Estate of Alperstein v. Commissioner
71 T.C. 351, 1978 U.S. Tax Ct. LEXIS 14 (1978)
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Rule of Law:
For purposes of federal estate tax, a decedent's gross estate includes property over which the decedent possessed a general power of appointment at the time of death, regardless of the decedent's legal or mental incapacity to exercise that power.
Facts:
- Harry Alperstein died on July 6, 1967, and his will established a trust for his wife, Fannie Alperstein.
- Harry's will granted Fannie a general testamentary power of appointment, allowing her to designate in her own will who would receive the principal of the trust upon her death.
- From the date of Harry's death until her own, Fannie Alperstein lacked the requisite testamentary capacity to execute a valid will.
- On December 27, 1967, a court judicially declared Fannie incompetent to manage herself and her affairs, a status that remained in effect until her death.
- Fannie died intestate on December 3, 1972, without ever having purported to exercise the power of appointment.
Procedural Posture:
- The Internal Revenue Service (Respondent) determined a deficiency in the estate tax of the Estate of Fannie Alperstein.
- The Estate of Fannie Alperstein (Petitioner) filed a petition in the United States Tax Court, a court of first instance, to challenge the deficiency.
- The parties settled certain issues, leaving the single issue of the power of appointment for decision by the Tax Court.
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Issue:
Does a decedent's mental incompetency, which renders her unable to exercise a testamentary general power of appointment from the time of its creation until her death, prevent the property subject to that power from being included in her gross estate under section 2041(a)(2) of the Internal Revenue Code?
Opinions:
Majority - Judge Featherston
No. A decedent's mental incompetency does not prevent the inclusion of property subject to a general power of appointment in her gross estate. The term 'exercisable' as used in section 2041 refers to the existence of the power in the decedent, not their practical or legal capacity to exercise it. Under New York law, an incompetent person can still legally possess a power of appointment, and there always remained the legal possibility, however remote, that Fannie could have had a lucid interval and executed a valid will. The court reasoned that since Fannie possessed the power at the time of her death, its value is includable in her estate, consistent with precedent in cases like Fish v. United States and Estate of Bagley v. United States, which hold that taxability depends on the existence of the power, not the decedent's ability to exercise it at a particular moment.
Analysis:
This decision solidifies the legal principle that for estate tax purposes, the inquiry into a power of appointment ends with its legal existence, not the decedent's practical ability to wield it. It creates a bright-line rule that prevents litigation over the subjective capacity of decedents, thereby simplifying the administration of estate tax law. The ruling reinforces that the taxable event is the 'shifting in relationships to property' that occurs at death when a possessed power is terminated, regardless of whether it was ever actively used or could have been used by the incapacitated decedent.
