Probate & Trust Law Section Conference Manual ... - Minnesota CLE

2. Exercise the power of appointment to create another limited power of
appointment; and
3. Exercise the power of appointment to create another limited power of
appointment that, under the applicable local law, can be validly exercised
to do one of the following for a period ascertainable without regard to the
date of the creation of the first power:
c. Estate of Murphy v. Commissioner
a. Postpone the vesting of any estate or interest in such property; or
b. Suspend the absolute ownership or power of alienation of such
property.
The determination as to whether the donee springs the Delaware
Tax Trap is based on:
1. The instrument creating the power of appointment;
2. The instrument exercising the power of appointment;
and
3. Applicable local law. 21
The only reported case involving IRC § 2041(a)(3) is Estate of Murphy v.
Commissioner, 22 in which the Tax Court held that the exercise of a limited power of
appointment to create another limited power of appointment did not spring the Delaware
Tax Trap because, under applicable Wisconsin law, the exercise of a limited power of
appointment did not commence a new perpetuities period. Consequently, the Delaware
Tax Trap was not violated in Wisconsin, which had a perpetuities statute expressed in
terms of a rule against suspension of the power of alienation rather than a rule based on
the remoteness of vesting. The IRS acquiesced in Murphy.
Please Note: The Murphy case was relied upon by both Idaho 23 and South
Dakota 24 in the creation of their RAP laws prior to 1986 and the imposition of the
GST tax. Alaska 25 and Delaware 26 have since amended their RAP laws to rely on
the Murphy case. Missouri, 27 New Hampshire, 28 New Jersey, 29 and North
Carolina 30 are other states that relied on the Murphy case in designing their RAP
modifications.
21 Nenno, supra note 5.
22 Estate of Murphy v. Comm’r, 71 T.C. 671 (1979), acq., 1997-2 C.B.2.
23 IDAHO CODE ANN. § 55-111.
24 S.D. CODIFIED LAWS §§ 43-5-1 – 43-5-9, 55-1-20.
25 ALASKA STAT. §§ 34.27.100, 34.27.051.
26 DEL. CODE ANN. tit. 25, § 503.
27 MO. REV. STAT. § 456.025.
28 N.H. REV. STAT. ANN. §§ 564:24, 547:3-k.
29 N.J. STAT. ANN. §§ 46:2F-9 – 46:2F-11.
30 N.C. GEN. STAT. §§ 41-15 – 41-27.
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