§ 13697. Inter Vivos Exercise, Release, Lapse and Disclaimer of Powers.
18 CA ADC § 13697Barclays Official California Code of Regulations
18 CCR § 13697
§ 13697. Inter Vivos Exercise, Release, Lapse and Disclaimer of Powers.
Under Revenue and Taxation Code Section 13697 property subject to a general power of appointment is a transfer subject to inheritance tax even though the deceased donee of the power does not have the power at the date of his death, if during his life he exercised or released the power under circumstances such that if it was a transfer of property owned by the decedent such transfer would be subject to tax under Revenue and Taxation Code Sections 13641 through 13648. A lapse of a general power of appointment is considered to be a release of the power to the extent set forth in subparagraph (b) herein. An unequivocal disclaimer or renunciation of a general power of appointment is not considered to be a release for this purpose.
The failure to exercise a power of appointment within a specified time, so that the power lapses, constitutes a release of the power. However, Revenue and Taxation Code Section 13697 provides that such a lapse during any calendar year of decedent's life is treated as a release only to the extent that the property which could have been appointed by exercise of such lapsed power exceeds the greater of (i) $5,000 or (ii) 5 percent of the aggregate value, at the time of the lapse, of the assets out of which, or the proceeds of which, the exercise of the lapsed power could have been satisfied.
This regulation may be illustrated by the following examples:
EXAMPLE (1).
A transferred property worth $200,000 in trust providing for payment of income to D for life with remainder to D's issue. D had a noncumulative right to withdraw $10,000 a year from the principal of the trust fund (which neither increased nor decreased in value prior to D's death). The failure of D to exercise his right of withdrawal will not result in an inter vivos transfer subject to inheritance tax with respect to the power to withdraw $10,000 which lapses each year before the year of D's death inasmuch as it does not exceed 5 percent of the principal of the trust at the time of the lapse. At D's death there will be subjected to tax by virtue of his possession of the power at death the $10,000 which he was entitled to withdraw for the year of his death less any amount which he may have taken during that year.
EXAMPLE (2).
If in the preceding example D had possessed the right to withdraw $15,000 of the principal annually, the failure to exercise such power in any calendar year will be considered a release of the power to the extent of the excess of the amount subject to withdrawal over 5 percent of the trust fund (in this example, $5,000, assuming the trust fund is worth $200,000 at the time of the lapse). Since each lapse is treated as though D had exercised dominion over the trust property by making a transfer of principal reserving the income therefrom for his life, the value of the trust property is taxable at D's death as a transfer with a reserved life estate but only to the extent of the excess of the amount subject to withdrawal over $5,000 or 5% of the trust fund whichever is greater.
Where the lapse of a power of appointment is includible as a transfer at decedent's death the amount taxed is determined as that portion of the date of death value of the trust corpus which the taxable portion at the date of the lapse bears to the corpus at that time. For example, if the life beneficiary of a trust had a right exercisable only during one calendar year to withdraw $50,000 from the corpus of a trust, which he did not exercise, and if at the end of the year the corpus was worth $800,000, the taxable portion over which the power lapsed is $10,000 (the excess of $50,000 over 5 percent of the corpus), or 1/80 of the total value. On the decedent's death, if the total value of the corpus(excluding income accumulated after the lapse of the power) was $1,200,000, 1/80 or $15,000 would be includible as a taxable transfer. However, if the total value was then $600,000, only $7,500 ( 1/80 of $600,000) would be includible.
If the failure to exercise a power, such as a right of withdrawal, occurs in more than a single year, the proportion of the property over which the power lapsed which is treated as a taxable disposition will be determined separately for each such year. The aggregate of the taxable proportion for all such years, valued in accordance with the above principles, will be includible as a taxable transfer by reason of the lapse. The includible amount, however, shall not exceed the aggregate value of the assets out of which, or the proceeds of which, the exercise of the power could have been satisfied, valued as of the date of the decedent's death.
A disclaimer or renunciation of a general power of appointment is not deemed to be a release of the power. The disclaimer or renunciation must be unequivocal. A disclaimer is a complete and unqualified refusal to accept the rights to which one is entitled. There can be no disclaimer or renunciation of a power after its acceptance. In the absence of facts to the contrary, the failure to renounce or disclaim within a reasonable time after learning of its existence will be presumed to constitute an acceptance of the power. The disclaimer of a power on or after August 16, 1972 must comply in manner and form to the provisions of Chapter 11 (commencing with Section 190) of Division 1 of the Probate Code.
Note: Reference: Section 13697, Revenue and Taxation Code.
This database is current through 5/10/24 Register 2024, No. 19.
Cal. Admin. Code tit. 18, § 13697, 18 CA ADC § 13697
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