In PLR 201203033, the IRS ruled that a trust qualified as a designated beneficiary after a trust beneficiary released certain portions of a power of appointment.
The decedent died designating the marital trust created under his revocable trust as the beneficiary of his IRA. On the wife's death, the assets in the marital trust are to be distributed to GST exempt and GST non-exempt trusts for his two children also created under the revocable trust. The regulations provide that in order for a trust to qualify as a designated beneficiary, all of the trust beneficiaries must be (i) identifiable from the trust instrument (so that the beneficiary with the shortest life expectancy can be determined) and (ii) individuals with ascertainable life expectancies. Consequently, all of the potential beneficiaries of the marital trust on the wife's death needed to be analyzed to determine whether the marital trust would qualify as a designated beneficiary.
In the present case, the GST non-exempt trust for the benefit of the decedent's son presented a potential problem because the son had a testamentary power of appointment over one-half of the principal which power could be exercised in favor of anyone (including an organization) other than himself, his estate or creditors of his estate. The son cured the defect by releasing his right to appoint the principal of his GST non-exempt trust to any person who is not a natural person or who has a shorter life expectancy than the decedent's wife and thus the marital trust was able to qualify as a designated beneficiary of the decedent's IRA.