Estate planning inevitably requires making some assumptions about the future. But none of us can clearly predict the circumstances and needs of our heirs long after we are gone. Fortunately, California law allows a testator to leave some asset distribution decisions to be made later by a beneficiary, through a tool known as a power of appointment.
A power of appointment in a will or trust basically gives a beneficiary the right to choose how to distribute certain of the deceased person’s assets. A parent may, for example, include a provision in a trust giving a child the right to direct, in the child’s own will or trust, how any assets remaining in the trust will be distributed at the time of the child’s death.
A broad power of appointment which puts no restrictions on the appointee’s authority to distribute the assets is known as a general power of appointment. If there are restrictions on the authority, the power is known as a limited power of appointment. Limited powers are usually preferred for two reasons: they give the testator some say in how the assets will be distributed and, if properly drafted, they will not cause the assets to be included in the appointee’s estate for estate tax purposes.
A power of appointment allows a testator some flexibility in their estate planning. It is essentially a recognition that a beneficiary acting years after the testator’s death may be in a better position to direct the distribution of the testator’s legacy in the best interests of the family.
Source: Findlaw.com, “Estate Planning & Probate Dictionary,” accessed May 9, 2015