IRS Private Letter Ruling on Testamentary Powers of Appointment of Trust Property

In late 2014, the Internal Revenue Service (IRS) issued two Private Letter Rulings (PLR) regarding testamentary powers of appointment. In the PLRs, the IRS evaluated whether a grandchild’s power of appointment over a grandparent’s trust property qualified as a general power of appointment. The importance of the distinction is determining whether the trust property would be included in the grandchild’s estate. If the trust property is considered a part of the grandchild’s estate, his or her creditors could attach to the property in the trust.

The PLRs declared that the testamentary powers of appointment, as drafted, were not broad enough to consider them a general power of appointment. The language explicitly detailed that it was a discretionary trust and upon the grandchild’s death, the property must be distributed to the grandchild’s issue as designated by the grandchild. Since the power of appointment was limited to a finite number of individuals, it was not a general power. Since this was a testamentary trust, the grandchild lacked the ability to appoint any creditor or himself as beneficiary. Thus, the IRS determined that the trust assets are not attachable by the grandchild’s creditors, nor included in the grandchild’s estate.

For more information please see the original private letter rulings, PLR 201446001 and PLR 201446011.

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