                          T.C. Memo. 2004-91



                        UNITED STATES TAX COURT



ESTATE OF SARAH W. GREVE, DECEASED, CHARLES E. GREVE & DAVID R.
               GREVE, CO-EXECUTORS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16020-02.               Filed April 5, 2004.



     Louis R. Salamon, for petitioner.

     Julia L. Wahl, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:     Respondent determined a deficiency of

$163,677.55 in Federal estate tax (estate tax) with respect to

the estate (estate) of Sarah W. Greve (decedent).    The issues for

decision are:

     (1) Is certain property with respect to which decedent had a
                               - 2 -

power of appointment at the time of her death includible in

decedent’s gross estate under section 2041(a)(1)?1   We hold that

it is.

     (2) Is certain property with respect to which decedent had a

power of appointment at the time of her death includible in

decedent’s gross estate under section 2041(a)(2)?    We hold that

it is.

                        FINDINGS OF FACT

     Most of the facts have been stipulated and are so found.

     Decedent was a resident of Pennsylvania at the time of her

death on December 27, 1998.

     At the time the petition was filed, Charles E. Greve and

David R. Greve, decedent’s sons and the co-executors (executors)

of the estate, had a mailing address in Pittsburgh, Pennsylvania.

     On July 29, 1933, Sarah S. Wright (Ms. Wright), decedent’s

grandmother, executed her last will and testament (Ms. Wright’s

will) under which Ms. Wright, inter alia, created a testamentary

trust (testamentary trust).   Ms. Wright’s will provided in

pertinent part as follows:

          SECOND: I give and bequeath all of the bonds and
     all of the corporate stocks which I may own at the time




     1
      All section references are to the Internal Revenue Code
(Code) in effect on the date of decedent’s death. All Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 3 -

     of my death to THE UNION TRUST COMPANY OF PITTSBURGH,[2]
     IN TRUST, NEVERTHELESS, for the following uses and
     purposes to-wit:

          To hold, manage, invest, re-invest, and keep
     invested the same in such securities as the Trustee in
     its sole discretion may deem fit without being limited
     to those investments known as Trust Investments under
     the Laws of the Commonwealth of Pennsylvania, and less
     the expenses incident to the management of the trust
     and a reasonable compensation to the Trustee, to pay
     over the net income in equal shares to my children,
     JOHN, HESTER, CLARA and ROBERT for and during the full
     term of their natural lives. Upon the death of any of
     my said children leaving issue, him or her surviving,
     the income arising from that portion of th[e]
     [p]rincipal to which said child [was] entitled to
     receive the income at the time of his or her death
     shall be paid over equally among such surviving issue
     for and during the full term of their natural lives
     * * * [.] Upon the death of any issue of a deceased
     child of mine while such issue may be entitled to
     receive a portion of income herefrom, the principal of
     the fund represented by that portion of the income
     which such issue was receiving at the time of his or
     her death shall be paid over free and discharged of any
     trust to such persons and in such manner as he or she
     shall by his or her Last Will and Testament designate
     and appoint, and in the absence of such testamentary
     disposition it shall be paid over to those persons who
     are then his or her heirs under the then existing
     Intestate Laws of the Commonwealth of Pennsylvania.

     On November 20, 1933, Ms. Wright died survived by four

children, one of whom was Robert Wright (Mr. Wright), decedent’s

father.   On November 6, 1974, Mr. Wright died survived by six

children (collectively, Mr. Wright’s children).3   Between the


     2
      At a time not disclosed by the record, Mellon Bank, N.A.,
became the successor to the Union Trust Company of Pittsburgh.
     3
      Mr. Wright’s children are decedent, Elizabeth Wright Ander-
son, Ann Wright Curran, Patricia Wright Caldwell, Nancy Roberts
Wright, and Robert McEldowney Wright, Jr.
                               - 4 -

date of Ms. Wright’s death and the date of Mr. Wright’s death,

Mr. Wright received a one-fourth share of the income from the

testamentary trust.   Between the date of Mr. Wright’s death and

the date of decedent’s death on December 27, 1998, decedent

received a one-sixth share of the income from that trust.

     On May 11, 1976, Hester M. Wright (Hester Wright), one of

decedent’s aunts, executed a deed of trust (deed of trust) under

which she created an inter vivos trust (inter vivos trust).    The

deed of trust provided in pertinent part as follows:

               HESTER M. WRIGHT, of the City of Pittsburgh,
     Allegheny County, Pennsylvania, as the Settlor, and
     MELLON BANK, N.A., a national banking association
     authorized to engage in trust business in the Common-
     wealth of Pennsylvania, as the Trustee, hereby agree as
     follows:

       ONE:    The Settlor hereby transfers and delivers to
     the Trustee * * * [certain property] together with all
     her interest therein. The Trustee shall hold said
     property, together with any additions thereto as here-
     inafter provided, as a Trust Estate, shall invest and
     reinvest the same and shall distribute the net income
     (hereinafter called “Income”) and principal as set
     forth in the following provisions.

