One of the best tools to provide flexibility for the future is the use of powers of appointment. These can be “general” (appointees can be anyone, including your creditors, your estate and your estate’s creditors) or “special” (limited to a certain class of beneficiaries, such as descendants, but cannot include yourself, your creditors, your estate or your estate’s creditors).
Powers of appointment provide flexibility for changes that might arise in the future. However, the Grantor of the Trust must be willing to give up some control, as Trust beneficiaries may be altered by someone else in the future. To address this concern, the class of appointees can be limited to the extent with which the Grantor is comfortable and feels is reasonable.
Often a point of contention is whether spouses of beneficiaries should be included in the Trust. A special power of appointment can assist with this concern. It can allow the beneficiary to provide for his or her spouse within the limitations provided by the Trust. For example, on the beneficiary’s death, by exercise of the power of appointment in his or her Will, the spouse could be given an interest in the Trust to last for the spouse’s lifetime and then after the death of the spouse, the Trust would continue on to the remainder beneficiaries as the Trust would have provided.
Powers of appointments provided within the Trust are usually testamentary in nature, and not exercisable during the lifetime of the beneficiary. Lifetime powers of appointment can have potential gift tax consequences.