Power of Appointment
Some Trusts or Wills may include a “power of appointment.” A person who signs a will or trust today cannot predict what his family’s economic or personal situation will be twenty years from now. Under a power of appointment, a person can give his or her beneficiaries power to direct where their share goes at their death. In this way, the holder of the power is permitted to alter the distribution plan in a will or trust to accommodate changed family situations and the best possible outcome for the assets.
What Is a Power of Appointment?
A power of appointment may be given to a beneficiary to permit him or her to direct the ultimate distribution of his or her share. There are two types of powers of appointment: a limited power of appointment and a general power of appointment.
Limited Power of Appointment
A limited power of appointment permits the beneficiary to allocate his or her share of the estate or trust among certain classes of potential recipients, such as the testator’s descendants or charitable organizations, but not to the beneficiary, the beneficiary’s estate, or creditors of the beneficiary or the estate thereof.
General Power of Appointment
A general power of appointment is a broad power that enables the beneficiary to allocate all or part of his or her share of the estate or trust among any individuals or organizations selected by the beneficiary.
The two types of powers of appointment have very different tax consequences. Having a general power of appointment over trust property will cause the power holder to be subject to gift tax or estate tax on that property whether or not the general power of appointment is exercised. In most cases, the possession of a limited power of appointment does not subject the power holder to a gift or estate tax.
To be sure that a power is a limited power rather than a general power, specific wording must be used to comply with Internal Revenue Code requirements.
Call the Law Offices of David A. Straus to Schedule a Complimentary Initial Consultation
Powers of appointment can be an effective and cost-efficient tool to add flexibility to wills and trusts. I am committed to crafting estate plans that are customized for my clients’ specific needs. I can help you make use of all effective estate planning techniques available to you, including powers of appointment.
I have been drafting trusts and estate plans for clients in Las Vegas for over twenty-five years. I have an LL.M. (Master of Laws) in Taxation in addition to a LL.M in Entertainment and Media Law, and I am a Certified Public Accountant (CPA), only licensed in Illinois. Discover what a comprehensive estate plan can do for your peace of mind.
If you have questions about Power of Appointment please give me a call at 702-474-4500. A lot of my clients are out of the area or reside in a different state other than Nevada. I’ve helped clients who live in neighboring states like California.
Please e-mail or call today to speak directly with me about your matter.