               (A) During the Settlor’s lifetime, the
     Trustee shall pay the Income quarter-annually to her or
     for her benefit and shall also pay to her such sums
     from principal as she may direct in writing * * *

               (B) Upon the Settlor’s death, the Trustee
     shall pay directly to the taxing authorities or through
     the personal representative of her estate all estate,
     inheritance and other taxes in the nature thereof
     * * *. The Trustee shall also pay to the Settlor’s
     personal representative or shall expend directly, from
     assets other than the proceeds of insurance, such sums
     as said personal representative shall certify as neces-
     sary to supplement the Settlor’s probate estate in
                              - 5 -

     order to pay debts, funeral expenses, legacies and
     administration expenses. Subject to such payment, the
     trust shall continue as follows:

                    (1) During the lifetime of the Settlor’s
     sister, CLARA E. WRIGHT, if she survives [t]he Settlor,
     the Trustee shall pay the Income quarter-annually to
     her or for her benefit * * *

                    (2) Upon the death of the survivor of
     the Settlor and her said sister, the principal shall be
     divided into six equal shares for the Settlor’s nieces
     and nephew, ELIZABETH WRIGHT ANDERSON, SARAH WRIGHT
     GREVE, ANN WRIGHT CURRAN, PATRICIA WRIGHT CALDWELL,
     ROBERT McELDOWNEY WRIGHT, JR., and NANCY ROBERTS
     WRIGHT, and each share shall be held as a separate
     trust. If any of them is not then living, his or her
     share shall be distributed as is hereinbelow provided.

                      (a) During the lifetime of each of
     them, the Trustee shall pay the Income from his or her
     trust quarter-annually to or for the benefit of said
     niece or nephew, and if the Trustee considers the
     Income to be insufficient, in view of other funds
     readily available for such purpose of which it has
     knowledg[e] to provide for the welfare and comfortable
     support of said niece or nephew and his or her family,
     including educational and funera[l] expenses, the
     Trustee is authorized in its discretion to use such
     sums from principal as it deems advisable therefor. In
     addition, the Trustee shall pay to said niece or nephew
     such sums from prin[cipal] as he or she may request in
     writing, not to exceed FIVE THOUSAND ($5,000) DOLLARS
     in any one calendar year[4] on a noncumulative basi[s.]

     On July 21, 1980, Hester Wright died.   On a date not dis-

closed by the record on or after July 21, 1980, Clara E. Wright

(Clara Wright), one of decedent’s aunts, disclaimed her interest



     4
      The deed of trust granted to decedent and Mr. Wright’s
other children the power of appointment with respect to an amount
not to exceed $5,000 from the principal of the inter vivos trust
in any one calender year. For convenience, we shall hereinafter
refer to that amount as $5,000.
                              - 6 -

in the inter vivos trust.

     On December 31, 1981, Mellon Bank, N.A., the trustee under

the deed of trust, and Mr. Wright’s children, who were Hester

Wright’s nieces and nephew, entered into an agreement to amend

the inter vivos trust (agreement to amend the inter vivos trust).

That agreement provided in pertinent part as follows:

          WHEREAS, Hester M. Wright, settlor under the Deed
     of Trust died July 21, 1980; and

          WHEREAS, Clara E. Wright, first life tenant under
     the Deed of Trust, disclaimed all of her interest as
     such life tenant, thereby accelerating the interests of
     the Beneficiaries hereto as successor life tenants; and

          WHEREAS, the Beneficiaries desire that during the
     term of this Agreement the Trustee hold and administer
     the entire trust estate as one fund, rather than divid-
     ing the same into six separately held and administered
     trust funds, one for each Beneficiary.

          NOW, THEREFORE, the parties, intending to be
     legally bound hereby, agree as follows:

          1. Notwithstanding the provisions of Article ONE
     (B)(2) that, on the death of the Settlor and her sis-
     ter, the principal of the trust estate shall be divided
     into six equal separate trusts, the Trustee shall
     during the continuance of this Agreement hold, invest
     and reinvest and otherwise administer the trust estate
     as one fund, distributing the net income in equal
     shares directly to the six Beneficiaries and not
     through the separate trusts.

          2. Notwithstanding the provisions of Article ONE
     (B)(2)(a), the Trustee shall not, during the continu-
     ance of this Agreement, (i) make any distribution of
     principal to any Beneficiary pursuant to its discre-
     tionary powers in this subparagraph or (ii) make any
     distribution of principal to any Beneficiary pursuant
     to such Beneficiary’s power to request sums from prin-
     cipal not to exceed $5,000 in any one calendar year,
     except that at the request of the Attorney-in-Fact
                               - 7 -

     (hereinafter appointed), the Trustee shall make equal
     distributions to each Beneficiary of such sums from
     principal as shall not exceed $5,000 to each Benefi-
     ciary in any one calendar year.

