Powers of Appointment and RAP Flashcards
Step 1- ID the type of power
Step 2- Is the power itself valid?
Step 3- Are the interests created by the power valid?
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POWERS TO APPOINT & REMAINDER INTERESTS
Step 2- When is a special POA or general TESTAMENTARY PoA valid?
To be valid, a SPECIAL POA or GENERAL TESTAMENTARY PoA must be CERTAIN TO BE EXERCISED w/in LIB + 21 years.
Rule of Thumb- if a testamentary PoA is given to a LIB at the time the power is created, the power is valid.
POWERS TO APPOINT & REMAINDER INTERESTS
Step 3- When are interests created by the exercise of a SPECIAL PoA or a GENERAL TESTAMENTARY PoA valid?
ROL- to be valid, interests created by the exercise of a SPECIAL PoA orrrr a GEN TEST PoA are measured from the date of the instrument creating the power, NOT the date that the power is exercised. NY treats the donee of the power as the donor’s agent, filling in the blanks in the donor’s will or trust.
ex- Donor gives Donee a special testamentary PoA. Donee dies, leaving a will exercising the PoA “to such of my children as live to attain the age of 30.” –> treated as if Donor left a will giving donee a life estate and a remainder to such of her children as live to attain the age of 30.
POWERS TO APPOINT & REMAINDER INTERESTS
Step 3- When can we use the “second look doctrine”/”wait and see” approach to determine the validity of interests created by the PoA?
To determine the validity of interests created by the exercise of either GENERAL TESTAMENTARY POA orrrrr a SPECIAL POA, we “wait and see” what happens.
ex- Donee dies, leaving a will exercising the PoA “to such of my children as live to attain the age of 30.” –> normally would violate RAP & Suspension rule –> Wait & See, all children are 9 or older at time of exercise, so valid b/c will vest w/in LIB+21.
NOTE- even if there were children under 9, we would proceed to apply the NY Reform statute and reduce the age contingency to 21 to make the remainder appointment valid
POWERS TO APPOINT & INCOME INTERESTS
Step 2- When is a GENERAL PRESENTLY EXERCISABLE POA valid?
to be valid, a GENERAL PRESENTLY EXERCISABLE POA must BE ACQUIRED w/in LIB + 21
POWERS TO APPOINT & INCOME INTERESTS
Step 3- when are the interests created by a GENERAL PRESENTLY EXERCISABLE POA valid?
To be valid, interests created by the exercise of a power of appointment that is both GENERAL AND PRESENTLY EXERCISABLE are measured from the DATE OF THE INSTRUMENT EXERCISING THE POWER, NOT from the instrument creating the power.
NOTE: you CAN NOT use WAIT & SEE when the PoA is both GENERAL AND PRESENTLY EXERCISABLE
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RULES OF THUMB WHEN DEALING W/ RAP & INCOME INTERESTS
1- an income interest built on a prior income interest –> second income interest is usually valid
2- an income interest built on a prior income interest but conditioned upon reaching a certain age –> second income interest is void but generally saved b/c the NY Reform Statute will reduce the age contingency to 21.
RULES OF THUMB WHEN YOU ARE DEALING W/ THE SUSPENSION RULE
income interest built on a prior income interest –> second income interest is usually invalid BUT MAY be saved by the reform statute if there is an age contingency in the second income interest that can be reduced
IF THE INCOME INTEREST CANNOT BE SAVED– accelerate to the remainderman
RAP & SUSPENSION POA CHECKLIST
Throw this stuff out for points!
*1- ID the interest
2- determine whether you are measuring from date of creation or date of exercise [exercise if general and presently exercisable, creation if any other]
3- Determine whether the second look doctrine applies [won’t if general and presently exercisable]
*4- Give the RAP rule
*5- find a LIB and run with it
*6- most likely, apply the NY reform statute
*7- Give the suspension rule
*8- if there is an income interest in an unborn beneficiary, say it is void b/c of statutory spendthrift rule
9- see if it can be saved by reform statute
10- don’t forget to deal w/ the remainder interests
