Which of the following statements about a general power of appointment is true?

• A. Holding a lifetime or testamentary general power of appointment causes the holder to be treated as the owner of the trust for income tax purposes.
• B. Property subject to a general power of appointment is included in the holder's gross estate for estate tax purposes.
• C. Exercising a general power of appointment during life creates no gift tax consequences.
• D. A general power of appointment always results in GST tax liability for the holder.

Answer: (B)

A general power of appointment lets the holder direct who will receive the trust property, including the ability to appoint to themselves or their estate. For estate tax purposes, property subject to a general power is included in the holder’s gross estate under the rules for powers that can be exercised in favor of the holder or their estate. This inclusion occurs regardless of whether the power is ever exercised, which is why this statement is true.

Income tax treatment isn’t the same: simply holding a general power does not automatically make the holder the owner of the trust for income tax purposes. Grantor trust status depends on other powers and arrangements, not just the existence of a general power.

Exercising the power during life can create gift tax consequences if the appointment transfers value to someone other than the holder or the holder’s spouse; if the appointment is to the holder or their spouse, there may be no gift. So this is not universally gift-free.

GST tax liability is not automatic either; GST tax applies only in transfers that trigger generation-skipping transfer rules, which depends on how the power is used and who benefits.