         3. By the execution of this Agreement, each
    Beneficiary hereby appoints ROBERT McE. WRIGHT, JR.[5]
    (the Attorney-in-Fact) as her [sic] attorney-in-fact
    under the Deed of Trust and hereunder:

               (a)   to take any actions and make any deci-
                     sions contemplated to be taken or made
                     by the Beneficiaries and to communicate
                     the same to the Trustee;

               (b)   to communicate to the Trustee the in-
                     vestment objectives of the Beneficiaries
                     with respect to the investment of the
                     principal of the trust fund;

               (c)   to request on behalf of the Beneficia-
                     ries equal distributions from principal
                     not to exceed $5,000 per Beneficiary in
                     any one calendar year, as contemplated
                     in paragraph 2 hereof; and

               (d)   generally to make representations, give
                     consents and act on her [sic] behalf in
                     all dealings with the Trustee under the
                     Deed of Trust and hereunder.

         Each Beneficiary further agrees that this appoint-
    ment of the Attorney-in-Fact shall remain in full force
    and effect until written notice of revocation is given
    to the Trustee or until this Agreement is terminated as
    hereinafter provided.

         4. This Agreement shall terminate upon the hap-
    pening of any of the following events:

               (a)   the death of any Beneficiary;

               (b)   written notice to the Trustee that any


     5
      We presume that Robert McE. Wright, Jr., is Robert
McEldowney Wright, Jr., decedent’s only brother and one of the
beneficiaries under the inter vivos trust.
                               - 8 -

                     Beneficiary desires to terminate the
                     Agreement;

               (c)   written notice by the Trustee to the
                     Attorney-in-Fact that it desires to
                     terminate the Agreement;

               (d)   revocation by any Beneficiary of the
                     appointment of the Attorney-in-Fact.

          If the Agreement shall be terminated by the death
     of, notice of termination by, or revocation of appoint-
     ment of Attorney-in-Fact by any Beneficiary, the re-
     maining Beneficiaries may enter into a new agreement
     with the Trustee upon the terms herein set forth for
     the investment, reinvestment and administration of
     their trusts as one fund as herein provided. The share
     of the Beneficiary dying, giving notice of termination
     or revoking the appointment of Attorney-in-Fact, shall
     be withdrawn from this Agreement and shall be adminis-
     tered, distributed or otherwise disposed of according
     to the terms of the Deed of Trust. Also upon final
     termination of the Agreement (or any new agreement
     referred to above), the trust fund administered under
     this Agreement (or any new agreement) shall be divided
     according to the terms of the Deed of Trust as if this
     Agreement had not been entered into, it being under-
     stood that this Agreement is intended only to relate
     [to] the administration and management of the trust
     estate and not to affect the substantive rights of any
     distributees under the Deed of Trust. The termination
     of the Agreement shall not be an occasion requiring the
     Trustee to file an account covering its administration
     of the trust estate pursuant to this Agreement.

          5. This Agreement shall not affect the Deed of
     Trust in any other respect or the Trustee’s ultimate
     duty to account. During the time this Agreement is in
     effect, the Trustee’s compensation shall reflect the
     fact that the trust estate is being administered as a
     single account.

     Between the date on which Clara Wright disclaimed her

interest in the inter vivos trust and the date of decedent’s

death on December 27, 1998, decedent received a one-sixth share

of the income from the inter vivos trust.
                                - 9 -

     On August 16, 1993, decedent executed her will (decedent’s

will).   Decedent’s will provided in pertinent part as follows:

          I, SARAH W. GREVE, of Pittsburgh, Pennsylvania,
     make, publish and declare this to be my last Will,
     hereby revoking all prior wills.

          FIRST:    I give to my children living at my
     death, so much of my tangible personal property (to-
     gether with any insurance thereon) as they may select
     in approximately equal shares. If any dispute should
     arise among them about such selection, my Executors
     shall have final authority to decide the same. Any
     such property not so selected, shall be sold and the
     proceeds added to my estate hereinafter disposed of.

          SECOND:   I give my remaining entire estate in
     equal shares to my children, per stirpes, subject to
     the minority [relating to beneficiaries under the age
     of 18] provisions hereinafter provided.

     When decedent died on December 27, 1998, she was survived by

six children.

     At a time not disclosed by the record after decedent’s death

and before September 24, 1999, Mellon Bank, N.A., distributed

decedent’s one-sixth share of the principal of the testamentary

trust to decedent’s children.   At a time not disclosed by the

record after decedent’s death and before September 24, 1999,

Mellon Bank, N.A., distributed decedent’s one-sixth share of the

principal of the inter vivos trust to decedent’s children.

     On January 4, 1999, the Register of Wills of Allegheny

County, Pennsylvania, admitted decedent’s will to probate.    On

that date, the executors received letters testamentary with

respect to decedent’s estate.
                              - 10 -

     On September 24, 1999, the executors of decedent’s will

filed in the Orphans’ Court of Allegheny County, Pennsylvania,

what is identified as a disclaimer (purported disclaimer).     The

purported disclaimer provided in pertinent part as follows:

          We are Charles E. Greve and David R. Greve. On
     January 4, 1999, your Honorable Register granted Let-
     ters Testamentary to us as Co-Executors under the Last
     Will and Testament of our late mother, Sarah W. Greve,
     she having died on December 27, 1998.

