Final answer:
An individual holding a testamentary general power of appointment may be taxed on both the ordinary income and capital gains if they exercise their power.
Step-by-step explanation:
An individual holding a testamentary general power of appointment will be taxed on a fraction or percentage of both the ordinary income and capital gains for the period of time the power is available only if exercised. This means that if the individual exercises their power of appointment and distributes assets, they may be subject to taxation on the income and capital gains generated from those assets.
For example, let's say that an individual has a power of appointment over a trust that holds investments. If they exercise their power and distribute the investments, they may be taxed on the income generated by those investments, such as dividends or interest, as well as any capital gains realized when the investments are sold.
It's important to note that taxation on a testamentary general power of appointment will only occur if the power is exercised. If the individual does not exercise their power, they will not be subject to taxation on the income or capital gains of the assets held in the trust.