power of appointment

n., pl., powers of appointment.
Authority granted to one person by another to transfer property upon the death of the latter.

One under which holders have the right to dispose of the property in favor of: (1) themselves; (2) their estate; (3) their creditors; or (4) the creditors of their estate. A trust Grantor is treated as the owner and is therefore taxed on trust income if he or she has the power to control the beneficial enjoyment of the trust corpus or income, without the approval of an adverse party.

Right granted to a person acting as Trustee to appoint others to dispose of or distribute an Estate according to the terms of a will or a deed of trust. A general power of appointment authorizes the person receiving the property (called the donee) to sell or dispose of it without restriction; a limited power of appointment limits the distribution of the estate to named individuals.

A power or authority given by a donor to a donee to appoint the beneficiaries of the donor's property, or any interest therein, which is vested in a person other than the donee of the power. 136 Cal. Rptr. 807, 809. The power may be created by deed orwill, id., and it may be reserved by the donor for him or herself. The instrument creating the power delineates the extent to which the donee may choose the beneficiaries of the donor's property. Under a general power, the power may be exercised in favor of any person, including the donee. Under a special power, the power may be exercised only in favor of a limited group, not including the donee or his or her estate. Present day powers of appointments are more flexible in determining beneficiaries than if a disposition irrevocably named all takers, a flexibility that allows for unforeseen future events. For example, a father's will may give his daughter the power of appointment over the principal of a trust, with the result that the daughter can allocate the principal as needed when she exercises the power. Under a more inflexible procedure whereby the father names all the beneficiaries and the amount to which they are entitled, adjustments could not be made for differing needs. If the father wants to insure that only the daughter's children are the beneficiaries, he can so provide by giving a "special power of appointment" to the daughter. The instrument creating the power usually will include a provision disposing of the property if the power is not effectively exercised. Title to the property or interest passes directly from the donor of the power to the beneficiary; the donee is merely the conduit through which title passes, 92 S.E. 2d 503. Moreover, since a power of appointment does not constitute an estate or interest, it is termed a naked power. If in the same instrument creating the power of appointment the donee is granted a present or future interest in the property over which the power is to be exercised, the donee is said to have a power coupled with an interest. 227 P. 2d 670.

I.R.C. §2041 defines a general power of appointment for tax purposes (subject to exceptions) as "a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate. . . ." If that definition is met, the value of the underlying property is includable in the value of the decedent's taxable gross estate. Therefore, special powers of appointment are generally better from a tax viewpoint.

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