          In our capacities as Executors under the Last Will
     and Testament of Sarah W. Greve, we hereby disclaim the
     following:

          1.   The Power of Appointment and the right to
               exercise same which was granted to Sarah W.
               Greve under the Last Will and Testament of
               Sarah S. Wright, Deceased, said Last Will and
               Testament having been executed on July 29,
               1933.

               (a)   The asset which would have been the
                     subject of said Power of Appointment
                     which we disclaim herein is a one sixth
                     (1/6) share of the corpus of a Testamen-
                     tary Trust created under said Last Will
                     and Testament of Sarah S. Wright, such
                     share of the corpus previously being
                     held, in trust, by Mellon Bank, N.A.,
                     Successor to the Union Trust Company of
                     Pittsburgh.

          2.   Any Power of Appointment and any right to
               exercise same which was granted to Sarah W.
               Greve under a Deed of Trust of Hester M.
               Wright dated May 11, 1976, [and amended by
               the agreement dated December 31, 1981] [the
               agreement to amend the inter vivos trust].

               (a)   The asset which would have been the
                     subject of said Power of Appointment
                     which we disclaim herein is a one sixth
                     (1/6) share of the corpus of a Deed of
                     Trust created by Hester M. Wright, such
                             - 11 -

                    share of the corpus previously being
                    held, in trust, by Mellon Bank, N.A.

     On September 27, 1999, the estate filed Form 706, United

States Estate (and Generation-Skipping Transfer) Tax Return

(decedent’s estate tax return).       Decedent’s estate tax return did

not include as part of decedent’s total gross estate any amount

with respect to the testamentary trust.         Nor did that return

include as part of decedent’s total gross estate any amount with

respect to the inter vivos trust.      In Schedule H, Powers of

Appointment (Schedule H), included as part of decedent’s estate

tax return, a notation stated “See attached explanation”.         The

estate attached to decedent’s estate tax return a document

identified as an Explanation as to Schedule H-Powers of Appoint-

ment (explanation as to Schedule H).      The explanation as to

Schedule H provided in pertinent part as follows:

          At no time between July 29, 1933, and the date of
     her death did Sarah W. Greve, the Decedent herein, have
     any knowledge or understanding whatsoever that she
     possessed a power of appointment under the Testamentary
     Trust established under the Last Will and Testament of
     her grandmother, Mrs. Wright. For that reason, there
     was absolutely no mention of such Power of Appointment
     in the Last Will and Testament of Sarah W. Greve and
     there was no specific testamentary disposition of the
     assets as to which she had such Power of Appointment.
     Rather, Sarah W. Greve made, in her Last Will and
     Testament, * * * a general residuary bequest and devise
     to her children, per stirpes.

        *       *       *         *         *         *       *

          In mid September 1999, when counsel for the Estate
     of Sarah W. Greve began to prepare this Return, he
     discovered that it might be concluded by the Internal
                             - 12 -

     Revenue Service that the assets which were the subject
     of said Power of Appointment are includable in the
     gross Estate of Sarah W. Greve. For this reason, on
     September 24, 1999, Charles E. Greve and David R.
     Greve, the Executors of the Estate of Sarah W. Greve
     filed a Disclaimer, as to the Estate of Sarah W. Greve,
     as to said Power of Appointment with the Register of
     Wills of Allegheny County, Pennsylvania; and, on that
     same date, such Disclaimer was delivered to Mellon
     Bank, N.A., per Attorney Collins. * * *

          The assets in said Trust and the fair market value
     of those assets on the date when Sarah W. Greve died
     are shown on a document, issued by Mellon Bank, N.A.,
     entitled “Account Assets”. * * * The fair market value
     of a one sixth (1/6) share of said assets is
     $314,612.42.

          It is the position of the Estate of Sarah W. Greve
     that said $314,612.42 should not be included in the
     taxable Estate of Sarah W. Greve because Sarah W. Greve
     did not specifically exercise her Power of Appointment
     in the manner as directed in the Will of Mrs. Wright.

          It is the position of the six (6) children of
     Sarah W. Greve that said $314,612.42 passed to them, in
     equal shares, pursuant to the Will of Mrs. Wright
     because they are the only heirs of Sarah W. Greve under
     the Intestate Laws of the Commonwealth of Pennsylvania.

          Alternatively, if it is determined that the gen-
     eral residuary bequest in the Last Will and Testament
     of Sarah W. Greve constituted such an exercise, it is
     the position of the Estate of Sarah W. Greve that a
     proper and appropriate Disclaimer as to said Power of
     Appointment was timely filed.

The explanation as to Schedule H did not discuss any potential

issue with respect to the power of appointment that decedent had

with respect to $5,000 of the principal of the inter vivos trust.

