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Estate Planning Newsletter

  • Court-Appointed Conservators
    A “conservator” is a court-appointed individual assigned to handle the daily affairs of those who cannot care for themselves due to physical or mental limitations (the “conservatee”). Conservatorships are... Read more.
  • The Effect of Inheritance on Child Support Payments
    The federal Child Support Enforcement Act of 1984 requires each state to develop its own set of systematic guidelines for calculating awards of child support. Generally, state child support guidelines are based on the parents’... Read more.
  • Estate Tax Changes Bring Calm After the Storm
    Much to the relief of many, the American Taxpayer Relief Act of 2012 (“2012 Tax Act”) was enacted in the beginning of 2013, making permanent many of the tax benefits that were scheduled to expire at the end of 2012. The... Read more.
  • The Inheritance Rights of Posthumously Conceived Children
    Several states refer to children who are born or adopted after the execution of a parent’s will and omitted from the provisions of the testamentary instrument as “omitted” or “pretermitted” children. In the... Read more.
Estate Planning News Links

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.

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