powers of appt Flashcards
definitions and purpose
a) Donor: Creator of power
b) Donee: Person who is given the power to use
c) Power of Appointment: authority created in (or reserved by) donee enabling donee to designate, within limits prescribed by donor, the persons who shall take donor’s property and manner in which they take.
1) Reserves Power in Self: both donor and donee.
d) Takers in Default: Persons who take property if donee fails to correctly exercise power.
purpose: lets creator look at future facts for distribution of property (e.g., kid’s upbringing).
classification of powers
do this first!
a) General POA: donee can appoint to herself, her estate, her creditors—as if donee owned it herself
b) Special (Limited) POA: donee cannot appoint to herself, her estate, her creditors. Can only can appoint to limited class of persons (e.g., “to the issue of my brother”).
c) Presently Exercisable POA: donee can do it right now during donee’s lifetime, generally in trust instrument (presently or testamentary)
1) Donee doesn’t have to wait for will, but can, unless the instrument creating power says otherwise.
d) Testamentary Power: donee can appoint only by Will after Donee’s death (not presently)
default rules
A general will provision (e.g., residuary) deemed exercises all POA held by donee (special and general) unless instrument creating the power (donor’s will) called for exercise by specific reference to the power.
a) If donor’s Will does not call for specific reference → property passes with residuary clause (and if no residuary, intestate).
b) If donor’s Will calls for a specific reference → Statute defers to Donor’s Will → “takers in default” take (cannot just say “my POAs, must actually state which POA exercising”).
POA and elective share
a) If general presently exercisable POA → subject to elective share, qualifies as T-Sub because capable of ownership by decedent spouse (because “during lifetime, can appoint trust property to anyone, including self”—if can get to property during lifetime, then it is a T-sub)
1) If POA given to 3rd-party → all consideration furnished by decedent spouse (full value in estate)
2) If POA given to spouse → add into augmented estate, subtract from spouses’ share (she is already it).
b) If general testamentary POA → not subject to elective share, not T-Sub because she can’t exercise power during life (can’t be for her benefit) (“on death, principal distributed to such persons as appointed by Will, including estate”)
c) If Special (Limited) POA → not subject to elective share, not T-Sub because she can’t every get to it (“on death, trustee shall distribute principal to such descendants as appointed by Will).
donee’s creditors’ rights to donor’s property
a) If general presently exercisable POA → Yes, creditors can reach assets, even if not exercised, because she can reach them if she wants. Might need to mention in context of statutory spendthrift rule.
b) If special presently exercisable POA → No, creditors can’t reach appointed assets
c) If general testamentary POA → No, creditors can’t reach appointed assets,
1) UNLESS
(a) person she was both donor and donee of POA (i.e., giving income interest to self). OR
(i) Example: donor gives income interest to someone, retains power to appoint residue.
(b) she exercises POA in favor of her estate—creditors get paid from the estate first.
POA and RAP
- RECAP
RAP
- deals with vesting only
- for interest to be valid under RAP, must vest within LIB at time of grant + 21 yrs
- look at facts to ensure that there is no way that vesting could occur outside perpetuities period
SUSPENSION RULE
- deals with possible suspension of ability to transfer a fee simple
- for an interest to be valid under rule, there must be identified persons who could, together, convey a fee simple absolute within LIB + 21 yrs
- look at facts to ensure that there are persons identified and alive who could join to theoretically convey a fee simple absolute (if not, void)
STATUTORY SPENDTHRIFT
-incoming beneficiaries cannot assign or convey their income interest
Random Notes
a) NY Perpetuities Reform Statute: saves RAP and Suspension by reducing age contingencies to 21 years
b) Say, issue is whether or not it violates RAP. State CL rule. In NY, there is a presumption that creator intended to create a valid interest. There is NY Reform legislation to further than. 21 year old thing.
step by step guide for RAP and POA
SHORT VERSION
1) identify type of power
2) is power itself valid?
3) are interests created by power valid? (where problems are)
a) LONG VERSION
b) +Identity the interest**
c) -Determine whether you are “measuring” from date of creation or date of exercise
d) -Determine whether Second Look Doctrine applies
1) Special or Testamentary:
(a) must be exercised within LIB+21; interests created must vest within LIB+21 from creation;
(b) Second-look and NY Reform Statute both apply → validates interests that would otherwise violate RAP/suspension.
