Power of appointment
A power of appointment is authority granted to a person to direct who receives property held in a trust. The person holding the authority is the powerholder, and the trust terms define how the power may be exercised. A power may be limited to specified recipients or may allow broader distributions, including distributions to the powerholder, with different estate consequences described for a general power.
How it works
A power of appointment lets its holder direct the disposition of trust property. The trust instrument sets the permitted recipients and the way the power can be exercised. Arizona law characterizes a trustee's exercise of a power to appoint trust property under the relevant subsection as exercising a special power of appointment.
A general power can include authority to distribute trust assets to the holder. Practitioners describe a discretionary power to distribute assets to oneself without an ascertainable standard as a general power, with estate inclusion as a consequence.
A powerholder may release a power or limit or restrict it in whole or in part under Oregon law. Tennessee law allows a holder of a general testamentary power to represent permissible appointees and takers in default when no conflict of interest exists.
Where it shows up for owners of businesses, real estate and private investments
A trust holding a business interest, real estate or private investments can give a person authority to direct who receives that property. The instrument's terms determine whether the power reaches a narrow group of recipients or permits distributions to the holder.
A power may also appear in the steps used to create a trust. West Virginia law lists exercising a power of appointment in favor of a trustee as one way a trust is created.
Points that are easy to confuse
A special power and a general power describe different scopes of authority. Arizona law calls a trustee's specified exercise a special power, while practitioners describe a discretionary ability to distribute trust property to oneself without an ascertainable standard as a general power.
A power of appointment is distinct from trustee authority generally. Institutional research describes nonfiduciary powers of appointment as excluded from the Uniform Directed Trust Act's trust-director rules.
Common questions
Can a power of appointment be released or limited?
Oregon law allows a person granted or reserving a power of appointment or similar disposition power to release it, or to limit or restrict it in whole or in part. The rule concerns the power under Oregon law.
Can a holder of a general testamentary power represent other trust interests?
The rule applies under the Tennessee Uniform Trust Code provision described here.