WK_ Revenue Rulings Revenue Ruling 90-110 Dec 24 1990.

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Revenue Rulings,Revenue Ruling 90-110,,Internal Revenue Service,(Dec.
24, 1990)
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Federal Tax>Federal Tax Primary Sources>IRS Administrative Rulings>Revenue Rulings>Revenue Ruling
90-110,, Internal Revenue Service, (Dec. 24, 1990)
Revenue Ruling 90-110, 1990-2 CB 209, December 24, 1990.
[ Code Sec. 2518]
Estate and gift taxes: Ineective disclaimer by a trustee: Qualied disclaimer: State law.
A disclaimer by a trustee that was ineective under state law did not constitute a qualied disclaimer under
Code Sec. 2518. Where neither state law nor the governing instrument authorized the trustee, acting solely in
a duciary capacity, to disclaim a power to invade corpus for the benet of a specic beneciary, the attempted
renunciation of such power was not a qualied disclaimer. In addition, the provisions of Code Sec. 2518(c)(3) did
not apply because the trustee, acting alone, could not transfer the benecial property interest to the person who
would receive such interest had an eective disclaimer been made. BACK REFERENCE: FINH 8870.82.
ISSUE
If a trustee acting solely in a duciary capacity disclaims a power to invade trust corpus for the benet of a
specic beneciary and the disclaimer is ineective under state law, is the disclaimer a qualied disclaimer for
purposes of section 2518(b) of the Internal Revenue Code?
FACTS
D died testate in 1988. D's will provided for the creation of a trust for the lifetime benet of S, D's surviving
spouse. Under the terms of the trust instrument, S is to receive all of the trust income annually. The trustee has
the power to invade corpus for the benet of C, who is a grandchild of S and D. The trustee may consider C's
other sources of income. Upon the death of S, the remainder is to be distributed to or for the benet of C.
Within 7 months of D's death, the trustee executed and delivered to the executor of D's estate a declaration
to disclaim the power to invade corpus for the benet of C. C neither consented to the trustee's disclaimer
declaration nor made an individual disclaimer. D's will does not authorize the trustee to make such a disclaimer.
Under the laws of the state in which D's estate is being administered, the trustee's attempt to disclaim this type
of power to invade corpus is ineective without the written consent of the beneciary or an express grant of
authority to make such a disclaimer in the governing instrument.
LAW AND ANALYSIS
Section 2518(a) of the Code provides that, if a person makes a qualied disclaimer of an interest in property, the
estate, gift, and generation-skipping tax provisions will apply to that interest as if it had never been transferred to
such person. Under section 2518(b), the term qualied disclaimer means an irrevocable and unqualied refusal
by a person to accept an interest in property, provided certain requirements are met. Section 2518(c)(2) provides
that a power with respect to property is to be treated as an interest in the property. Section 2518(c)(3) provides
that a written transfer of the transferor's entire interest in the property is treated as a qualied disclaimer if: (1) it
is made with the time limits specied in section 2518(b)(2), (2) the transferor has not accepted the interest or any
of its benets, and (3) it is to a person or persons who would have received the property had the transferor made
a qualied disclaimer.
Under general principles of trust law, a trust consists of separate interests: the equitable interests of the
beneciary and the legal interests of the trustee. The trust form allows the settlor to protect the beneciary from
the burdens of ownership. The equitable owner (the beneciary) is entitled through equity to compel the legal
owner (the trustee) to act in accordance with trust obligations. Under the law of most jurisdictions, a trustee
WK_ Revenue Rulings Revenue Ruling 90-110 Dec 24 1990.pdf
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cannot make a unilateral disclaimer of a duciary power that aects the rights of a beneciary unless the trust
instrument expressly authorizes such a disclaimer or the aected beneciary consents to the disclaimer. G.
Bogart, The Law of Trust and Trustees, section 150 (Rev. 2nd Ed. 1979); Restatement (Second) of Trusts,
section 102(4) (1959).
The legislative history of section 2518(c)(3) of the Code states that if a disclaimer does not qualify under local
law, it will nonetheless qualify under section 2518 if the person entitled to the interest has not accepted the
interest or any of its benets and timely transfers the interest to the person who would have otherwise received
the property if an eective disclaimer had been made. See H. R. Rep. No. 97-201, 97th Cong. 1st Sess. 190
(1981), 1981-2 C.B. 352, 392.
In this case, because neither local law nor the governing instrument authorizes the trustee to make a unilateral
disclaimer of a duciary power, the trustee's attempted renunciation of the power to invade trust corpus for the
benet of C is not qualied under local law and therefore is not a qualied disclaimer within the meaning of
section 2518(b) of the Code.
Section 2518(c)(3) of the Code does not apply under the facts of this ruling because the trustee acting alone
cannot transfer the benecial property interest to the person who would have received such interest had the
trustee and the beneciary together made an eective disclaimer.
HOLDING
If a trustee acting solely in a duciary capacity disclaims a power to invade trust corpus for the benet of a
specic beneciary and the disclaimer is ineective under state law, the disclaimer is not a qualied disclaimer
for purposes of section 2518(b) of the Code. Further, section 2518(c)(3) is not applicable where the trustee,
acting alone, cannot transfer the benecial interest to the person who would have received the interest had an
eective disclaimer been made.
DRAFTING INFORMATION
The principal author of this revenue ruling is Laura Howell of the Oce of Assistant Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue ruling contact Ms. Howell on (202)
566-9312 (not a toll-free call).