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wife (Mrs. Peterson) was entitled to receive all of the income
and to withdraw one-half of the trust principal during her
lifetime. Mrs. Peterson also was given a testamentary general
power of appointment over the corpus of the marital trust. Under
Mr. Peterson’s will, if Mrs. Peterson did not exercise her power
of appointment, the trust principal would be set aside in equal
shares for Mr. Peterson’s grandchildren.
Mrs. Peterson did not exercise her right to withdraw from
the principal of the trust, and she did not exercise her general
power of appointment over the trust corpus (except as to an
amount necessary to pay estate tax attributable to the trust).
As a result, at the time of Mrs. Peterson’s death, most of the
trust property passed to Mr. Peterson’s grandchildren.
The Commissioner determined the transfers to Mr. Peterson’s
grandchildren were subject to GST tax. The Peterson Marital
Trust (the taxpayer) challenged the Commissioner’s determination
and asserted the transfers qualified for transitional relief from
GST under TRA 1986 section 1433(b)(2)(A). The taxpayer argued
“Because the Marital Trust was irrevocable on September 25, 1985
* * * the subsequent transfers from that trust upon Mrs.
Peterson’s death are exempt from the GST tax.” Peterson Marital
Trust v. Commissioner, 102 T.C. at 796. The Commissioner
maintained the taxpayer was not eligible for transitional relief
under TRA 1986 section 1433(b)(2)(A) because the lapse of Mrs.
Peterson’s general power of appointment resulted in a
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