Cal. Code Regs. tit. 18 § 13692.5
A general power of appointment does not include a power which is not exercisable by the donee except in conjunction with or with the consent or joinder of a person having a substantial interest in the property subject to the power which is adverse to the exercise of the power in favor of the donee, his estate, his creditors or the creditors of his estate.
An interest adverse to the exercise of a power is considered as substantial if its value in relation to the total value of the property subject to the power is not insignificant. For this purpose, the interest is to be valued in accordance with the actuarial principles set forth in Revenue and Taxation Code Section 13953, or if it is not susceptible to valuation under said provision, in accordance with the general principles set forth in Revenue and Taxation Code Section 13951.
A taker in default of appointment under a power has an interest which is adverse to an exercise of the power. A coholder of the power has no adverse interest merely because of his joint possession of the power nor merely because he is a permissible appointee under the power. However, a coholder is considered as having an adverse interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself, his estate, his creditors or the creditors of his estate. Thus, for example, if X, Y and Z held a power jointly to appoint among a group of persons which includes themselves and if on the death of X the power will pass to Y and Z jointly, then Y and Z are considered to have interests adverse to the exercise of the power in favor of X. Similarly, if on Y's death the power will pass to Z, Z is considered to have an interest adverse to the exercise of the power in favor of Y.
The application of these principles respecting a joint holder with an adverse interest may be further illustrated in the following examples in each of which it is assumed that the value of the interest in question is substantial.
EXAMPLE (1).
The donee and R were trustees of a trust which provided for income to be paid to the donee for life, then to M for life and the remainder to go to R. The trustees had power to distribute corpus to the donee. Since R's interest was substantially adverse to an exercise of the power in favor of the donee the latter did not have a general power of appointment. If M and the donee were the trustees, M's interest would likewise have been adverse.
EXAMPLE (2).
The donee and L were trustees of a trust which provided that income be paid to L for life, then to M for life and the remainder to be paid to the donee. The trustees had power to distribute corpus to the donee during the life of L. Since L's interest was adverse to an exercise of the power in favor of the donee, the latter did not have a general power of appointment. If the donee and M were the trustees, M's interest would likewise have been adverse.
EXAMPLE (3).
The donee and L were trustees of a trust under which the income was to be paid to L for life. The trustees could designate whether corpus was to be distributed after L's death to the donee or to M. L's interest was not adverse to an exercise of the power in favor of the donee as his life interest in the income would not be affected and the donee therefore had a general power of appointment.
EXAMPLE (4).
C (creator) leaves property to T (trustee) in trust to pay the income to D (donee) for life with power in D to invade or appoint the corpus to himself at any time with the consent of R (remainderman). If there is no invasion or appointment, the property passes to R at D's death. Here R (remainderman) has an obvious adverse interest to the exercise of the power in favor of D (donee) because if the power is so exercised, R (remainderman) loses his remainder interest. Since the power is within the exception, it is not a general power and therefore not subject to tax in D's estate.
EXAMPLE (5).
C (creator) leaves property to T (trustee) in trust to pay income to D (donee) for life with power to D (donee) and X acting jointly to distribute corpus to D (donee). X has no other interest in the property, but the trust provides that upon D's death X shall have the power to appoint the property to anyone including himself. D (donee) does not have a taxable general power because X's interest is obviously adverse. By outliving D (donee) X can by virtue of his succession to the power obtain the property for himself.
NOTE: Reference: Section 13692, Revenue and Taxation Code.
Cal. Code Regs. Tit. 18, § 13692.5