The power of appointment is a legal authority granted to an individual (the "appointor") to designate or nominate beneficiaries to receive certain property or interests under a will, trust, or other legal instrument.
This power can be "general," allowing the appointor to distribute the property to virtually anyone, or "special" (or "limited"), restricting the appointor to a specific group of potential beneficiaries.
Powers of appointment provide flexibility in estate planning, allowing the granter of the power (often the creator of a trust or will) to give another person the discretion to determine the final distribution of certain assets.
This tool is particularly useful for addressing changes in circumstances or relationships without needing to revise the legal document in which the power is established.
The exercise of a power of appointment must comply with the terms under which it was granted, and its use is subject to fiduciary duties, ensuring that the appointor acts in the best interests of the beneficiaries.
Estate Planning: Utilized to provide flexibility in the distribution of assets to beneficiaries over time.
Trust Law: Involves the management and distribution of trust assets according to the terms of the trust and the exercise of any powers of appointment granted within it.
A misconception is that the power of appointment allows the holder to use the assets for their own benefit.
While a general power of appointment may include the holder among potential beneficiaries, the exercise of this power must align with the terms set by the grantor and is often intended for the benefit of others.
The distinction between general and special powers of appointment is crucial, as it determines the scope of the appointor’s discretion in selecting beneficiaries.
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