New York Estate Planning & Elder Law Blog
A power of appointment allows a person engaged in estate planning to direct where interest in an estate or trust is passed. Appointments are often classified as either general or limited/special. A general power of appointment gives the holder broad power to transfer a deceased person’s property. For example, if a person is permitted to give the property to anyone, this is a general power of appointment. A special power of appointment gives a person the power to give a deceased person’s assets to a certain group of individuals. These groups cannot include the recipient, the recipient’s estate, or the recipient’s creditors.
When utilized correctly, powers of appointment are a powerful estate planning tool. These powers are highly nuanced, however, which is why this article reviews some critical details that people engaged in the estate planning process should remember about powers of appointment.
# 1 – Powers of Appointment Provide Flexibility
Powers of appointment can add flexibility to estate plans. Powers of appointment can provide a way to address unforeseen circumstances as well as changes that occur from a tax or non-tax perspective. Powers of appointment also allow a person to postpone determinations of how assets until a more informed decision can be made.
# 2 – Tax Issues Arise with Powers of Appointments
Various tax implications arise due to powers of appointments. If a general power of appointment is utilized, this will result in the assets to be included in the recipient’s estate despite whether the recipient utilizes the power. Utilizing a power of appointment will also result in assets being taxed for both estate and gift taxes. A limited power of appointment, however, will almost always not result in the recipient’s assets being subject to an estate or gift tax.
# 3 – Powers of Appointment Are Not For Everyone
Individuals interested in estate planning should realize that powers of appointment are not fit for every situation. Remember, a power of appointment in a trust that the recipient can utilize during his or her life will disqualify a trust for qualified terminable interest property trust as well as qualified subchapter S corporation trust. To make sure that trusts satisfy these requirements, it is often necessary to restrict the power to a testamentary power that is exercisable only at death.
# 4 – General Powers of Appointment Can Achieve Charitable Goals
General powers of appointment can be helpful in achieving charitable goals. For example, if a person determines that their own offspring are successful enough to not need additional assets on passing, a general power of appointment can be utilized over assets to pass them onto charitable organizations. This means that assets over which general power of appointment are utilized are included in a taxable estate while also qualifying for a charitable deduction.
Contact an Experienced Estate Planning Attorney
Powers of appointment can be used advantageously in estate planning to provide tax benefits among other benefits. To make sure that these powers are correctly utilized in your estate plan, however, it is a good idea to speak with an experienced attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.