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It does not matter whether the power

How To Complete Schedule G

With the above exceptions, property

was reserved at the time of the transfer,

subject to a power of appointment is not

All transfers (other than outright transfers

whether it arose by operation of law, or

includible in the gross estate if the

not in trust and bona fide sales) made by

decedent released the power completely

was later created or conferred. The rule

the decedent at any time during life must

applies regardless of the source from

and the decedent held no interest in or

be reported on the Schedule, regardless

control over the property.

which the power was acquired, and

of whether you believe the transfers are

regardless of whether the power was

If the failure to exercise a general

subject to tax. If the decedent made any

exercisable by the decedent alone or with

power of appointment results in a lapse of

transfers not described in the instructions

any person (and regardless of whether

the power, the lapse is treated as a

above, the transfers should not be shown

that person had a substantial adverse

release only to the extent that the value of

on Schedule G. Instead, attach a

interest in the transferred property).

the property that could have been

statement describing these transfers by

appointed by the exercise of the lapsed

The capacity in which the decedent

listing:

•

could use a power has no bearing. If the

power is more than the greater of $5,000

The date of the transfer,

•

or 5% of the total value, at the time of the

decedent gave property in trust and was

The amount or value of the transferred

lapse, of the assets out of which, or the

the trustee with the power to revoke the

property, and

•

proceeds of which, the exercise of the

trust, the property would be included in

The type of transfer.

lapsed power could have been satisfied.

his or her gross estate. For transfers or

Complete the schedule for each

additions to an irrevocable trust after

Powers of Appointment

transfer that is included in the gross

October 28, 1979, the transferred

estate under sections 2035(a), 2036,

A power of appointment determines who

property is includible if the decedent

2037, and 2038 as described in the

will own or enjoy the property subject to

reserved the power to remove the trustee

Instructions for Schedule G above.

the power and when they will own or

at will and appoint another trustee.

enjoy it. The power must be created by

In the “Item number” column, number

If the decedent relinquished within 3

someone other than the decedent. It does

each transfer consecutively beginning

years of death any of the includible

not include a power created or held on

with “1.” In the “Description” column, list

powers described above, figure the gross

property transferred by the decedent.

the name of the transferee, the date of

estate as if the decedent had actually

the transfer, and give a complete

A power of appointment includes all

retained the powers until death.

description of the property. Transfers

powers which are in substance and effect,

Only the part of the transferred

included in the gross estate should be

powers of appointment regardless of how

property that is subject to the decedent’s

valued on the date of the decedent’s

they are identified and regardless of local

power is included in the gross estate.

death or, if alternate valuation is adopted,

property laws. For example, if a settlor

For more detailed information on which

according to section 2032.

transfers property in trust for the life of his

transfers are includible in the gross

wife, with a power in the wife to

If only part of the property transferred

estate, see the Estate Tax Regulations.

appropriate or consume the principal of

meets the terms of section 2035(a), 2036,

the trust, the wife has a power of

2037, or 2038, then only a corresponding

appointment.

Special Valuation Rules for

part of the value of the property should be

Certain Lifetime Transfers

included in the value of the gross estate.

Some powers do not in themselves

If the transferee makes additions or

constitute a power of appointment. For

Code sections 2701 through 2704 provide

improvements to the property, the

example, a power to amend only

rules for valuing certain transfers to family

increased value of the property at the

administrative provisions of a trust that

members.

valuation date should not be included on

cannot substantially affect the beneficial

Schedule G. However, if only a part of the

Section 2701 deals with the transfer of

enjoyment of the trust property or income

value of the property is included, enter the

an interest in a corporation or partnership

is not a power of appointment. A power to

value of the whole under the column

while retaining certain distribution rights,

manage, invest, or control assets, or to

headed “Description” and explain what

allocate receipts and disbursements,

or a liquidation, put, call, or conversion

part was included.

right.

when exercised only in a fiduciary

capacity, is not a power of appointment.

Attachments. If a transfer, by trust or

Section 2702 deals with the transfer of

General power of appointment. A

otherwise, was made by a written

an interest in a trust while retaining any

instrument, attach a copy of the

general power of appointment is a power

interest other than a qualified interest. In

that is exercisable in favor of the

instrument to Schedule G. If the copy of

general, a qualified interest is a right to

the instrument is of public record, it

decedent, the decedent’s estate, the

receive certain distributions from the trust

decedent’s creditors, or the creditors of

should be certified; if not of public record,

at least annually, or a noncontingent

the copy should be verified.

the decedent’s estate, except:

remainder interest if all of the other

1. A power to consume, invade, or

interests in the trust are distribution rights

Instructions for Schedule

appropriate property for the benefit of the

specified in section 2702.

decedent that is limited by an

H. Powers of Appointment

Section 2703 provides rules for the

ascertainable standard relating to health,

valuation of property transferred to a

Complete Schedule H and file it with the

education, support, or maintenance of the

return if you answered “Yes” to line 13 of

family member but subject to an option,

decedent.

agreement, or other right to acquire or

Part 4, General Information.

2. A power exercisable by the

use the property at less than FMV. It also

decedent only in conjunction with:

On Schedule H, include in the gross

applies to transfers subject to restrictions

a. the creator of the power, or

estate:

•

on the right to sell or use the property.

b. a person who has a substantial

The value of property for which the

interest in the property subject to the

decedent possessed a general power of

Finally, section 2704 provides that in

power, which is adverse to the exercise of

appointment (defined below) on the date

certain cases, the lapse of a voting or

the power in favor of the decedent.

of his or her death; and

liquidation right in a family-owned

•

The value of property for which the

corporation or partnership will result in a

A part of a power is considered a

decedent possessed a general power of

deemed transfer.

general power of appointment if the

appointment that he or she exercised or

power:

These rules have potential

released before death by disposing of it in

consequences for the valuation of

such a way that if it were a transfer of

1. May only be exercised by the

property in an estate. If the decedent (or

property owned by the decedent, the

decedent in conjunction with another

any member of his or her family) was

property would be includible in the

person; and

involved in any such transactions, see

decedent’s gross estate as a transfer with

2. Is also exercisable in favor of the

Code sections 2701 through 2704 and the

a retained life estate, a transfer taking

other person (in addition to being

related regulations for additional details.

effect at death, or a revocable transfer.

exercisable in favor of the decedent, the

-14-

Instructions for Schedules

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2005 Page 14

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