Power of Appointment*
“A power of appointment is a power conferred by the owner of property (the ‘donor’) upon another person (the ‘donee’) to designate the persons (‘appointees’) who will receive the property [‘appointive property’] at some time in the future. . . . In the typical situation, the creator of the trust transfers property in trust for the benefit of a designated person during his lifetime with a provision that, upon the death of the life beneficiary, the remaining property shall be distributed in accordance with an ‘appointment’ made by the life beneficiary. . . . [P]owers make possible a disposition reaching into the future but with a flexibility that can be achieved in no other way. . . . [The donor] has limited the benefits of his property to the objects of his bounty, but he has also permitted future distributions of principal and income to take account of changes in the needs of beneficiaries which he could not possibly have foreseen.” Recommendation and a Study Relating to Powers of Appointment (Oct. 1968) (9 Cal. Law Revision Com. Rep. (1969) at pages 307-308).
Powers of appointment may be “general” (where donees can appoint to themselves or their own estates) or “special” (where the list of permissible appointees does not include the donee or the donee’s estate). A power may only be exercised in favor of the appointees designated by the donor, but powers may be “nonexclusive” (where the donee must appoint something to everyone the donor designated as a permissible appointee) or “exclusive” (which allow donees to give to fewer than all the appointees and exclude the rest). Donees generally are not required to exercise a power given to them, but, if they do make an appointment, they must comply with any restrictions imposed by the donor or otherwise by law.
Issues that arise in probate litigation regarding powers of appointment include determining whether a power was properly created, interpreting the donor’s intent, and assuring that the donee complied with any technical requirements and any substantive limitations in exercising the power. Jim Bush’s experience as a trust and estate lawyer includes being lead counsel in a case with a power of appointment that was created in 1955 and not exercised until 2006. That estate dispute resulted in two published decisions by the California Court of Appeal (Sefton v. Sefton (2015) 236 Cal.App.4th 159, 187 Cal.Rptr.3d 421, and Sefton v. Sefton (2012) 206 Cal.App.4th 875, 142 Cal.Rptr.3d 174). If you have questions about a matter involving the creation, interpretation, or exercise of a power of appointment, please contact Jim by e-mail or phone for a no-charge conference.
*The law in this area frequently evolves. This discussion is meant only to set out current general principles, which are subject to exceptions as well as to change by statute and by case law. You should not rely on this discussion in addressing your legal obligations and rights or your legal questions but should instead consult an attorney.
