When planning for the future, each of us would prefer to retain some semblance of power over the assets we leave to our loved ones. But how do we help our clients control how things are divvied up or used after their deaths? One answer is to include a power of appointment in their planning documents.
Power of Appointments, Generally
A power of appointment is simply a way for the client (the “Donor”) to designate a particular someone (the “Donee”) to direct the client’s assets (the “appointive property”) to the people or entities (the “Appointees”) that the client has selected; in the ways that they have instituted; by means that they have espoused. Further, it is also a way to provide a trusted Donee with the power to select Appointees of their own choosing. A power of appointment may be created as a present power or as a conditional power.
With the exception of Louisiana, other jurisdictions provide options for these powers. Some states have also adopted the Uniform Powers of Appointment Act, namely Colorado, Missouri, Montana, New Mexico, North Carolina, and Virginia.
There are two types of powers of appointment – general or special. The primary distinction between the two varieties is who is permitted to receive property under the power. Appointments of general power are useful when the client trusts that a particular individual will dispose of their property in a way that they would have preferred. Special powers are useful when the client would prefer to control the recipient pool or specific conditions on the appointees.
General Versus Special Powers of Appointment
General Power of Appointment
According to the Restatement of Property, a general power of appointment is created when a donor designates a donee to receive any of the appointed property either for himself or some other selected target. General powers do not have restrictions on the Donee’s powers. It allows a Donee to receive such property, not only for himself directly, but also for his estate, his creditors, and the estates of those creditors.
Note, however, that some states have different requirements. For example, when intending to create a general power of appointment in Maryland, “to appoint by will as the donee sees fit” does not permit appointment by the Donee to the Donee’s creditors or estate. The Maryland court does consider such a phrase to be a general power of appointment. Rather, adding “to any person whomsoever, including his creditors or estate” may be an acceptable alteration of the statement to receive full effect of general powers in Maryland.
An illustration of the usefulness of general powers would be for an only child to be designated with a general power of appointment – they are able to take property for themselves, as well as have the ability to distribute any leftovers to others that they feel their parent would have desired to receive. The client is able to provide for the child, while allowing the child to determine what else goes to whom, if anything.
Special Power of Appointment
Alternatively, a special power of appointment is created in a similar fashion, but prohibits any appointment of property to the donee or his estate, creditors, or creditor’s estates. A Donee with special powers is typically given a class of people of which to divide the property – i.e. the client-Donor’s grandchildren – but can also adjust the division of the assets to accommodate unforeseen needs for one or another.
An illustration of the usefulness of special powers would be for a family friend to be designated with a special power of appointment – they are able to distribute the client’s appointive property in such a way that they expect the client would have approved as circumstances change over the years.
In Sum
Powers of appointment can be a useful tool in elder law planning. While this structure permits a vast amount of flexibility in distributing a client’s property, it also requires a clear and precise scope of what the appointive property is, what is not, who the permissible appointees are, and who the impermissible appointees will be. If any conditions are to be met before distribution, it is important to outline it in the document establishing the power. If the document is clear enough about the client’s wishes, they can be carried out by a trusted Donee as if the client were there to judge changing circumstances themselves.
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