     Respondent issued a notice of deficiency (notice) to dece-
                              - 13 -

dent’s estate.6   In that notice, respondent determined that

decedent had a general power of appointment with respect to one-

sixth of the principal of the testamentary trust and that dece-

dent exercised that power in decedent’s will.   Consequently,

respondent increased decedent’s total gross estate by $314,612,

which was the date-of-death value that the estate attributed to

such power in the explanation as to Schedule H and which respon-

dent accepted.7   In the notice, respondent further determined

that at the time of her death decedent had the power to withdraw

$5,000 from the principal of the inter vivos trust and that that

power was a general power of appointment.   Consequently, respon-

dent increased decedent’s total gross estate by $5,000.

                              OPINION

     The parties do not address section 7491(a).   The estate

filed decedent’s estate tax return on September 27, 1999.      We

presume that respondent’s examination of that return commenced

after July 22, 1998, and that section 7491(a) is applicable in

the instant case.   The estate has failed to establish that it


     6
      In the notice, respondent determined to allow all of the
expenses that the estate claimed in Schedule J, Funeral Expenses
and Expenses Incurred in Administering Property Subject to
Claims, included as part of decedent’s estate tax return. The
parties stipulated that as a result of the instant case the
estate has incurred certain additional expenses that are deduct-
ible.
     7
      The parties stipulated that the value of one-sixth of the
principal of the testamentary trust on the date of decedent’s
death was $320,732.11, and not $314,612.
                               - 14 -

satisfies section 7491(a)(2)(A) and (B) with respect to any

factual issue relating to respondent’s deficiency determinations

that remains in this case.    On the record before us, we conclude

that the estate’s burden of proof on any such issue, see Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933), does not

shift to respondent under section 7491(a).

     We turn first to the power of appointment that decedent had

with respect to one-sixth of the principal of the testamentary

trust.    For the first time on brief, the estate advances the

position that, pursuant to the testamentary trust, decedent had a

special power of appointment, and not a general power of appoint-

ment, with respect to that portion of the principal of that

trust.8   The estate does not cite any Code section, Treasury

regulation, or caselaw in support of its position.9   Instead, the

     8
      We conclude that the estate’s position on brief that dece-
dent had a special power of appointment, and not a general power
of appointment, with respect to one-sixth of the principal of the
testamentary trust raises a new issue. However, respondent does
not object to, and we find no prejudice to respondent as a result
of, the estate’s raising that issue for the first time on brief.
     9
      The estate acknowledges that if the Court were to find that
decedent had a general power of appointment with respect to one-
sixth of the principal of the testamentary trust, under Pennsyl-
vania law decedent exercised that power through the residuary
clause in her will. In that event, the estate would concede that
the portion of that principal subject to that power is includible
in decedent’s gross estate under sec. 2041(a)(1). The estate’s
position with respect to Pennsylvania law, see sec. 20.2041-1(d),
Estate Tax Regs., accurately reflects that under Pennsylvania law
an individual who has a general power of appointment may exercise
that power through the residuary clause in that individual’s
will. See 20 Pa. Cons. Stat. Ann. sec. 2514 (13) (West Supp.
                                                   (continued...)
                             - 15 -

estate argues:

          Pursuant to said Testamentary Trust [the testamen-
     tary trust created in Ms. Wright’s will], the death of
     any of the six children of Robert Wright had the effect
     of terminating the Trust as to the principal comprising
     said Testamentary Trust represented by that portion of
     the income therefrom which such child had been receiv-
     ing prior to her death.

          Pursuant to said Testamentary Trust, the recipi-
     ent(s) of that principal were, as to such deceased
     child of Robert Wright, here, Mrs. Greve, such persons
     as Mrs. Greve shall by her Last Will and Testament,
     designate and appoint.

         *       *      *       *       *       *         *

          It is respectfully submitted that the above de-
     scribed Trust termination language constituted a spe-
     cial and not a general power of appointment in favor of
     Mrs. Greve.

          Pursuant to the clear language of said Trust
     termination provision, Mrs. Greve was required to
     designate and appoint persons to take that principal.
     The word “designate” is defined, in Websters New Colle-
     giate Dictionary, as to distinguish or to indicate and
     set apart for a specific purpose or to denote. The
     word “appoint” is defined, in Websters New Collegiate
     Dictionary, as to fix or set officially or to name
     officially.

          It is respectfully submitted that nowhere in her
     Will did Mrs. Greve fulfill the express requirement in
     said Trust termination language that she had to “desig-
     nate and appoint” persons to take the specified portion
     of the principal in said Testamentary Trust over which
     she had control by her Will.

          In summary, Mrs. Greve did not receive a general
     power of appointment in the Testamentary Trust created
     by Mrs. Wright. What she received was the right to
     specifically designate and appoint those persons who
     would take principal. She completely failed so to do;

     9
      (...continued)
2003); In re Estate of Jaekel, 424 Pa. 433, 438 (1967).
                               - 16 -

     as such, pursuant to said Testamentary Trust * * * that
     principal is not an asset of the Estate of Mrs. Greve
     for federal estate tax purposes. [Reproduced liter-
     ally.]

