[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.674(d)-2]

[Page 301-302]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.674(d)-2  Limitations on exceptions in section 674 (b), (c), 
and (d).

    (a) Power to remove trustee. A power in the grantor to remove, 
substitute, or add trustees (other than a power exercisable only upon 
limited conditions which do not exist during the taxable year, such as 
the death or resignation of, or breach of fiduciary duty by, an existing 
trustee) may prevent a trust from qualifying under section 674 (c) or 
(d). For example, if a grantor has an unrestricted power to remove an 
independent trustee and substitute any person including himself as 
trustee, the trust will not qualify under section 674 (c) or (d). On the 
other hand if the grantor's power to remove, substitute, or add trustees 
is limited so that its exercise could not alter the trust in a manner 
that would disqualify it under section 674 (c) or (d), as the case may 
be, the power itself does not disqualify the trust. Thus, for example, a 
power in the grantor to remove or discharge an independent trustee on 
the condition that he substitute another independent trustee will not 
prevent a trust from qualifying under section 674(c).
    (b) Power to add beneficiaries. The exceptions described in section 
674 (b) (5), (6), and (7), (c), and (d), are not applicable if any 
person has a power to add to the beneficiary or beneficiaries or to a 
class of beneficiaries designated to receive the income or corpus, 
except where the action is to provide for after-born or after-adopted 
children. This limitation does not apply to a power held by a 
beneficiary to substitute

[[Page 302]]

other beneficiaries to succeed to his interest in the trust (so that he 
would be an adverse party as to the exercise or nonexercise of that 
power). For example, the limitation does not apply to a power in a 
beneficiary of a nonspendthrift trust to assign his interest. Nor does 
the limitation apply to a power held by any person which would qualify 
as an exception under section 674(b)(3) (relating to testamentary 
powers).