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Estate Planning Newsletter

Adding Flexibility to Your Estate Plan

What is a Power of Appointment?

A power of appointment is the power given by one person to another (referred to as the “holder” of the power of appointment) to designate who is to receive an asset. For example, if Husband creates a trust giving Daughter the power to determine who is to receive the trust principal, Daughter is the holder of the power of appointment. There are essentially two types of powers of appointment:

  • A general power of appointment allows the holder to appoint the assets to anyone, including himself, to his estate, or to the creditors of his estate. Property subject to a general power of appointment at the time of death will be included in the holder’s estate.
  • A special power of appointment is exercisable only to a group of persons defined in the trust instrument (for example, to the group comprised of the Trustor’s issue) or in favor of someone other than the holder, the holder’s estate, the holder’s creditors, or the creditors of the holder’s estate. Property subject to a special power of appointment is not included in the holder’s estate.

Special Power of Appointment May Add Flexibility to Estate Plan

A special power of appointment may be used to add flexibility to the dispositive provisions of an estate plan without subjecting the property subject to the special power to inclusion in the holder’s estate. For example, Husband and Wife may designate that the surviving spouse will have a special power of appointment over the principal of the exemption trust (also commonly referred to as the credit-shelter or bypass trust), a trust which becomes irrevocable upon the death of the first spouse. The special power of appointment in this scenario would allow the surviving spouse to make a later determination as to who should receive the principal of the exemption trust and make adjustments accordingly.

Special Power of Appointment May Not Be Appropriate in All Circumstances

The decision as to whether a special power of appointment should be used and the drafting of such a provision must be considered carefully, particularly where there are children from a previous marriage. The use of a special power of appointment in such a situation could result in the surviving spouse appointing all of the trust assets to his or her children, excluding the children of the first spouse to die.

The use of a special power of appointment may add flexibility to the dispositive provisions of an estate plan, allowing someone to make adjustments among beneficiaries, to take into consideration the increased need of a particular beneficiary, or other changes in circumstances. However, as illustrated above, the use of a special power of appointment may not be appropriate in all circumstances.

  • Overseas or Foreign Asset Protection Trusts
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  • Deductibility of Property Donated to a Charitable Organization
    The U.S. government has long encouraged citizens to contribute to charity. One method of encouraging philanthropic giving is the allowance of deductions from income for federal tax purposes for donations to “qualified”... Read more.
  • Estate Planning for Non-Citizen Spouses
    A QDOT is a specific type of marital deduction trust that is designed to ensure that non-citizen spouses will eventually pay any taxes that may be due upon distribution of the principal from the trust, even if the surviving spouse... Read more.
  • Removal of an Executor or Estate Administrator
    State laws and procedures typically govern the administration of an estate. For this reason, the law varies among jurisdictions. However, in 1969, a “Uniform Probate Code” (Uniform Code) was introduced. Since that time,... Read more.
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Our law firm represents estate planning clients from Riverside County, North County San Diego, Temecula, Murrieta, Lake Elsinore, Canyon Lake, Wildomar, De Luz, Fallbrook, Bonsall, Escondido, Valley Center, Rainbow, Hemet, Riverside, Menifee, Sun City, Canyon Heights, Canyon Lake, Quail Valley, Pechanga, and Pala. Our law firm focuses on California estate planning, wills, trusts, estates, probate administration, trust administration, asset protection, and entity formation. Practicing as an estate planning attorney, trust attorney, and probate attorney, Laila Kepler guides her clients through life's changes.