     It is respondent’s position that decedent had a general

power of appointment with respect to one-sixth of the principal

of the testamentary trust; under Pennsylvania law decedent

exercised that power through the residuary clause in her will;

and consequently that portion of the testamentary trust is

includible in decedent’s gross estate under section 2041(a)(1).

     Section 2041 provides in pertinent part as follows:

     SEC. 2041.    POWERS OF APPOINTMENT.

          (a) In General.--The value of the gross estate
     shall include the value of all property--

               (1) Powers of appointment created on or
     before October 21, 1942.-–To the extent of any
     property with respect to which a general power of
     appointment created on or before October 21, 1942, is
     exercised by the decedent--

                      (A) by will * * *

        *         *       *      *          *     *       *

            (b) Definitions.–-For purposes of subsection (a)--

               (1) General power of appointment.–-The term
     “general power of appointment” means a power which is
     exercisable in favor of the decedent, his estate, his
     creditors, or the creditors of his estate * * *

     The regulations under section 2041 provide the following

definition of the term “power of appointment”:

          (b) Definition of “power of appointment”–-(1) In
     general. The term “power of appointment” includes all
     powers which are in substance and effect powers of
                             - 17 -

     appointment regardless of the nomenclature used in
     creating the power and regardless of local property law
     connotations. For example, if a trust instrument
     provides that the beneficiary may appropriate or con-
     sume the principal of the trust, the power to consume
     or appropriate is a power of appointment. * * *

Sec. 20.2041-1(b)(1), Estate Tax Regs.

     The regulations under section 2041(b)(1) elaborate as

follows on the definition of the term “general power of appoint-

ment” set forth in that section:

          (c) Definition of “general power of appointment”–-
     (1) In general. The term “general power of appoint-
     ment” as defined in section 2041(b)(1) means any power
     of appointment exercisable in favor of the decedent,
     his estate, his creditors, or the creditors of his
     estate, except (i) joint powers, to the extent provided
     in § § 20.2041-2 and 20.2041-3 * * * A power of ap-
     pointment is not a general power if by its terms it is
     either--

          (a) Exercisable only in favor of one or more
     designated persons or classes other than the decedent
     or his creditors, or the decedent’s estate or the
     creditors of his estate, or

          (b) Expressly not exercisable in favor of the
     decedent or his creditors, or the decedent’s estate or
     the creditors of his estate.

Sec. 20.2041-1(c)(1), Estate Tax Regs.

     Although the estate’s position on brief regarding the power

of appointment with respect to one-sixth of the principal of the

testamentary trust is difficult to understand, as best we can

comprehend it, the estate’s position is that, because the testa-

mentary trust gave to decedent the power to “designate and

appoint” in her will the persons to take one-sixth of the princi-
                              - 18 -

pal of the testamentary trust, decedent had a special power of

appointment.   We reject the estate’s position.

     The testamentary trust created under Ms. Wright’s will

provided in pertinent part as follows:

     Upon the death of any of my said children leaving
     issue, him or her surviving, the income arising from
     that portion of th[e] [p]rincipal to which said child
     [was] entitled to receive the income at the time of his
     or her death shall be paid over equally among such
     surviving issue for and during the full term of their
     natural lives * * * [.] Upon the death of any issue of
     a deceased child of mine while such issue may be enti-
     tled to receive a portion of income herefrom, the
     principal of the fund represented by that portion of
     the income which such issue was receiving at the time
     of his or her death shall be paid over free and dis-
     charged of any trust to such persons and in such manner
     as he or she shall by his or her Last Will and Testa-
     ment designate and appoint, and in the absence of such
     testamentary disposition it shall be paid over to those
     persons who are then his or her heirs under the then
     existing Intestate Laws of the Commonwealth of Pennsyl-
     vania. [Emphasis added.]

      The above-quoted underscored language in the testamentary

trust gave decedent the unlimited power to appoint through her

will one-sixth of the principal of that trust in favor of whom-

ever decedent desired.   We conclude that the foregoing power is a

general power of appointment (i.e., a power of appointment

exercisable in favor of decedent’s estate, decedent’s creditors,

or the creditors of decedent’s estate).   See sec. 2041(b)(1);

Martin v. United States, 780 F.2d 1147, 1148 (4th Cir. 1986); see

also sec. 20.2041-1(c)(1)(a) and (b), Estate Tax Regs.   As

discussed supra note 9, the estate acknowledges that if the Court
                              - 19 -

were to find that decedent had a general power of appointment

with respect to one-sixth of the principal of the testamentary

trust, under Pennsylvania law decedent exercised that power

through the residuary clause in her will, and one-sixth of the

principal of that trust (i.e., $320,732.11) is includible in

decedent’s gross estate under section 2041(a)(1).10

     We turn now to the power of appointment that decedent had

with respect to $5,000 of the principal of the inter vivos trust.

