Under Internal Revenue Code §2041 the gross estate includes property as to which decedent held a general power of appointment as of the date of her death. A power of appointment is essentially the right to designate who is to own certain specified property. The person who holds the power technically does not own the property even though she can determine who does.
Example: Ben is the beneficiary of a trust under which he is to receive all the income during his lifetime and he has an unrestricted power to cause corpus to be distributed to himself or any other party. Ben died in 2020 Ben had a general power of appointment over the corpus of the trust and therefore, the entire corpus at the date of his death is included in his gross estate.
In the foregoing example there was no limitation imposed upon the range of parties in
favor of whom the power could be exercised. Ben could exercise the power in favor of
any person, group of persons, any entity (such as a charity), etc. In fact, Ben could even appoint the property to himself. Powers of appointment are often created with a delimited group of potential appointees among which the power holder may select. For example, the power may be limited to appointment to such one or more of a decedent's children as the surviving spouse may designate.
A power of appointment under which the power holder may appoint in favor of himself, his estate, his creditors or creditors of his estate is referred to as a general power of appointment. A power of appointment which does not permit appointment in favor of himself, his estate, his creditors or creditors of his estate is referred to as a "special" or "limited" power of appointment.
In the case of a general power of appointment, because the holder of the power can
appoint the property to himself or his creditors or to his estate or estate creditors, the possession of the power of appointment represents a degree of beneficial interest in the property only slightly removed from outright beneficial ownership. Thus, under I.R.C. §2041, in effect, the holder of a general power of appointment is deemed to have rights so close to outright ownership that if he were to die while holding the general power, the property subject to the power will be subject to estate tax. On the other hand property subject to a special (limited) power of appointment held by a decedent when he dies is not includable in his gross estate. A special or limited power of appointment allows the power-holder to dispose of property in favor of anyone other than himself, his estate, his creditors, or the creditors of his estate.
In addition to the property owned outright at the date of death the gross estate for federal estate tax purposes includes certain other property with which the decedent was connected, as discussed in the following blog posts:
Property Subject to General Power of Appointment - I.R.C. §2041