Frequently, trust agreements ensure that the principal invasion power held by a trustee who is also a beneficiary is limited to distributions for the beneficiary's "health, education, maintenance and support." This limitation ensures that the trust's assets are not included in the beneficiary's estate for estate tax purposes upon the beneficiary's death. Many cases have found that principal invasion powers for a beneficiary's "happiness" or "comfort" fall outside the standard and will cause estate tax inclusion if the beneficiary holds this power as the trustee.
After a review of Mississippi law, the Tax Court in Chancellor held that the trustee/beneficiary who held the right to make distributions for "necessary maintenance, education, health care, sustenance, welfare or other appropriate expenditures needed by [the decedent]" did not hold a general power of appointment over the trust's assets upon her death. The Tax Court concluded that a Mississippi court would construe the power narrowly and only authorize principal invasion for expenditures that were within the ascertainable standard requirement of IRC §2041(b)(1)(A).