Estate Planning Newsletter

• The Uniform Transfers to Minors Act
  Minors have no legal capacity to manage property. Thus, transferring property and other assets to minors can be problematic. For example, parents or other adults may wish to convey a small amount of property to a minor without investing... Read more.
• Estate Planning Under the HIPAA Privacy Rule
  The Health Insurance Portability and Accountability Act of 1996 (HIPAA) became effective on April 14, 2003. HIPAA establishes national standards for the protection of certain health information. The purpose of HIPAA is to ensure that a... Read more.
• The Implications of Reproductive Technology on Survivors' Benefits
  Several states refer to children who are born or adopted after the execution of a parent’s will and omitted from the provisions of the testamentary instrument as “omitted” or “pretermitted” children. In the... Read more.
• Valuing an Interest in a Company for Estate Tax Purposes
  In 2001, Congress passed legislation incrementally increasing the amount exempt from federal estate taxes and completely eliminating estate taxes in the year 2010. However, the legislation contains a “sunset” provision... Read more.

• The Most Important Estate Planning Documents
• 3 Estate Planning Documents Every College Student Needs
• New State Law Conforms Estate Planning & Surrogate Court with 2011 Marriage Equality Act
• Planning For Your Death Has Never Been Easier. Get. It. Done.
• Bonnie Kraham: Five misconceptions about estate planning

Special Power of Appointment Adds Flexibility to Your Estate Plan

What is a Power of Appointment?

A power of appointment is the power given by one person to another (referred to as the “holder” of the power of appointment) to designate who is to receive an asset. For example, if Husband creates a trust giving Daughter the power to determine who is to receive the trust principal, Daughter is the holder of the power of appointment. There are essentially two types of powers of appointment:

• A general power of appointment allows the holder to appoint the assets to anyone, including himself, to his estate, or to the creditors of his estate. Property subject to a general power of appointment at the time of death will be included in the holder’s estate.
• A special power of appointment is exercisable only to a group of persons defined in the trust instrument (for example, to the group comprised of the Trustor’s issue) or in favor of someone other than the holder, the holder’s estate, the holder’s creditors, or the creditors of the holder’s estate. Property subject to a special power of appointment is not included in the holder’s estate.

Special Power of Appointment May Add Flexibility to Estate Plan

A special power of appointment may be used to add flexibility to the dispositive provisions of an estate plan without subjecting the property subject to the special power to inclusion in the holder’s estate. For example, Husband and Wife may designate that the surviving spouse will have a special power of appointment over the principal of the exemption trust (also commonly referred to as the credit-shelter or bypass trust), a trust which becomes irrevocable upon the death of the first spouse. The special power of appointment in this scenario would allow the surviving spouse to make a later determination as to who should receive the principal of the exemption trust and make adjustments accordingly.

Special Power of Appointment May Not Be Appropriate in All Circumstances

The decision as to whether a special power of appointment should be used and the drafting of such a provision must be considered carefully, particularly where there are children from a previous marriage. The use of a special power of appointment in such a situation could result in the surviving spouse appointing all of the trust assets to his or her children, excluding the children of the first spouse to die.

The use of a special power of appointment may add flexibility to the dispositive provisions of an estate plan, allowing someone to make adjustments among beneficiaries, to take into consideration the increased need of a particular beneficiary, or other changes in circumstances. However, as illustrated above, the use of a special power of appointment may not be appropriate in all circumstances.

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