Even diligent estate planning efforts cannot possibly cover every potential circumstance that could challenge our loved ones down the road. A child could suffer an accident, a lawsuit could threaten savings, a hurricane could destroy a home…We can arm families with some flexibility for unexpected life events by including a power of appointment as a trust provision. Read on for guidance from legal experts.
While estate plans are vital, they can’t speak to the unknown. A “power of appointment” allows for some flexibility to be built in. As Adler Pollack & Sheehan’s David Riedel explains:
Of course, there’s no way of predicting the future, but you can supplement your existing estate plan with a trust provision giving a designated beneficiary a “power of appointment” over some or all of the trust property. Essentially, this person will have the discretion to change distributions from the trust or even add or subtract beneficiaries.Assuming the holder of this power fulfills the duties properly, he or she can make informed decisions when all the facts are known. This creates more flexibility and adaptability within your estate plan. Typically, the trust will designate a surviving spouse or an adult child as the holder of the power of appointment. After you die, your surviving spouse has authority to make changes consistent with the language contained in the power of appointment clause. This may include the ability to revise beneficiaries.
Helpful To Know
When creating a trust, you (the grantor) name a trustee to administer the assets in accordance with the plans specified in the trust agreement. When families set up trusts, they typically designate a loved one or friend to serve as the trustee, however, an independent fiduciary is also an option. Remember, the trustee role is not a ceremonial one. Trustees are fiduciaries: they are legally bound to the highest duty of care in executing their responsibilities. In fact, given the significant duties undertaken by trustees, the trust agreement may require procurement of a trustee bond. A trustee bond is a type of fiduciary bond that protects the interests of the trust and beneficiaries by guaranteeing the faithful performance of a trustee in accordance with the law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Then, print or e-file the bond—from anywhere. Trustee Bonds Here
Two Types of Appointment Powers?
Legal experts caution that although a power of appointment can be useful, it needs to be carefully thought out with the assistance of a professional. When considering a power of appointment, keep in mind that there are two types: “general” and “limited” (which is sometimes also referred to as “special”). Riedel outlines these differences:
“General” power of appointment.
This allows the holder of the power to appoint the property for the benefit of anyone, including him-or herself, his or her estate or the estate’s creditors. The property is usually included in a trust but may be given to the holder outright. Also, this power of appointment can be transferred to another person.
“Limited” or “special” power of appointment. Here, the person holding the power of appointment can give the property to a select group of people who’ve specifically been identified by the deceased. For example, it might provide that a surviving spouse can give property to surviving children, as he or she chooses, but not to anyone else.
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