26 U.S.C. § 2514 — Powers of appointment
submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 903 words · no verdicts yet
This section explains when exercising, releasing, creating, or allowing certain powers of appointment to lapse is treated as a property transfer. It also defines the relevant general power and sets exceptions and valuation rules.
(a) Powers created on or before October 21, 1942. Exercising a general power of appointment created on or before that date counts as the person holding the power transferring property. Not exercising the power, or completely releasing it, does not count as exercising it. If the power was partly released so it is no longer general, a later exercise does not count as exercising a general power if (1) the partial release happened before November 1, 1951, or (2) the person receiving the power was legally unable to release it on October 21, 1942, and released it within six months after that disability ended.
(b) Powers created after October 21, 1942. Exercising or releasing a general power of appointment created after that date counts as the holder transferring property.
(c) Definition of general power of appointment. For this section, “general power of appointment” means a power exercisable for the person holding it, that person's estate, creditors, or the creditors of that estate. This section does not define the quoted term “ascertainable standard” or the other quoted legal terms it uses. The following rules apply: (1) A power to consume, invade, or use property for the holder's benefit is not general if an ascertainable standard about the holder's health, education, support, or maintenance limits it. (2) A power created on or before October 21, 1942, that the holder can exercise only with another person is not general. (3) For a power created later that the holder can exercise only with another person: (A) it is not general if the holder can exercise it only with the creator; (B) it is not general if the holder can exercise it only with a person who has a substantial interest in the property that opposes exercising the power for the holder. A person who, after the holder dies, may have a power over the property that the person can exercise for that person's own benefit is treated as having an interest, and that interest is treated as opposing the exercise; (C) if, after applying (A) and (B), the power is general and can be exercised for the other person, it is general only for a fractional part. Find that part by dividing the property's value by the number of people, including the holder, for whose benefit the power can be exercised. For (B) and (C), a power can be exercised for a person if it can be exercised for that person, that person's estate, creditors, or the creditors of that estate.
(d) Creation of another power in certain cases. If a power created after October 21, 1942, is exercised by creating another power that local law validly allows to postpone vesting an estate or property interest, or to suspend absolute ownership or the power to transfer or otherwise dispose of the property, for a period that can be determined without using the first power's creation date, the first power's exercise counts as a transfer by its holder to the extent of the property subject to the second power.
(e) Lapse of power. During the holder's life, the lapse of a power created after October 21, 1942, counts as releasing it. In any calendar year, this rule applies only to the extent that the value of property that could have been appointed through the lapsed powers is greater than the greater of (1) $5,000 or (2) 5 percent of the total value of the assets from which, or proceeds of which, the lapsed powers could have been satisfied.
(f) Date of creation of power. A power created by a will executed on or before October 21, 1942, is treated as created by that date if the person who made the will died before July 1, 1949, without republishing the will by codicil or otherwise after October 21, 1942.
An exercise of a general power of appointment created on or before October 21, 1942, shall be deemed a transfer of property by the individual possessing such power; but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof. If a general power of appointment created on or before October 21, 1942, has been partially released so that it is no longer a general power of appointment, the subsequent exercise of such power shall not be deemed to be the exercise of a general power of appointment if—
such partial release occurred before November 1, 1951, or
the donee of such power was under a legal disability to release such power on October 21, 1942, and such partial release occurred not later than six months after the termination of such legal disability.
The exercise or release of a general power of appointment created after October 21, 1942, shall be deemed a transfer of property by the individual possessing such power.
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 estate, his creditors, or the creditors of his estate; except that—
A power to consume, invade, or appropriate property for the benefit of the possessor which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the possessor shall not be deemed a general power of appointment.
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.
In the case of a power of appointment created after October 21, 1942, which is exercisable by the possessor only in conjunction with another person—
if the power is not exercisable by the possessor except in conjunction with the creator of the power—such power shall not be deemed a general power of appointment;
if the power is not exercisable by the possessor 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 power;
if (after the application of subparagraphs (A) and (B)) 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 property by the number of such persons (including the possessor) 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.
If a power of appointment created after October 21, 1942, is exercised by creating another power of appointment which, under the applicable local law, can be validly exercised so as to postpone the vesting of any estate or interest in the property which was subject to the first power, or suspend the absolute ownership or power of alienation of such property, for a period ascertainable without regard to the date of the creation of the first power, such exercise of the first power shall, to the extent of the property subject to the second power, be deemed a transfer of property by the individual possessing such power.
The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The rule of the preceding sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts:
$5,000, or
5 percent of the aggregate value of the assets out of which, or the proceeds of which, the exercise of the lapsed powers could be satisfied.
For purposes of this section a power of appointment created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942.
Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 407; Pub. L. 94–455, title XX, § 2009(b)(4)(F), Oct. 4, 1976, 90 Stat. 1894.)
- 1954Enacted · Act of Aug. 16, 1954, ch. 736
- 1976Amended · Pub. L. 94-455 · 90 Stat. 1894
A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.
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