For the first time on brief, the estate advances the position

that, pursuant to the agreement to amend the inter vivos trust,

under section 2041(b)(1)(C)(ii) decedent did not have at the time

of her death a general power of appointment with respect to

$5,000 of the principal of that trust.11   In support of its


     10
      The estate may also be arguing on brief that decedent did
not exercise the power of appointment that decedent had with
respect to one-sixth of the principal of the testamentary trust
because she did not specifically name any beneficiaries of that
power in her will. We reject any such argument. Decedent’s will
provided in pertinent part as follows:

          SECOND:   I give my remaining entire estate in
     equal shares to my children, per stirpes * * *.

As discussed supra note 9, the estate has acknowledged, and we
have found, that under Pennsylvania law an individual who has a
general power of appointment may exercise that power through the
residuary clause in that individual’s will.
     11
      We conclude that the estate’s position on brief that under
sec. 2041(b)(1)(C)(ii) decedent did not have at the time of her
death a general power of appointment with respect to $5,000 of
the principal of the inter vivos trust raises a new issue.
However, respondent does not object to, and we find no prejudice
                                                   (continued...)
                                 - 20 -

position, the estate argues:

          By an Agreement executed on December 31, 1981,
     between Mellon, the Trustee as to the Deed of Trust and
     the six beneficiaries named in the Deed of Trust:

              A.   The six separate trusts for each such benefi-
                   ciary were merged into one fund.

              B.   No principal whatsoever from such single fund
                   could be distributed to any beneficiary ex-
                   cept that at the request of Robert E. Wright,
                   the attorney in fact for each beneficiary,
                   Mellon was required to make equal distribu-
                   tions of principal to each beneficiary not to
                   exceed $5,000.00 to each.

              C.   Although all said beneficiaries had the power
                   to direct said attorney in fact to request
                   such distribution of principal, no one of
                   them had such right.

          The effect of the above provisions is that Mrs.
     Greve could only withdraw $5,000.00 per year from the
     now single trust established in the Deed of Trust in
     conjunction with five persons each of whom having a
     substantial interest in such single trust and each of
     whom, for this purpose, having an interest in such
     single trust which was adverse to exercise of the power
     in favor of Mrs. Greve.

          Clearly, no one beneficiary of such single trust
     was given the right to unilaterally withdraw principal
     therefrom to the exclusion of any other beneficiary
     because any such unilateral withdrawal would adversely
     affect the other beneficiaries.

          *        *       *       *       *       *       *

          It is respectfully submitted, by reason of * * *
     [section 2041(b)(1)(C)(ii)] that Mrs. Greve did not
     possess a general power of appointment as to said
     $5,000.00 and that such sum is not an asset of her


     11
      (...continued)
to respondent as a result of, the estate’s raising that issue for
the first time on brief.
                               - 21 -

     gross Estate.    [Reproduced literally.]

     It is respondent’s position that decedent had at the time of

her death a general power of appointment with respect to $5,000

of the principal of the inter vivos trust and that consequently

$5,000 is includible in decedent’s gross estate under section

2041(a)(2).   In support of that position, respondent argues:

          Petitioner contends that by virtue of an agreement
     executed by all of the then living beneficiaries of the
     inter vivos trust and the trustee after the death of
     the settlor, Decedent did not have the right to with-
     draw $5,000 of trust principal at her death and there-
     fore did not possess a general power of appointment
     over that amount. Respondent disagrees as to the
     effect of the agreement.

          The agreement entered into by the beneficiaries
     did bar the beneficiaries from withdrawing $5,000 of
     trust principal while the agreement was in effect.
     However, the agreement terminated by its terms on the
     happening of any of four events, including the death of
     a beneficiary. Pursuant to the terms of the agreement,
     when a beneficiary died, her share was withdrawn from
     the agreement and disposed of according to the original
     trust document. The agreement terminated when Decedent
     herein died, if not earlier, and Decedent possessed at
     her death the right to withdraw $5,000 of trust princi-
     pal. Accordingly, that amount is includible in her
     estate pursuant to I.R.C. § 2041(a)(2). [Fn. ref.
     omitted.]

     Section 2041 provides in pertinent part as follows:

     SEC. 2041.    POWERS OF APPOINTMENT.

          (a) In General.--The value of the gross estate
     shall include the value of all property--

        *         *       *      *          *    *       *

                 (2) Powers created after October 21, 1942.--To
            the extent of any property with respect to which the
            decedent has at the time of his death a general power
                               - 22 -

            of appointment created after October 21, 1942 * * *

     Section 2041(b)(1)(C)(ii) excepts, inter alia, the following

power of appointment from the definition of the term “general

power of appointment” in section 2041(b)(1):

                 (C) In the case of a power of appointment
            created after October 21, 1942, which is
            exercisable by the decedent only in conjunction
            with another person--

        *        *       *       *       *        *       *

                      (ii) If the power is not exercisable by
            the decedent 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 decedent–-such power
            shall not be deemed a general power of
            appointment. For the purposes of this clause a
            person who, after the death of the decedent, may
            be possessed of a power of appointment (with
            respect to the property subject to the decedent’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 decedent’s power.

