Power Of Appointments

• Author: Browne C. Lewis
• Pages: 369-387

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Chapter 13 - Power of

Appointments

The testator can leave property as a gift outright to a person or the testator can leave

property to a person to hold in trust for another person. Finally, the testator can leave

property to a person and give the person the authority to select the new owner of the

property. That authority is called a “power of appointment.” A power of appointment is the

right to designate the new owner of property. A power of appointment is created by stating,

“I leave my property to A in order that he may have the right to appoint the new owner.”

It is important to identify the parties to the transaction. The donor is the original

owner of the property. If a trust is involved the donor is the settlor or the testator. The

person who receives the power of appointment is the donee. The donor remains the owner

of the property until the donee exercises his power of appointment and names a new owner

of the property. Objects of the power are the pool of potential new owners of the property.

The persons the donee appoints as the new property owners are called appointees. Even

though the donee designates the appointees as the new owners of the property, those

persons take title to the property from the donor. The default takers are those persons who

take the property if the donee does not exercise the power of appointment. The property is

referred to as the appointive property. Consider the following example. In his will, Mandy

stated, “I leave my house to my son, William for life. When William dies, the house will go

to any one of my children William appoints as the new owner. If William does not appoint a

new owner of the house, the house will go to my cousin, Janice.” In the example, Mandy is

the donee; William is the donor; Mandy’s children are the objects of the power; and Janice is

the default taker. In the event the donor does not name a default taker and the donee fails to

exercise the power, the property reverts to the donor’s estate. Once the property reverts to

the donor’s estate, it goes to the takers of the donor’s residuary estate.

The two main types of powers of appointment are the general power of appointment

and the special power of appointment. When the donor creates a general power of

appointment, he does not place any restricts or conditions on the donee’s exercise of the

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power. Therefore, the donee can appoint the power to any one, including himself. There is

no specific language needed to create a general power of appointment. The trustee just has

to make sure that the exercise of the power is unrestricted. For instance the donor could

state, “I leave my house to Paul to give to any one that he chooses.” On the other hand, a

donor who creates a special power of appointment specifics certain individuals or groups as

the objects of the power or conditions the exercise of the power on certain factors. A special

power cannot be exercised in favor of the donee, the donee’s estate, the donee’s creditors or

the estate of the donee’s creditors. A special power of appointment is created when the

donor states “I leave my property to Ben to appoint to any one of my sisters that he so

chooses.” Both the general and the special power of appointment may be inter vivos or

testamentary. An inter vivos power of appointment must be exercised during the donee’s

life. The testamentary power of appointment must be exercised by the donee’s will.

Notes and Problems

1. A special power of appointment may be exclusive or non-exclusive. If the power is non-

exclusive, the donee may exclude entirely one of more objects of the power. Thus, the donee

has the option of appointing all the property to one member of the class of permissible

objects, and excluding the rest. When the case involves a non-exclusive power, the donee

must appoint some amount to each of the permissible objects. The illusory appointment rule

requires that each permissible object receives a substantial portion of the appointive

property.

2. Problems

a) Gus’ will stated, “I leave the residue of my estate in trust for the benefit of Mae during her

life, the remainder as Mae shall appoint by will to any one or more of her children.” Mae

had four children, Bill, Sam, Gail, and Frank. Mae appointed all of the trust property to Gail.

Is this permissible?

b) Thomas’ will stated, “I leave my house in trust for the benefit of Billy during his life, the

remainder as Billy shall appoint by will to his children.” Billy had two children, Crystal and

Polly. Billy appointed all of the trust property to Polly. Is this permissible?

c) Penny’s will stated, “I leave my apartment complex in trust for the benefit of Sandra for

life, the remainder as Sandra shall appoint my will to my sisters.” Penny had three sisters,