CH$.5$

$($i$)$ On March $10$ of Year $2,$ Diego appoints the entire trust property

to his son, Luis.

$($ii$)$ On November $10$ of Year $8,$ Diego irrevocably releases the power

of appointment. On November $10$ of Year $8,$ the actuarial value

of the remainder after Diego's life estate is $$500,000.$

$($iii$)$ Diego does not exercise the power. At midnight on January $10$ of

Year $10,$ the power lapses. On January $10$ of Year $10,$ the

actuarial value of the remainder after Diego's life estate is

$$550,000.$

$($b$)$ Assume the same facts, except that Diego's power of appointment

permits him to appoint the property only to his wife and children.

How would this change the results in part $($a$)?$

Alan Brown died in Year $1.$ He bequeathed most of his estate to the Tenth

National Bank as trustee of the Brown Trust, which was created by Alan's

will. The will provides that the income of the Brown Trust is to be paid to

Alan's wife, Sydney, throughout her life. Upon Sydney's death the trust

principal is to be distributed to the children of Alan and Sydney.

The will also provides that Sydney has power to appoint a maximum of

$$40,000$ of principal each calendar year to herself or to her children, all

adults. If the power is not exercised, it lapses at the end of each calendar

year. The value of the property transferred to the Brown Trust was

$$1,000,000,$ and the value of the trust property has increased since then.

The trust was funded in Year $1.$ Sydney did not exercise her invasion

power during Year $1,$ Year $2,$ or Year $3.$ Did Sydney make taxable gifts

during Year $1,$ Year $2,$ or Year $3?$ If so$,$ what was the value of each gift?

Assume the same facts as in Problem $2,$ except that Sydney has power

each year to appoint "the greater of $$5,000$ or $5\%$ of the value of the trust

property at the time the power is exercised." Answer the same questions

as in Problem $2.$