Powers of Appointment

Question 1

What is a PoA

Answer 1

power to appoint property owned by one person to another

Question 2

General power

Answer 2

1) Donee of the power is also a permissible object of the power
2) Donee’s estate, creditors, or creditors of the estate are permissible objects of the PA

Question 3

Special Power

Answer 3

1) Trustee who has ability to distribute principal at their discretion to any of a class of beneficiaries
2) May not be used to distribute property to a donee or for the benefit of a donee

Question 4

Self settled powers

Answer 4

• When donor & donee are the same person
• If the power is general then creditors can reach the appointive property

Question 5

3 rules for creating

Answer 5

Rules governing creation are same as for transferring any property:
1) Writing
2) Witnessed according to state law
3) Mental capacity is same as will

Question 6

Pros

Answer 6

• Flexible = allow donee unfettered discretion whether to exercise and to who
• Allow donee to appoint property into trust or grant another property thus extending time before decision needs to be made even further
• Special powers have tax benefits
• Establishment costs are minimal
• No fiduciary or accounting duties

Question 7

Cons

Answer 7

• General powers will be treated as property of the donee
• No obligation to exercise power

Question 8

Exercise of a PA

Answer 8

1. Donee must exercise it through a testamentary document executed with requisite formalities
2. Presently exercisable power need follow only formalities necessary for making inter vivos gifts unless donor has established specific requirements
3. Two rules generally prevail in interpreting whether a donee has adequately exercised a power
   - Presumption in favor of exercise if that is a reasonable interpretation
   - If no default takers are named and donee fails to exercise power, property will pass to the permissible appointees rather than lapse and revert to donor to pass by intestacy