Future Interests - Powers of Appointment and Acceleration of Future Interests Flashcards
What is a power of appointment and how is it created?
A power of appointment is usually conveyed by will or trust from the donor (i.e., the decedent) to the donee (usually a trustee) granting the donee the right to appoint or distribute property left by the donor.
Does the holder of a power of appointment have the right to the property?
No, while they have legal title, the holder of a power of appointment does NOT receive full title (ie, legal and equitable title) to the donor’s property, only the power to appoint or distribute it.
What is a general power of appointment?
A general power of appointment is granted when the donor does NOT leave any restrictions as to the appointment of the property. Thus, the donee is free to appoint the property to himself, his creditors, or any others he chooses.
What is a special power of appointment?
A special power of appointment is granted when the donor leaves restrictions as to the appointment of the property. Generally, the donee may not exercise a special power of appointment for his own benefit.
When may a power of appointment be exercised in a general residuary clause of a will? (e.g., “I leave the remainder of my estate including any property I possess a power of appointment over, to my spouse”)
A power of appointment may be exercised in a general residuary clause of a will (e.g., “I leave the remainder of my estate including any property I possess a power of appointment over, to my spouse”) only if:
- The power of appointment is a general power;
OR
- The testator’s will manifests an intention to include the property subject to the power.
What is the acceleration of a future interest?
A situation when the future interest holder can take immediate possession of the property.
When may a future interest holder accelerate his interest?
A future interest may be accelerated, allowing the future interest holder to take possession immediately IF the present interest holder:
- Loses title or his legal right to the property;
OR
- Disclaims the property.
What is an example of when a future interest holder has an accelerated interest?
O conveys Greenacre to A for A’s life, then to B.
If A disclaims Greenacre, B does not have to wait for A’s life to end in order to take possession. B’s future interest will accelerate allowing him to take possession of Greenacre immediately.
The donee of a special (nongeneral) power can appoint the property over which the power is
exercisable only to…
… “permissible appointees” or “objects” of the power.
Thus, in MEE feb 2017, when trust directed donee (trustee) to distribute princpal to one or more of Settlor’s children, and in absence of such appointment, to charity…and then the will executed afterwards directed some of the principal to her grandchild…the amount to the grandchild is an impermissible appointee. Only the children (not the grandchildren) were permissible appointees. So the charity would get the amount impermissibly appointed to the grandchild.
“The will specified that
all trust income would be paid to the son during the son’s lifetime and that upon the son’s death,
the trust would terminate and trust principal would be distributed to the testator’s “grandchildren
who shall survive” the son.”
At time of death, there’s one grandchild.
State statute says must disclaim within 9 months of testator’s death.
Son disclaims 9 years after testator’s death. What is the effect?
If had been within 9 months, then treated as if predeceased testator and grandchild would have been able to demand trust principal under terms of will.
This is the rule with or without the statute: When a beneficiary timely disclaims an interest in a trust, that beneficiary is treated as if he had
predeceased the testator.
Here, did not timely dislcaim so not treated as disclaimer allowing grandchild to demand trust principal.
HOWEVER, COMMON LAW RULE STILL ALLOWS SON TO RENUNCIATE AND if a life estate is renounced, the
remainder interest accelerates and becomes immediately distributable to the remaindermen of the
trust if the remainder is vested but not if the remainder is contingent.
Here, son still alive when he renunciates, so remainder is still contingent on whether or not more children are had. So grandkid cannot demand trust principal.
It will remain open until the son dies, leaving open the possibility that additional grandchildren will be included in the class, or the daughter’s child could fall out of the class
because that child fails to survive the son.
And if none of the testator’s grandchildren survive the son, the trust principal will be distributed to the testator’s heirs living at the son’s death.
When a beneficiary timely disclaims an interest in a trust, …
…that beneficiary is treated as if he had
predeceased the testator.
“The will specified that
all trust income would be paid to the son during the son’s lifetime and that upon the son’s death,
the trust would terminate and trust principal would be distributed to the testator’s “grandchildren
who shall survive” the son.”
At time of death, there’s one grandchild.
State statute says must disclaim within 9 months of testator’s death.
Son disclaims 9 years after testator’s death. What is the effect?
As mentioned in other card, class (ie, grandchildren) remains open bc son did not timely disclaim.
When trust principal not immediately distributable, the trustee holds onto it until remainderman are ascertained. Until then, trust income distributed/retained according to trust instrument.
“The will specified that
all trust income would be paid to the son during the son’s lifetime and that upon the son’s death,
the trust would terminate and trust principal would be distributed to the testator’s “grandchildren
who shall survive” the son.”
At time of death, there’s one grandchild.
State statute says must disclaim within 9 months of testator’s death.
Son disclaims 9 years after testator’s death.
If beneficiary has renounced and trustee holding trust princpal and income until remainderman are ascertained… what does trustee do with the trust income in the meantime?
Jurisdictions differ on this, but be familiar with these three approaches and able to apply at least one and mention the rest perhaps:
- have the trustee distribute the trust income to the testator’s heirs on the theory that the income represents property that was not disposed of by the testator’s will and which thus passes by partial intestacy to the testator’s heirs.
- A second approach would have the trustee
accumulate trust income for distribution to the ultimate remaindermen. Under this approach, only
those individuals ultimately entitled to the principal would share in the income. - A third approach would have the trustee distribute trust income to those individuals who would be the remaindermen if the trust were to terminate when the income is received by the trustee; under this approach, trust income would be distributed to the daughter’s minor child until another presumptive remainderman is born. This approach could result in individuals not ultimately entitled to principal, say because they do not survive the son, receiving income. It could also result in a disproportionate distribution of income among the individuals ultimately entitled to
income.
