Special Power of Appointment
Special Power of Appointment
A special power of appointment is limited power reserved to someone to do do something with the property in an estate limited by certain predetermined restrictions. For example a special power of appointment in a trust may reserve to the grantor the right to change the distribution plan between the children, but not anyone else. Thus, when exercised, the power of appointment gifts property to a different person than originally named in the trust, restricting the change to another child.
Special powers of appointment also change the trustees or other parties with authority in an estate plan. These powers assist the grantor of a trust in changing circumstances without revoking and rewriting the trust. Asset protection trusts commonly include special powers of appointment. These special powers of appointment limit the trustees to certain geographical areas. They may also eliminate trustees belonging to the family of the grantor.
General Powers vs Special Powers
This blog post covers special powers of appointment and not general powers of appointment. General powers of appointment, often called powers of appointment, place no restriction on the person whom the appointee may appoint. A discussion on general powers may be found here. Special powers of appointment limit the powers of appointment possessed by the appointee. For example, Bob has a Utah Domestic Asset Protection Trust. True to Utah law, Bob restricts his power of appointment over trustees to nonsubordinate trustees because if he did not, then the assets would no longer be protected. To explain, subordinates are immediate family members, employees, agents, and others over whom Bob maintains or might maintain influence. When Bob creates a trust which he retains control over, the law treats the trust property in relation to Bob’s creditors, as if Bob never gave it to the trust. Thus if Bob dislikes the actions taken by the trustee, Bob reserves the power to replace the trustee with another so long as the replacement is not Bob or a subordinate.
Common uses for special powers of appointment include tax planning and asset protection. These often include restrictions on the exercise of the powers to outsiders. Another common use for special powers of appointment includes the exact opposite. These powers restrict the exercise of them to specified groups, often the children of one or more of the grantors. Often couples with children from prior marriages worry their current spouse might change the beneficiaries to only the spouse’s children, or might even give it all away if they get remarried. These trusts usually become irrevocable or partially irrevocable and may contain a provision that a portion of the estate must go to each side of the family.
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