Power to revoke

Definition and ownership rule

The text of 26 U.S.C. section 676 defines the relevant power through the ability to revest title to a portion of trust property in the grantor. When that power is exercisable by the grantor or a nonadverse party, the statute treats the grantor as owner of that portion, whether or not another provision also treats the grantor as owner.^[4]

The rule concerns a portion of a trust, so the text ties ownership treatment to the property portion covered by the power. Section 672 defines a nonadverse party as a person who is not an adverse party. An adverse party is defined by reference to a substantial beneficial interest that would be affected adversely by exercising or not exercising the power.^[1]

When the power affects income later

Section 676 states an exception for a power that can affect beneficial enjoyment of income only for a period beginning after a specified event. The event must be one under which the grantor would not be treated as owner under section 673 if the power were a reversionary interest. After the event occurs, the grantor may be treated as owner unless the power is relinquished.^[4]

This exception is limited to the described effect on income and timing. Section 677 separately treats the grantor as owner of a trust portion whose income may be distributed to the grantor or spouse, accumulated for them, or used for certain insurance premiums.

Related grantor trust powers

Sections 674 and 675 address other powers that can result in grantor ownership treatment. Section 674 covers a power to dispose of beneficial enjoyment, subject to listed exceptions, while section 675 describes specified administrative powers. These neighboring provisions show that section 676's revocation rule is one part of a group of rules about ownership of trust portions.^[2][3]

Section 678 addresses a different holder. It generally treats a person other than the grantor as owner of a portion when that person can, acting alone, vest its corpus or income in themselves. The text provides exceptions, including when the grantor is otherwise treated as owner under another provision of the subpart.^[6]

Questions and answers

Related terms

• Power to control beneficial enjoyment: Section 674 describes when control over trust benefits causes a grantor to be treated as owner of a trust portion. The rule concerns beneficial enjoyment.
• Grantor trust rules: These federal tax code rules explain when a grantor is treated as owning part of a trust, based on the grantor's powers and interests and on income provisions.
• Income for the benefit of the grantor: Section 677 treats a grantor as owner of a trust portion when income can benefit the grantor or spouse, including through certain life insurance premiums.
• Nonadverse party: The Internal Revenue Code defines a nonadverse party by reference to the term adverse party. Sections 672 through 678 use the distinction in trust rules.

Related guides and articles

• Grantor trust rules in sections 671 to 679: A reference for U.S. citizen readers on grantor trust definitions, ownership tests, foreign trust beneficiaries, and statutory links to U.S. reporting rules.
• Grantor and nongrantor trust taxation: U.S. income tax rules distinguish grantor and nongrantor trusts for U.S. citizens. Sections 671 through 679 may assign ownership of all or part of a trust.
• Section 679 and U.S. Transfers to Foreign Trusts: Section 679 may treat a U.S. transferor as owner of the foreign trust portion tied to transferred property when a U.S. beneficiary may benefit from the trust.

Related pages

• Glossary: All terms.
• Nonadverse party
• Power to control beneficial enjoyment
• Related or subordinate party
• Administrative powers (grantor trust)
• IRS forms