How Powers of Appointment Can Improve Your Trust

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.


What is a Power of Appointment?

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.

Examples of Powers of Appointment in Action

Below are examples of using a power of appointment to change a trust's beneficiaries:

  • Giving the trust creator’s spouse the power to include or exclude children, grandchildren, and other heirs as trust beneficiaries after the spouse dies.
  • Giving the trust creator’s child the power to include or exclude the child’s own heirs or the child’s spouse, siblings (brothers and sisters), or heirs of the child’s siblings (nieces and nephews) as trust beneficiaries after the child dies.
  • A married trust creator giving their spouse the power to include or exclude the trust creator’s extended family members or one or more charities as trust beneficiaries after the spouse dies.

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.

Do Not Attempt to Draft Your Own Powers of Appointment

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.

About the Author Donald Rolfe

Father, husband, entrepreneur, and owner of a trivia filled brain. I help families and individuals plan for the unexpected and end of life. Schedule a Complimentary Strategy Session to chat with me, get answers to your questions, and find out about your Estate Plan options.

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