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to B for life with remainder to B's issue. Assume
further that B was given a non-cumulative right to
withdraw $10,000 a year from the principal of the trust
fund * * * . In such case, the failure of B to
exercise his right of withdrawal will not result in
estate tax with respect to the power to withdraw
$10,000 which lapses each year before the year of B's
death. At B's death there will be included in his
gross estate the $10,000 which he was entitled to
withdraw for the year in which his death occurs less
any amount which he may have taken during that year. *
* *
Sec. 20.2041-3(d)(3), Estate Tax Regs.
The above example is taken directly from the Senate Report
on the Powers of Appointment Act of 1951, ch. 165, sec. 2, 65
Stat. 91. See S. Rept. 382, 82d Cong., 1st Sess. (1951),
reprinted in 1951 U.S.Code Cong. & Admin. News (U.S.C.C.A.N.)
1530. With respect to then proposed new section 811(f)(5), which
in substance is identical to current section 2041(b)(2), the
Senate report stated:
The House bill provided that the failure to exercise a
future power which lapses during the life of the holder
of the power shall not be deemed an exercise or release
of the power. An amendment by your committee modifies
this latter provision so as to exempt from estate and
gift tax only limited amounts of property subject to
lapsed powers. The committee amendment provides an
annual exemption with respect to the lapsed powers
equal to $5,000 or 5 percent of the trust or fund in
which the lapsed power existed, whichever is the
greater. Thus, for example, if a person has a
noncumulative right to withdraw $10,000 a year from the
principal of a $200,000 trust fund, failure to exercise
this right will not result in either estate or gift tax
with respect to the power over $10,000 which lapses
each year prior to the year of death. At his death
there will be included in his gross estate the $10,000
which he was entitled to draw for the year in which his
death occurs, less any sums which he may have taken on
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