Power of appointment legislation in New York: it's time for modernization.

Author:Bloom, Ira Mark
Position::VI. Exercise through VIII. Conclusion, with footnotes, p.49-86
 
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  1. EXERCISE

    1. Requisites for Exercise of a Power of Appointment

      1. Current New York Law

      New York has several provisions regarding the exercise of the power of appointment. They include: 10-6.1 Exercise of a power of appointment; manifestation of intention of done

      (

      1. Subject to paragraph (b), an effective exercise of a power of appointment does not require an express reference to such power. A power is effectively exercised if the donee manifests his intention to exercise it. Such a manifestation exists when the donee:

        (1) Declares in substance that he is exercising all the powers he has;

        (2) Sufficiently identifying the appointive property or any part thereof, executes an instrument purporting to dispose of such property or part;

        (3) Makes a disposition which, when read with reference to the property he owned and the circumstances existing at the time of its making, manifests his understanding that he was disposing of the appointive property; or

        (4) Leaves a will disposing of all of his property or all of his property of the kind covered by the power, unless the intention that the will is not to operate as an execution of the power appears expressly or by necessary implication.

        (b) If the donor has expressly directed that no instrument shall be effective to exercise the power unless it contains a specific reference to the power, an instrument not containing such reference does not validly exercise the power.161

        10-6.2 Exercise of a power of appointment; conformity to directions of donor

        (

      2. Subject to the power of a court of competent jurisdiction to remedy a defective execution of an imperative power of appointment, the directions of the donor as to the manner, time and conditions of the exercise of a power must be observed, except that:

        (1) Where the donor has authorized it to be exercised by an instrument legally insufficient to dispose of the appointive property, the manner of exercise is to be determined by the provisions of this article.

        (2) Where the donor has directed any formality to be observed in its exercise, in addition to those which would be legally sufficient to dispose of the appointive property, such additional formality is not necessary to a valid exercise of such power.

        (3) Where the donor has made the power exercisable only by deed, it is also exercisable by a written will unless exercise by will is expressly excluded.

        (4) Where the donor of a general power of appointment has not expressly imposed a requirement of good faith or of reasonableness with respect to the donee's exercise of such power, neither such requirement shall be implied. (162)

        10-6.3 Exercise of a power of appointment; type of instrument A power of appointment can be exercised only by a written instrument which would be sufficient to dispose of the estate intended to be appointed if the donee were the actual owner. (163)

        10-6.4 Exercise of a power of appointment; required consents

        (

      3. When the consent of the donor or of a third person to the exercise of a power of appointment is required, such consent shall be expressed in a written instrument, subscribed by the person whose consent is required; and to entitle the instrument of exercise to be recorded, the signatures of the donee and of the person consenting must be acknowledged or proved in the manner required by the laws of this state for the recording of a deed of real property.

        (b) Unless the donor expressly provides otherwise:

        (1) When the consents of two or more persons are required for the exercise of a power of appointment, all must consent.

        (2) If before the exercise of the power:

        (

    2. One or more of such persons die, the consent of the survivor is sufficient.

      (B) One or more of such persons become incompetent, the consent of the competent person is sufficient. (164)

      10-6.7 Exercise by all donees; exceptions

      Whenever a power of appointment is created in two or more donees, all must unite in its exercise, unless the instrument creating such power provides otherwise. But, if before its execution, one or more of such donees dies or becomes incompetent, such power may be exercised by the survivor or the competent donee, unless such exercise is explicitly barred by the terms of the instrument creating such power. (165)

      1. Restatement Provision

        Restatement section 19.1 provides:

        Requisites for Exercise of a Power of Appointment A power of appointment is exercised to the extent that:

        (1) the donee manifests an intent to exercise the power in an otherwise effective document;

        (2) the donee's expression of an intent to appoint satisfies the formal requirements of exercise imposed by the donor and by applicable law; and

        (3) the donee's appointment constitutes a permissible exercise of the power. (166)

      2. Recommended Statute

        Requisites for Exercise of a Power of Appointment

        (

        1. A power of appointment is exercised to the extent that:

        (1) the donee manifests an intent to exercise the power in an instrument that would be effective under applicable law if the donee were the actual owner of the appointive property;

        (2) the donee's expression of an intent to appoint satisfies the formal requirements of exercise imposed by the donor;

        (3) the donee's appointment constitutes an exercise of the power which is consistent with the manner, time and conditions imposed by the donor for the exercise; and

        (4) the donee's appointment constitutes an exercise of the power which satisfies applicable law.

