Tax Law Update 2009-04-01 (1)Tax Law Update 2009-04-01 (1)
TAM 200907025: General power of appointment presumed over entire trust In Technical Advice Memorandum 200907025
David A. Handler, partner, & Alison E. Lothes, associate in the Chicago office of Kirkland & Elli
TAM 200907025: General power of appointment presumed over entire trust — In Technical Advice Memorandum 200907025 (issued Oct. 28, 2008), the decedent was the income beneficiary of a trust providing that “at the time of [his] death, his equitable interest in Trust, unless disposed of otherwise by [him], shall pass to and vest in his heirs in accordance with the laws of descendant and distribution then in force.”
Because the trust agreement did not express any intent to exclude the decedent, his creditors, his estate or the creditors of his estate, the Internal Revenue Service ruled that the decedent had a general power of appointment over the trust. The estate argued that, because the decedent was only a discretionary income beneficiary, he had a power of appointment only over the trust's income.
The IRS was not persuaded and held that in the absence of any language that limited the power of appointment, the power applied to the entire trust property. As a result, the value of the entire trust was includable in the decedent's gross estate.
PLR 200910002 approves a split-dollar agreement for a survivorship policy — In Private Letter Ruling 200910002 (issued Sept. 30, 2008), a couple entered into a split-dollar agreement with an insurance trust regarding a survivorship life insurance policy owned by the trust. During the couple's lives, the trust would pay a portion of the premiums equal to the insurance company's current published premium rate for annually renewable term insurance generally available for standard risks. After the death of the first spouse, the trust would pay a portion of the premium equal to the lesser of the insurance company's current published premium rate for annually renewable term insurance on a person the surviving spouse's age or the amount provided in the tables in Notice 2001-10 or subsequent guidance (in this case Notice 2002-8, which revoked Notice 2001-10). The couple would pay the balance of the premiums. Upon the death of the survivor (or termination of the agreement), the survivor's estate was entitled to the greater of the cash surrender value of the policy or the cumulative premiums paid by the couple.
The IRS approved the agreement, holding that payment by the couple of their share of the premiums will not be taxable gifts. Pursuant to Treasury Regulations Section 1.61-22(d)(1), the couple is treated as the owner of the policy for purposes of the split-dollar agreement and is transferring an economic benefit to the trust that's equal to the cost of current life insurance protection. Pursuant to the agreement, the trust is paying a portion of the premium equal to the cost of current life insurance protection.
Under Notice 2002-8, the cost of current life insurance protection for arrangements entered into before the effective date of future...
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