Common use of Powers of Appointment Clause in Contracts

Powers of Appointment. A person to whom a dis- tribution may be made during any pe- riod pursuant to a power of appoint- ment (as described for transfer tax pur- poses in section 2041 and § 20.2041–1(b) of this chapter and section 2514 and § 25.2514–1(b) of this chapter) is not a potential current beneficiary unless the power is exercised in favor of that person during the period. It is immate- rial for purposes of this paragraph (m)(4)(vi)(A) whether such power of ap- pointment is a ‘‘general power of ap- pointment’’ for transfer tax purposes as described in §§ 20.2041–1(c) and 25.2514–1(c) of this chapter. The mere existence of one or more powers of ap- pointment during the lifetime of a power holder that would permit cur- rent distributions from the trust to be made to more than the number of per- sons described in section 1361(b)(1)(A) or to a person described in section 1361(b)(1)(B) or (C) will not cause the S corporation election to terminate un- less one or more of such powers are ex- ercised, collectively, in favor of an ex- cessive number of persons or in favor of a person who is ineligible to be an S corporation shareholder. For purposes of this paragraph (m)(4)(vi)(A), a ‘‘power of appointment’’ includes a power, regardless of by whom held, to add a beneficiary or class of bene- ficiaries to the class of potential cur- rent beneficiaries, but generally does not include a power held by a fiduciary who is not also a beneficiary of the trust to spray or sprinkle trust dis- tributions among beneficiaries. Noth- ing in this paragraph (m)(4)(vi)(A) al- ters the definition of ‘‘power of ap- pointment’’ for purposes of any provi- sion of the Internal Revenue Code or the regulations.