        (b) If the exercise of a power requires the consent of one or more persons, such consent by a person with capacity to give consent shall be expressed in an instrument that would be effective if the person consenting to the donee's exercise of the power were the actual owner of the appointive property.

        (c) A power of appointment shall be deemed to be exercised by a provision in the donee's will or revocable trust if the donor expressly provides that the mere existence of the will or revocable trust provision is deemed to exercise the power.

      3. Discussion

        In lieu of the current EPTL provisions dealing with the exercise of a power of appointment, my recommended statute relies on Restatement section 19.1, as modified, but continues a few aspects under current New York law. (167)

        My overall goal is to prescribe a provision that is both concise and sufficiently comprehensive. Clearly, current New York law is not concise; several sections, many of which are detailed, involve the exercise of a power of appointment. Moreover, many current provisions are based on antiquated rules deriving from the Revised Statutes of 1830 and are not of great significance in the twenty-first century. As a result, I recommend that the EPTL statutes set forth above be repealed with my recommended statute serving as a replacement. Conciseness is demonstrated by subsection (a)(1) of my recommended statute. Manifestation of intent will be based on all the facts and circumstances. Subsection (a)(1) encapsulates this idea and renders unnecessary the specific indicia of intention provided in EPTL 10-6.1(a)(1)-(3). By requiring that the instrument be effectively exercised, the requirement of EPTL 10-6.3, which is captured EPTL 10-6.2(1), is subsumed within subsection (a)(1) of my recommended statute by the requirement that the instrument of exercise be effective. Accordingly, EPTL 106.2(1) should be repealed.

        Regarding the elimination of antiquated rules, consider EPTL 106.2(a)(2), which is set forth above. (168) This section derives from the Revised Statutes of 1830. (169) It was designed to deal with "accumulative" or "redundant" powers, which under the common law before 1830, needed to be complied with to make a valid exercise. (170) In the modern world, such superfluous requirements are not imposed on donees by donors.

        EPTL 10-6.7 provides another antiquated rule. Because powers today are rarely created with more than one donee, EPTL 10-6.7, which is based on the revised statutes of 1830,171 can be readily omitted.

        Subsection (a)(2) of my recommended statute honors the wishes of the donor in imposing additional formal requirements. The most common type of formal requirement is that the donee makes specific reference to the power. If specific reference is lacking, the power is not effectively exercised under subsection (2), which is the result under EPTL 10-6.1(b). (172)

        Subsection (a)(3) of my recommended statute provides that the exercise of the power must be consistent with the rules imposed by the donor, e.g., to whom the appointive property be appointed. If the donor conditions exercise on receiving the consent of another person, subsection (b) encapsulates the salutary features of EPTL 10-6.4. (173)

        Subsection (a)(4) of my recommended statute requires that the exercise must satisfy applicable law. This provision was derived from section 17.1 of the Restatement (Second). (174) As explained in the comment, "if the intended exercise would violate a rule of law, the power is not effectively exercised." (175) An example is when the exercise would violate the rule against perpetuities. (176)

        Subsection (c) covers unusual situations: the donor expressly provides that a power will be deemed exercised by the donee merely by the donee making a will or revocable provision, most likely a residuary provision, without otherwise indicating an intention to exercise the power. Absent such an express provision by the donor, the mere existence of a will or revocable trust provision will not be enough to exercise a power of appointment.

        Finally, EPTL 10-6.2(4) can be safely repealed. It was inserted out of an abundance of caution so that a marital deduction would not be denied for a life estate, general power of appointment arrangement. (177) Since a general power of appointment trust would not qualify for marital deduction treatment if conditions were imposed on the donee's exercise, no court would construe such a trust to impose invalidating conditions on the donee's exercise of a general power of appointment. (178)

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