A woman is the income beneficiary of an irrevocable trust. Which of the followin

Question

A woman is the income beneficiary of an irrevocable trust. Which of the following powers held by her with respect to the trust will cause all the assets in the trust to be included in her gross estate for federal estate tax purposes.

(A) The power to direct the trustee to pay her the greater of 5% of the trust principal or $5,000.

(B) The power to direct the trustee to use the trust assets to pay her estate taxes.

(C) The testamentary special or limited power to direct the trustee to distribute trust assets to her children.

(D) The power to use trust assets for her health, education, support or maintenance.

Provide a detailed explanation for your answer. Only answer if you have a strong estate planning background.

Explanation / Answer

Section 674(a) provides that a grantor will be treated as the owner of any portion of a trust over which the grantor has retained a power of disposition. A power of disposition includes any power that can affect the beneficial enjoyment of the trust property.

Therefore, in the case of following powers with respect to the trust will cause all the assets in the trust to be included in her gross estate for federal estate tax purposes:

The power to use trust assets for her health, education, support or maintenance which implies beneficial enjoyment of the trust property.

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