An often misunderstood but common estate planning tool is the power of appointment.
Not to be confused with a power of attorney (the document that allows you to delegate someone to act on your behalf while you are still living), a power of appointment can be an incredibly useful tool if used properly and knowledgeably.
Broadly speaking, a power of appointment is a right granted in a legal document, including in a will or a trust, by an individual (the donor) to another person (the donee or the power holder). This granted power allows the donee to name someone else as a recipient (the appointee) of all or a portion of the donor’s assets in the future.
The power holder is not required to exercise the power. Rather, the power holder simply has the option to exercise it. If the power is left unexercised, then the money and property will pass to those individuals or entities who were originally named in the will or trust as the beneficiaries and in the amounts originally specified.
This tool essentially allows for the person making a will or trust to postpone the decision of who should receive the donor’s money and property, and grants such decision-making power to someone else who may be in a better position in the future to determine who will receive it.
If you would like to learn more about how powers of appointment can be used to help you achieve your estate planning goals while maintaining significant flexibility in your planning, please do not hesitate to contact us.