What Is A Power of Appointment?
dan • January 15, 2023
One of the most difficult parts about planning an estate is dealing with the pressure that comes from knowing that you are putting plans in place that might affect people decades in the future, who are in circumstances that could turn out to be far different than we had expected for any number of reasons. One way to build some flexibility into your estate plan is with powers of appointment. Powers of appointment allow certain people to redirect where your estate's assets eventually go.
In the context of estate planning, a power of appointment is a legal authority granted to a person (called the "donee" or "holder" of the power) to choose the recipients of certain property or assets. The donee of a power of appointment can either be a general power of appointment or a limited power of appointment, depending on the scope of their authority.
A general power of appointment gives the donee the authority to appoint the property or assets to anyone they choose, including themselves. The donee has broad discretion to make the appointment in any way they see fit, subject to the terms of the document creating the power.
On the other hand, a limited power of appointment restricts the donee's authority to make appointments to certain designated individuals or classes of individuals. The donee cannot appoint the property or assets to themselves or to anyone outside the designated class. Limited powers of appointment are often used to ensure that the property or assets are distributed in a certain way or to achieve specific estate planning goals.
Both general powers of appointment and limited powers of appointment can be either "springing" or "durable," depending on when they take effect. A springing power of appointment takes effect only upon the occurrence of a specified event, such as the donee's death or incapacity. A durable power of appointment, on the other hand, takes effect immediately and remains in effect until it is terminated or the donee dies. 
In the context of estate planning, a power of appointment is a legal authority granted to a person (called the "donee" or "holder" of the power) to choose the recipients of certain property or assets. The donee of a power of appointment can either be a general power of appointment or a limited power of appointment, depending on the scope of their authority.
A general power of appointment gives the donee the authority to appoint the property or assets to anyone they choose, including themselves. The donee has broad discretion to make the appointment in any way they see fit, subject to the terms of the document creating the power.
On the other hand, a limited power of appointment restricts the donee's authority to make appointments to certain designated individuals or classes of individuals. The donee cannot appoint the property or assets to themselves or to anyone outside the designated class. Limited powers of appointment are often used to ensure that the property or assets are distributed in a certain way or to achieve specific estate planning goals.
Both general powers of appointment and limited powers of appointment can be either "springing" or "durable," depending on when they take effect. A springing power of appointment takes effect only upon the occurrence of a specified event, such as the donee's death or incapacity. A durable power of appointment, on the other hand, takes effect immediately and remains in effect until it is terminated or the donee dies. 
Potential Tax and Asset Protection Issues
So between limited and general powers of appointment, why would you choose one over the other? Because the donee of a general power of appointment can potentially direct the estate's assets to themselves or their creditors, the IRS treats those funds like their yours, even if you don't exercise that power in your favor. That means those funds become part of your estate and could be subject to your creditors or could create or increase an estate tax problem.

What Next?
If you are involved in the estate administration of an estate that includes a power of appointment, you can:
- Give us a call at 720-821-7604 to schedule a "Discovery Session" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
- Visit our estate administration page to learn more about how proactively thinking through your estate plan can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
- Learn more by reading our blog or watching our videos .
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