Course: Estate Planning
Lesson 6: Transfer Taxation III
For “Power exercisable with consent of another”, can you explain why the assets WOULD be included in John’s estate? Since he has power to appoint property, wouldn’t that be adverse to Betty and her ability to enjoy the property? The example is below.
Albert sets up a trust and grants John and Betty an unrestricted power to appoint property to Betty during Betty’s lifetime. In default of appointment of the property, it will pass to John at Betty’s death. Thus, John has an adverse interest – it is NOT in John’s best interest to appoint property to Betty during her lifetime because it will diminish what he ultimately receives. Therefore, Betty’s power does NOT cause inclusion of the trust assets in her estate. If, on the other hand, John also has a power over assets that he can exercise with Betty’s consent, the assets over which he has that power WOULD be included in his estate because the person granting consent (Betty) does not have an adverse interest.
Great question Jay!
Using the fact pattern in the lesson, if John needs Betty’s consent to appoint property to himself, the property controlled by the general power of appointment is included in John’s gross estate.
Why? Because Betty has no reason NOT to approve John’s request to appoint the property to himself.
- Betty will not inherit the property at John’s death under any circumstance
- Approval of John’s appointment request will have no adverse financial effect upon Betty.
Let me know if you have any other questions here!