How is a testamentary general power of appointment taxed?

How is a testamentary general power of appointment taxed?

• A. Only the income is taxed if the power is exercised
• B. The full value of the property is included in the holder's estate
• C. It is not taxed until the power is exercised
• D. Only capital gains are taxed at the time of distribution

Answer: (B)

A testamentary general power of appointment is an estate planning tool that allows an individual to designate who will receive their property upon their death. When the holder of this power dies, the value of the property subject to the power is included in their gross estate for estate tax purposes. This inclusion occurs because the donor (the original owner of the property) has given the holder complete control over the disposition of the property, meaning that the holder of the power has the ability to determine who receives the property and under what conditions. As a result, the full value of the property is subject to estate taxes at the time of the holder's death, reflecting the idea that they had the effective ownership of that property. Understanding this concept is crucial in estate planning, as it affects how the property's value is handled for tax purposes and influences the overall estate tax liability.

A testamentary general power of appointment is an estate planning tool that allows an individual to designate who will receive their property upon their death. When the holder of this power dies, the value of the property subject to the power is included in their gross estate for estate tax purposes. This inclusion occurs because the donor (the original owner of the property) has given the holder complete control over the disposition of the property, meaning that the holder of the power has the ability to determine who receives the property and under what conditions. As a result, the full value of the property is subject to estate taxes at the time of the holder's death, reflecting the idea that they had the effective ownership of that property.

Understanding this concept is crucial in estate planning, as it affects how the property's value is handled for tax purposes and influences the overall estate tax liability.