The IRS recently ruled that the appointment of a remainder beneficiary as trustee of a trust will not cause the trust property to be included in the estates of either the remainder beneficiary or the current beneficiary and will not constitute a gift by either beneficiary.

This PLR involves a husband’s trust that became irrevocable upon his death. His wife is to receive all trust income at least quarterly for life, and the trustees are authorized to make distributions of principal to her if required for her maintenance. Wife also has power to make distributions of trust corpus to family members. Upon wife’s death, the couple’s only child will replace her as current beneficiary and will have the power to terminate the trust.

The co-trustees include wife and a bank. The trust provides that on matters involving discretionary distributions to wife, the corporate co-trustee (the bank) alone is to exercise discretion. But wife, wishing to save the trust service fees paid to the bank, wants to substitute child as co-trustee. The bank is willing to resign, and the trustees represent that child owes no support obligation to wife.

The IRS ruled that the trustee substitution, and the resulting transfer to child of the bank’s discretionary power to invade principal for wife’s support, will not cause the trust property to be included in wife’s estate and will not cause the trust property to be included in child’s estate should he predecease his mother. Also, the transfer will not constitute a gift by either wife or child.

However, the IRS refused to rule on whether the trustee substitution and transfer of discretionary power would have any effect on the income tax treatment of the trust, its trustees, and its beneficiaries, stating that the request did not identify any specific income tax issues that warrant a ruling.