Powers of appointment

Question 1

What is a power of appointment?

Answer 1

An authority created in or reserved by a person enabling that person (called the donee of the power) to designate, within the limits prescribed by the creator of the power (called the donor), the persons who shall take certain property and the manner in which they shall take it.

Question 2

What is a general power of appointment?

Answer 2

A general power of appointment is one exercisable in favor of the donee herself, her estate, her creditors, or the creditors of her estate.

Question 3

What is a special power of appointment?

Answer 3

A special power of appointment is one exercisable in favor of a specified class of persons, which does not include the donee, her estate, her creditors, or the creditors of her estate.

Question 4

What is a presently exercisable power of appointment?

Answer 4

One exercisable by the donee during her lifetime.

Question 5

What is a testamentary power of appointment?

Answer 5

One that is exercisable only by the donee’s will.

Question 6

Donee/donor agency

Answer 6

The basic theory of powers of appointment is that the donee is the donor’s agent is designating the beneficiaries of the appointive property; she is NOT the owner of the property

• When the donee exercises the power, it is treated as though the donee is “filling in the blanks” in the donor’s will or trust

Question 7

Doctrine of relation back

Answer 7

An appointment is deemed to relate back to the donor’s will so that the appointee takes title directly from the donor of the power rather than from the donee.

Question 8

Is the power of appointment personal to the donee?

Answer 8

Yes, a power of appointment is personal to the donee.

• If she dies without having exercised the power, it terminates and she cannot devise the power by her will
• The donee cannot delegate the power to another, nor can she assign it

Question 9

Can creditors reach appointive assets?

Answer 9

Under the theory that the donee does not OWN the appointive property, if the donee does not exercise her general power her creditors cannot reach the property.

Question 10

If the donee exercises the general power, can creditors reach those assets?

Answer 10

Yes. If the donee exercises the general power, the donee’s creditors are enabled to reach the property.

Minority rule: By statute in several states, creditors of the donee of a general power can reach the appointive property regardless of whether the power is exercised

Question 11

If the donee is also the donor, can creditors reach appointive assets?

Answer 11

Yes. If the donee of a general power is also the donor, her creditors can reach the appointive assets whether or not she exercises the power.

• cannot use a general power of appointment to squirrel away your assets

Question 12

What happens if the donee of a general power fails to exercise the power?

Answer 12

If the donee of a general power fails to exercise the power and the donor’s instrument creating the general power contains no gift in default of appointment, the appointive property reverts to the donor’s estate and passes according to the residuary clause or passes by intestacy.

Question 13

Exclusive v. Nonexclusive special powers

Answer 13

A special power of appointment is exclusive if it may be exercised in favor of some objects of the power to the exclusion of others. A special power is nonexclusive if it must be exercised in favor of all of the appointees.

Question 14

What is the presumption as to whether special powers are exclusive v. nonexclusive?

Answer 14

There is a strong presumption that special pwoers are exclusive unless the donor expressly provides otherwise.

Question 15

Examples of exclusive special powers

Answer 15

• “Among such of A’s children as he shall appoint by will”;
• “Among A’s children as A shall appoint by will, in such shares and proportions as A shall determine”

Question 16

Implied gift in default of appointment

Answer 16

If the donee of a special power of appointment does NOT exercise the power and there is no gift in default of appointment, a gift to the objects of the special power is implied.

Question 17

Can the creditors of the donee of a special power reach the property?

Answer 17

NO! Even if the donee exercises the power.

Question 18

Can a power of appointment be exercised by any instrument?

Answer 18

Yes. Unless the donor directs otherwise, a power of appointment can be exercised by any instrument that is effective to transfer title to property.

• the donee must have legal capacity to execute an effective instrument of transfer

Question 19

Does a general residuary clause exercise testamentary power?

Answer 19

No. Florida has adopted the majority rule by statute: A general residuary clause in a will does not exercise any testamentary power of appointment held by the testator “unless specific reference is made to the power or there is some other indication of intent to include the property subject to the power.”

Question 20

Is a “blanket” exercise of power permissible?

Answer 20

Yes. If a person holding a testamentary power executes a will that devises “all the rest, residue, and remainder of my property, including any property over which I may have a power of appointment,” this blanket exercise of any power of appointment will be given effect unless the donor called for an appointment by an instrument that specifically refers to that power.

Question 21

Exercise by implication

Answer 21

The courts will find that a power of appointment (whether general or special) was exercised by implication when:

1. the donee purports to dispose of the property as though it were her own, meaning that the disposition can be given effect only if it is treated as an exercise of the power; or
2. the disposition cannot be given its intended meaning or any effective meaning unless the donee is treated as having exercised the power

Question 22

Scope of power

Answer 22

A donee of a power of appointment, even a special power, may exercise the power by creating a trust for the benefit of an object of the power rather than appointing the property outright.

Question 23

Does the Rule Against Perpetuities apply to powers of appointment?

Answer 23

Yes.

Question 24

Presently exercisable general powers

Answer 24

A presently exercisable general power is treated the same as fee simple ownership;

• if it is certain that the power will become exercisable or fail within the perpetuities period; it is valid

Question 25

Special and testamentary powers

Answer 25

If a special or testamentary power may be exercised beyond the perpetuities period, which begins to run from the creation of the power, it is void

Question 26

Can the donee of a testamentary power contract to make an appointment?

Answer 26

NO!! Such a contract, if made, cannot be the basis of an action for specific performance or damages. However…the promisee can obtain restitution of the value given by her for the promise unless the donee actually exercised the power pursuant to the contract