionate benefits (or if the

insured relinquishes by assignment, by designation of

a new beneficiary or otherwise, every such power that

was retained in a previously issued policy), the insured

has made a gift of the value of the policy, or to the

extent of the premium paid, even though the right of

the assignee or beneficiary to receive the benefits ‘s

conditioned upon his surviving the insured. For the

valuation of life insurance policies see § 25.2512-6.

A-48

($) Where property held by a husband and wife as

community property is used to purchase insurance

upon the husband’s life and a third person is revocably

designated as beneficiary and under the State law the

husband’s death is considered to make absolute the

transfer by the wife, there is a gift by the wife at the

time of the husband’s death of half the amount of the

proceeds of such insurance.

(10) If under a pension plan (pursuant w which he

has an unqualified right to an annuity) an employee has

an option to take either a retirement annuity for him-

self alone or a smaller annuity for himself with a sur-

vivorship annuity payable to his wife, an irrevocable

election by the employee to take the reduced annuity

in order that an annuity may be paid, after the

employee’s death, to his wife results in the making of

a gift. However, see section 2517 and the regulations

thereunder for the exemption from gift tax of amounts

attributable to employers’ contributions under quali-

fied plans a’ tain other contracts. As amended

T.D. 6542, Jan 961, 26 F.R. 548.

§ 25.2511-2 Cessa’ ‘ donor’s dominion and control

(a) The gift tax is ‘| imposed upon the receipt of the

property by the donee, nor is it necessarily determined

by the measure of enrichment resulting to the donee

from the transfer, nor is it conditioned upon ability to

identify the donee at the time of the transfer. On the con-

trary, the tax is a primary and personal liability of the

donor, is an excise upon his act of making the transfer, is

measured by the value of the property passing from the

donor, and attaches regardless of the fact that the iden-

A-49

tity of the donee may not then be known or

ascertainable.

(b) As to any property, or part thereof or interest

therein, of which the donor has so parted with dominion

and control as to leave in him no power to change its dis-

position, whether for his own benefit or for the benefit of

another, the gift is complete. But if upon a transfer of

property (whether in trust or otherwise) the donor

reserves any power over its disposition, the gift may be

wholly incomplete, or may be partially complete and par-

tially incomplete, depending upon all the facts in the par-

ticular case. Accordingly, in every case of a transfer of

property subject to a reserved power, the terms of the

power must be examined and its scope determined. For

example, if a donor transfers property to another in trust

to pay the income to the donor or accumulate it in the

discretion of the trustee, and the donor retains a testa-

mentary power to appoint the remainder among his des-

cendants, no portion of the transfer is a completed gift.

On the other hand, if the donor had not retained the tes-

tamentary power of appointment, but instead provided

that the remainder should go to X or his heirs, the entire

transfer would be a completed gift. However, if the

exercise of the trustee’s power in favor of the grantor is

limited by a fixed or ascertainable standard (see para-

graph (g) (2) of § 25.2511-1), enforceable by or on behalf

of the grantor, then the gift is incomplete to the extent

of the ascertainable value of any rights thus retained by

the grantor.

(c) A gift is incomplete in every instance in which a

donor reserves the power to revest the beneficial title to

the property in himself. A gift is also incomplete if and

A-50

to the extent that a reserved power gives the donor the

power to name new beneficiaries or to change the inter-

ests of the beneficiaries as between themselves unless

the power is a fiduciary power limited by a fixed or ascer-

tainable standard. Thus, if an estate for life is trans-

ferred but, by an exercise of a power, the estate may be

terminated or cut down by the donor to one of less value,

and without restriction upon the extent to which the

estate may be so cut down, the transfer constitutes an

incomplete gift. If in this example the power was con-

fined to the right to cut down the estate for life to one for

a term of five years, the certainty of an estate for not less

than that term results in a gift to that extent complete.

(d) A gift is not considered incomplete, however,

merely because the donor reserves the power to change

the manner or time of enjoyment. Thus, the creation of

a trust the income of which is to be paid annually to the

donee for a period of years, the corpus being distributa-

ble to him at the end of the period, and the power

reserved by the donor being limited to a right to require

that, instead of the income being so payable, it should be

accumulated and distributed with the corpus to the

donee at the termination of the period, constitutes a com-

pleted gift.

