Father's will creates a testamentary trust for Son paying all income to Son during Son's lifetime. Son has a power to appoint, in his will, the trust property to a class consisting of his issue. What is the estate tax consequence when Son dies?

Father's will creates a testamentary trust for Son paying all income to Son during Son's lifetime. Son has a power to appoint, in his will, the trust property to a class consisting of his issue. What is the estate tax consequence when Son dies?

• A. Trust is included in Son's gross estate because he had the right to all of the income.
• B. Trust is included in Son's gross estate because he had a general power of appointment.
• C. Trust is included in Son's gross estate because he had a limited power of appointment.
• D. Trust is not included in Son's gross estate.

Answer: (D)

The key idea is how a power of appointment over trust property affects inclusion in a decedent’s gross estate. A trust asset is included only if the holder has a general power of appointment—one that could be used to appoint the property to the holder, the holder’s estate, or creditors. Here, the power to appoint the trust property is limited: Son may appoint in his will to a class consisting of his issue. That’s a testamentary power and is restricted to a specific class; it is not a general power that could benefit Son or his estate. The fact that Son receives all the income during his lifetime does not by itself cause inclusion. So, at Son’s death, the trust property is not included in his gross estate.

The key idea is how a power of appointment over trust property affects inclusion in a decedent’s gross estate. A trust asset is included only if the holder has a general power of appointment—one that could be used to appoint the property to the holder, the holder’s estate, or creditors. Here, the power to appoint the trust property is limited: Son may appoint in his will to a class consisting of his issue. That’s a testamentary power and is restricted to a specific class; it is not a general power that could benefit Son or his estate. The fact that Son receives all the income during his lifetime does not by itself cause inclusion. So, at Son’s death, the trust property is not included in his gross estate.