     The regulations under section 2041(b)(1)(C)(ii) elaborate as

follows on the power of appointment described in that section:

          (c) Joint powers created after October 21, 1942.
     The treatment of a power of appointment created after
     October 21, 1942, which is exercisable only in
     conjunction with another person is governed by section
     2041(b)(1)(C), which provides as follows:

        *         *       *       *       *       *       *

          (2) Such power is not considered a general power
     of appointment if it is not exercisable by the decedent
     except with the consent or joinder of a person having a
     substantial interest in the property subject to the
     power which is adverse to the exercise of the power in
     favor of the decedent, his estate, his creditors, or
                              - 23 -

     the creditors of his estate. An interest adverse to
     the exercise of a power is considered as substantial if
     its value in relation to the total value of the
     property subject to the power is not insignificant.
     For this purpose, the interest is to be valued in
     accordance with the actuarial principles set forth in §
     20.2031-7 or, if it is not susceptible to valuation
     under those provisions, in accordance with the general
     principles set forth in § 20.2031-1. A taker in
     default of appointment under a power has an interest
     which is adverse to an exercise of the power. A
     coholder of the power has no adverse interest merely
     because of his joint possession of the power nor merely
     because he is a permissible appointee under a power.
     However, a coholder of a power is considered as having
     an adverse interest where he may possess the power
     after the decedent’s death and may exercise it at that
     time in favor of himself, his estate, his creditors, or
     the creditors of his estate.

Sec. 20.2041-3(c), Estate Tax Regs.

     In support of its position that, pursuant to the agreement

to amend the inter vivos trust, under section 2041(b)(1)(C)(ii)

decedent did not have at the time of her death a general power of

appointment with respect to $5,000 of the principal of the inter

vivos trust, the estate relies on the agreement to amend the

inter vivos trust which was entered into by Mellon Bank, N.A.,

and decedent and Mr. Wright’s other children, who were Hester

Wright’s nieces and nephew.   We reject the estate’s position.

     The deed of trust provided in pertinent part as follows:

          (a) * * * In addition, the Trustee shall pay to
     said niece or nephew such sums from prin[cipal] as he
     or she may request in writing, not to exceed FIVE
     THOUSAND ($5,000) DOLLARS in any one calendar year on a
     noncumulative basi[s.]

     The agreement to amend the inter vivos trust provided in
                                 - 24 -

pertinent part as follows:

          4. This Agreement shall terminate upon the
     happening of any of the following events:

                  (a)   the death of any Beneficiary;

                  (b)   written notice to the Trustee that any
                        Beneficiary desires to terminate the
                        Agreement;

                  (c)   written notice by the Trustee to the
                        Attorney-in-Fact that it desires to
                        terminate the Agreement;

                  (d)   revocation by any Beneficiary of the
                        appointment of the Attorney-in-Fact.

          If the Agreement shall be terminated by the death
     of * * * any Beneficiary * * * The share of the
     Beneficiary dying * * * shall be withdrawn from this
     Agreement and shall be administered, distributed or
     otherwise disposed of according to the terms of the
     Deed of Trust. * * *

     We note initially that the agreement to amend the inter

vivos trust provided that it was intended to relate only to the

administration and management of the principal of that trust and

not to affect the substantive rights of any distributees under

the deed of trust.      Moreover, assuming arguendo that each of the

beneficiaries of the inter vivos trust other than decedent had an

interest in $5,000 of the principal of that trust that was

substantial and that was adverse to decedent’s interest and that

the agreement to amend the inter vivos trust had not terminated

before decedent’s death,12 pursuant to its terms, that agreement


     12
          The estate has failed to carry its burden of establishing
                                                       (continued...)
                             - 25 -

to amend terminated upon decedent’s death, and decedent’s share

(i.e., $5,000 of the principal of the inter vivos trust) was

withdrawn from that agreement and was disposed of according to

the terms of the deed of trust.    Thus, even under the foregoing

assumptions, we conclude that decedent had a general power of

appointment in favor of herself with respect to $5,000 of the

principal of the inter vivos trust.    See sec. 2041(b)(1).   On the

record before us, we find that decedent had at the time of her

death a general power of appointment with respect to $5,000 of

the principal of the inter vivos trust.    We hold that $5,000 is

includible in decedent’s gross estate under section 2041(a)(2).

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.




     12
      (...continued)
that the agreement to amend the inter vivos trust had not termi-
nated before decedent’s death by (1) written notice by any
beneficiary to the trustee that that beneficiary desired to
terminate that agreement, (2) written notice by the trustee to
the attorney-in-fact that the trustee desired to terminate that
agreement, and/or (3) revocation by any beneficiary of the
appointment of the attorney-in-fact.