(e) A donor is considered as himself having a power if

it is exercisable by him in conjunction with any person

not having a substantial adverse interest in the disposi-

tion of the transferred property or the income there-

from. A trustee, as such, is not a person having an

adverse interest in the disposition of the trust property

or its income.

A-51

(f) The relinquishment or termination of a power to

change the beneficiaries of transferred property, occur-

ring otherwise than by the death of the donor (the stat-

ute being confined to transfers by living donors), is

regarded as the event which completes the gift and

causes the tax to apply. For example, if A transfers prop-

erty in trust for the benefit of B and C but reserves the

power as trustee to change the proportionate interests

of B and C, and if A thereafter has another person

appointed trustee in place of himself, such later relin-

quishment of the power by A to the new trustee com-

pletes the gift of the transferred property, whether or

not the new trustee has a substantial adverse interest.

The receipt of income or of other enjoyment of the trans-

ferred property by the transferee or by the beneficiary

(other than by the donor himself) during the interim

between the making of the initial transfer and the relin-

quishment or termination of the power operates to free

such income or other enjoyment from the power, and

constitutes a gift of such income or of such other enjoy-

ment taxable as of the calendar year of its receipt. If

property is transferred in trust to pay the income to A

for life with remainder to B, powers to distribute corpus

to A, and to withhold income from A for future distri-

bution to B, are powers to change the beneficiaries of the

transferred property.

(g) If a donor transfers property to himself as trustee

(or to himself and some other person, not possessing a

substantial adverse interest, as trustees), and retains no

beneficial interest in the trust property and no power

over it except fiduciary powers, the exercise or nonex-

ercise of which is limited by a fixed or ascertainable stan-

A-52

dard, to change the beneficiaries of the transferred prop-

erty, the donor has made a completed gift and the entire

value of the ivansferred property is subject to the gift

tax.

(h) If a donor delivers a properly endorsed stock cer-

tificate to the donee or the donee’s agent, the gift is com-

pleted for gift tax purposes on the date of delivery. If the

donor delivers the certificate to his bank or broker as his

agent, or to the issuing corporation or its transfer agent,

for transfer into the name of the donee, the gift is com-

pleted on the date the stock is transferred on the books

of the corporation.

(j) If the donor contends that a power is of such nature

as to render the gift incomplete, and hence not subject to

the tax as of the calendar year of the initial transfer, the

transaction shall be disclosed in the return and evidence

showing all relevant facts, inciuding a copy of the instru-

ment of transfer, should be submitted.

§ 25.2512-8 Transfers for insufficient consideration

Transfers reached by the gift tax are not confined to

those only which, being without a valuable considera-

tion, accord with the common law concept of gifts, but

embrace as well sales, exchanges, and other dispositions

of property for a consideration to the extent that the

value of the property transferred by the donor exceeds

the value in money or money’s worth of the consideration

given therefor. However, a sale exchange, or other

transfer of property made in the ordinary course of busi-

ness (a transaction which is bona fide, at arm’s length,

and free from any donative intent), will be considered as

made for an adequate and full consideration in money or

money's worth. A consideration not reducible to a value

A-53

in money or money’s worth, as love and affection, prom-

ise of marriage, etc., is to be wholly disregarded, and the

entire value of the property transferred constitutes the

amount of the gift. Similarly, a relinquishment or prom-

ised relinquishment of dower or curtesy, or of a statutory

estate created in lieu of dower or curtesy, or of other

marital rights in the spouse’s property or estate, shail

not be considered to any extent a consideration “in

money or money’s worth.” See, however, section 2516

and the regulations thereunder with respect to certain

transfers incident to a divorce.

§ 25.2514-3 Powers of appointment created after October

21, 1942

** *

(e) Examples. The application of this section may be

further illustrated by the following examples in each of

which it is assumed, unless otherwise stated, that S has

transferred property in trust after October 21, 1942,

with the remainder payable to R at L’s death, and that

neither L nor R has any interest in or power over the

enjoyment of the trust property except as is indicated

separately in each example:

** *

Example (3). The income is to be paid to L for life. L

has a power, exercisable at any time, to cause the corpus

to be distributed to himself. L has a general power of

appointment over the remainder interest, the release of

which constitutes a transfer for gift tax purposes of the

remainder interest. If in this example L had a power to

cause the corpus to be distributed only to X, L would

have a power of appointment which is not a general

A-54

power of appointment, the exercise or release of which

would not constitute a transfer of property for purposes

of the gift tax.

** *