2) Present General → must be acquired within LIB+21;
(a) For RAP, interests created must vest within LIB+21 from exercise (first-income interest valid, second-income interest, if conditional, invalid, unless NY Reform Statute)
(b) For Suspension, the second income interest void and no second-look and no NY Reform Statute because Statutory Spendthrift Applies (protects unborn income interest) → strike the second income interest and accelerate remainder by using NY Reform to validate remainder.
e) +Give the RAP Rule**
f) Find a LIB and run with it**
g) +Most likely, apply the NY Reform Statute**
h) +Give the Suspension Rule**
i) Look to see if there is an income interest in unborn beneficiary, and state the income interest is void**
j) -Go further by giving Statutory Spendthrift Rule, and state that the income interest is void.
k) -Don’t forget to deal with the remainder interests.
powers to appoint: remainder interests
a) First: Identify Type of POA
1) Either special or testamentary (general) POA.
b) Second: Ask Whether Power Valid—(generally yes)
1) To be valid, a special or general testamentary POA must be certain to be exercised within LIB+21.
2) If given to person who is LIB at time power is created → power valid (exercised within LIB + 21 years).
c) Third: Ask Whether Interests Created by POA Valid?—(problem area)
1) To be valid, interests created by exercise of special or general testamentary POA measured from date of instrument creating the power (not the power’s exercise).
(a) NYS: treat donee of power as donor’s agent, merely “fills in the blanks” of donor’s Will or trust.
d) Fourth: If remainder interest violates RAP and the suspension rule, then apply Wait-and-See or Second Look Doctrine to facts in existence at time when donee exercises (not creation) and fills in donor’s blanks:
1) If interests would be valid when exercised → use Second Look Doctrine / Wait and See Doctrine (look at facts in existence when power is exercised).
(a) Note: Second Look only applies to POA; not to interests created by straight trust.
2) If interests still invalid when exercised → void, unless NY Reform Statute
(a) NY Reform Statute: reduce any offensive age contingency to 21 years, thereby validating.
POA: income interests
a) First: Identify Type of POA—present general power of appointment
b) Second: Ask Whether Power Itself Valid—(generally yes)
1) To be valid, a general presently exercisable POA must be certain to be acquired within LIB+21
2) If given to a person who is an LIB at time power is created → the power is acquired.
c) Third: Ask Whether Interests Created by POA Valid—(problem area)
1) To be valid, interests created by exercise of POA that is both general and presently exercisable are measured from date of instrument exercising the power (not power’s creation) → property of the donee → not “filling-in” the blanks in donor’s Will or trust → read it as it appears in the donee’s will.
(a) TIP: watch out for second income interests to unborn beneficiaries!
2) For Income-Following-Income Interests
(a) Dealing with RAP
(i) If income interest built on a prior income interest → 2nd income interest usually valid (takers generally alive and therefore vest at 1st’s death); OR
(ii) If income interest built on a prior income interest conditioned upon reaching certain age → 2nd income interest is void, but saved by NY Reform Statute forcing vesting within LIB+21.
(b) Dealing with Suspension → second income is usually void because: (three reasons):
(i) NY Statutory Spendthrift Rule: prevents income beneficiary from assigning income interest, because unborn child can’t join with others in theoretical conveyance within LIB+21.
(ii) NY Reform Statute: cannot override the Statutory Spendthrift Rule by reducing age contingency and therefore income interest could last beyond LIB+21.
(iii) Second Look Doctrine: does not apply to present general POAs (only applies to special and testamentary).
3) Remainder Interests: If second-income interest is void, we bypass that interest and accelerate to remainder and, even if remainder violates RAP and Suspension Rule, the NY Reform Statute saves the remainder interest by reducing age contingency to 21 years.
d) Ex. A died 20 years ago, leaving a Will that devised property in trust: “Income to K for life.” A’s Will also provided that K may appoint the trust principal to anyone during his life or by Will. K dies, not having exercised the power during his life, but his Will provides that “Income shall be paid to D for life, then income to D’s children until the youngest reaches 35, at which time the principal shall be paid to D’s children equally.”
1) First: the power is a present, general power of appointment.
2) Second: the present general POA must acquired within LIB plus 21 years, which is was because K was alive when the power was created and given to him.
3) Third: We start measuring a present general power of appointment from the date it was exercised and read the interests exactly as exercised by the donee, who created two income interests and one remainder interest”
(a) First Income Interest: “Income shall be paid to my son D for life” does not violate RAP or the suspension rule because D is a LIB at K’s death.
(b) Second Income Interest: “then income to D’s children until the youngest reaches age 35.”
(i) Does not violate RAP: All of the D’s children will be alive at time of D’s death and there income vests immediately at his death and even if it did violate RAP, NY Reform Statute would reduce the age to 21.
(ii) Does violate the Suspension Rule: D might have a child who is not yet born at date of exercise and whose income interest can continue for longer than LIB plus 21 years (and NY Statutory Spendthrift Rule prevents an “unborn” child from joining with others in a theoretical conveyance of the land).
(iii) Upshot: Because the second income interest is void, we byspass it and accelerate to the remainder interest (has to go somewhere), but…
4) Remainder Interest: “at which time the principal shall be paid to D’s children” violates RAP and the suspension rule (to many years), but the NY Reform Statute saves the remainder interest by reducing the age contingency to 21 years.
