(a) In General.

The term “power of appointment” includes all powers which are in substance and effect powers of appointment regardless of the nomenclature used in creating the power. For example, if a trust instrument provides that the beneficiary may appropriate or consume the principal of the trust, the power to consume or appropriate is a power of appointment. Similarly, a power given to a decedent to affect the beneficial enjoyment of trust property or its income by altering, amending or revoking the trust instrument or terminating the trust is a power of appointment; except that a power granted to a trustee to make discretionary payments of principal or income to or for the benefit of a trust beneficiary (or beneficiaries) other than the trustee, including the power to terminate the trust, in whole or in part, is not taxed as a power of appointment. (See Section 13694(b)). A power in a donee to remove or discharge a trustee and appoint himself may be a power of appointment. For example, if under the term of a trust, the trustee or his successor has the power to appoint the principal or income of the trust for the benefit of individuals including himself, and the decedent has the unrestricted power to remove or discharge the trustee and appoint any other persons including himself, the decedent is considered as having a power of appointment. However, the decedent is not considered to have a power of appointment if he only had the power to appoint a successor trustee, including himself, under limited conditions which did not exist at the time of his death without an accompanying unrestricted power of removal. A power to amend only the administrative provisions of a trust which cannot affect the beneficial enjoyment of the trust property or income is not a power of appointment. The mere power of management, investment, custody of assets, or the power to allocate receipts or disbursements between income and principal, exercisable in a fiduciary capacity, whereby the holder has no power to enlarge or shift any of the beneficial interests therein is not a power of appointment. Further, the right in a beneficiary of a trust to assent to a periodic accounting, thereby relieving the trustee from further accountability, is not a power of appointment if the right of assent does not consist of any power or right to enlarge or shift the beneficial interest of any beneficiary therein. Deposits of a husband and wife made in their names to a joint trustee account with power to revoke are treated as in joint tenancy upon the death of the first spouse to die and not as a transfer of a power of appointment to the surviving spouse, per Revenue and Taxation Code Section 13671.

(b) Relation to Other Sections.

For purposes of these regulations the term “power of appointment” does not include powers reserved by the decedent to himself within the concept of Revenue and Taxation Code Sections 13643, 13644 and 13646. No provisions of Revenue and Taxation Code Sections 13691 through 13701 or of these regulations is to be construed as in any way limiting the application of any other section of the Inheritance Tax Law or of these regulations. The power of the owner of a property interest already possessed by him to dispose of his interest and nothing more, is not a power of appointment, but the transfer of such interest is subject to tax insofar as other provisions of Article 3 of Chapter 4 of the Inheritance Tax Law may be applicable.

(c) Powers over a Portion of Property.

If a power of appointment exists as to part of an entire group of assets or only over a limited interest in property, Revenue and Taxation Code Sections 13691 through 13701 apply only to such part or interest. For example, if a trust created by D provided for payment of income to A for life then to B for life, with power in A to appoint the remainder by will and in default of appointment for payment of the remainder to X, and if A dies before B the sections apply only to the value of the remainder excluding B's life estate. If A dies after B the sections apply to the entire property. If the power is restricted to only one-half the remainder, the sections apply only to one-half the value of the interests described above.

(d) Definition of “Exercise” of Power of Appointment.

Whether a power of appointment is in fact exercised depends upon the general law applicable to the particular situation. The manner in which powers of appointment may be exercised is provided in Chapters 4-8 (commencing with Section 1384.1), Title 7, Part 4, Division 2 of the Civil Code. A valid exercise designates the appointed person or persons to whom the transfer is made from the donee of the power, and upon such a transfer the taxability or nontaxability is determined. In the case of a failure to exercise the power the transfer upon which the tax is determined is from the donee of the power to the person or persons who take in default of the exercise thereof.

Note: Reference: Section 13692, Revenue and Taxation Code.