Powers of Appointment

A power of appointment is a legal authority granted to an individual (the appointor) allowing them to designate who will receive certain property or interests, typically within the contexts of trusts and estates.
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Definition

Powers of Appointment refer to the legal authority granted to an individual, known as the appointor or holder, to designate who will receive certain property or interests under a will, trust, or other legal instrument. This power can be limited or general in nature, often influencing how an estate is distributed and managed.

Examples

  1. General Power of Appointment: Allows the holder to allocate property to anyone, including themselves, their estate, or their creditors.
  2. Special (or Limited) Power of Appointment: Restricts the holder’s allocation of property to a specific group of individuals or entities, excluding the holder.
  3. Testamentary Power of Appointment: Only exercisable through the holder’s will.

Frequently Asked Questions

What is the difference between a general and a special power of appointment?

A general power of appointment allows the holder to distribute the property to a broad range, including themselves, whereas a special power of appointment limits the recipient to specified individuals or entities.

Can a power of appointment be revoked?

In some cases, a power of appointment can be revoked if the terms of the trust or the instrument that grants the power allow for revocation.

Who can grant a power of appointment?

Powers of appointment are typically granted by the creator of a trust or will, often referred to as the settlor or testator, respectively.

How is a power of appointment exercised?

The holder must follow the specific procedures laid out in the trust or will, which may include specific language or conditions for the exercise of the power.

Does a power of appointment affect estate taxes?

Yes, depending on the nature of the power (general or special), the property subject to the power of appointment may be included in the holder’s taxable estate.

  1. Trust: A fiduciary arrangement allowing a third party, or trustee, to hold assets on behalf of beneficiaries.
  2. Will: A legal document expressing an individual’s wishes regarding the distribution of their property after death.
  3. Settlor (Grantor): The individual who creates a trust.
  4. Trustee: A person or entity managing the trust assets for the beneficiaries.
  5. Beneficiary: An individual or entity entitled to receive benefits from a trust or will.

Online References

Suggested Books for Further Studies

  1. The Complete Book of Wills, Estates & Trusts by Alexander A. Bove Jr.
  2. Make Your Own Living Trust by Denis Clifford
  3. Wills, Trusts, and Estates, Tenth Edition by Robert H. Sitkoff and Jesse Dukeminier

Fundamentals of Powers of Appointment: Estate Planning Basics Quiz

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