Many trusts that will continue for the benefit of a spouse’s lifetime and for the benefit of several generations. By design, these trusts may span multiple decades. It is important for the trust creator to consider including powers of appointment; allowing the addition or removal of beneficiaries at each generation.
In general, a power of appointment is a right of an individual to change the provisions of a trust.
A trust can grant powers of appointment to the current beneficiaries, trustees or an outside third party such as a trust protector. Powers of appointment come in different forms, including powers exercised while the individual is living (a “lifetime” power of appointment), or after the individual dies (a “testamentary” power of appointment).
Powers of appointment can be as broad or limited as the trust creator desires. These powers can include the ability to make broad changes to the trust. Or powers to make very limited changes under limited circumstances.
Below are examples of using a power of appointment to change a trust's beneficiaries:
These are of course only a few examples; the possibilities are truly endless for using powers of appointment to change the terms of a trust.
Powers of appointment can alleviate your worries of how your heirs will turn out. You can utilize powers of appointment giving others the ability to include or exclude heirs.
But beware: Poorly drafted powers of appointment can create gift tax and/or estate tax problems for your beneficiaries and trustees.
Therefore, only include powers of appointment with the assistance of an experienced estate planning attorney.
If you would like to discuss how to incorporate powers of appointment into your trust, please contact us.
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