Durable Power Of Attorney Vs. Power Of Appointment
A durable power of attorney can be an important estate planning tool, as a legal document which assigns authority to an agent or attorney-in-fact to act on your behalf. A durable power of attorney remains in effect should you become incapacitated, allowing your agent to deal with all financial issues on your behalf. A durable power of attorney will terminate upon your death or can specify a length of time under which the durable power of attorney remains in effect.
There are many advantages of a durable power of attorney – most notably, flexibility. This means you can limit the authority of your agent, giving them only as much power over your property as you choose. The agent or attorney-in-fact you choose must act as your fiduciary, therefore it is crucial that you choose the person wisely, ensuring he or she is absolutely trustworthy.
Having a durable power of attorney in effect can help avoid guardianship or conservatorship proceedings in the event you become incapacitated. Without a durable power of attorney, a judge would be required to name a person to manage your financial issues. However, conservatorship and guardianship proceedings are not only expensive, but they can also be full of conflict.
While a durable power of attorney and a power of appointment sound similar, they are very different documents used in estate planning. A power of attorney is likely much more familiar to most people than a power of appointment.
A general power of appointment indicates the trust beneficiary can appoint trust assets to anyone, including creditors. The person who holds the general power of appointment (trust beneficiary) can even direct trust assets to himself or herself, the estate or creditors of the estate. Whether you are concerned with a durable power of appointment or a power of attorney, having an experienced estate planning attorney can be an invaluable resource.
Different Types Of Power Of Appointment
A power of appointment is a power to dispose of property and can be as broad or limited as the creator chooses. There are two basic types of power of appointment: a general power of appointment and a special power of appointment.
A power of appointment is different from a power of attorney, which normally arises only when a person becomes incapacitated, therefore incapable of making his or her own decisions due to that incapacitation. A standard power of appointment generally benefits a third party and is not dependent on the incapacitation of a person who has created a durable power of attorney.
A power of appointment can be “presently exercisable,” meaning an irrevocable appointment can be made, or “not presently exercisable” postponing the appointment under certain circumstances (only after a specified act or event occurs or a specified condition is met). The instrument providing the power of appointment is revocable under the “not presently exercisable” phrase until the specified act or event occurs or the specified condition is met.
The general power of appointment is “exercisable in favor of the donee, the donee’s estate, the donee’s creditors or creditors of the donee’s estate whether or not it is exercisable in favor of others.” (The donee being the person who makes the general power of appointment). Any power of appointment which is not general, is special, meaning it is exercisable only in favor of one or more designated persons or classes other than the decedent or his or her creditors, or is expressly not exercisable in favor of the decedent or his or her creditors. Since a special power of appointment is not exercised in the donee’s favor, the power to appoint anyone other than the donee is a special power of appointment.
A power of appointment by a will is considered to be created on the day of the testator’s death, while a power of appointment created by inter vivos instruments is considered “created” on the date the instrument takes effect. Powers of appointment are long-lasting documents so it is highly advisable to obtain legal advice before creating a power of appointment. Essentially, a power of appointment allows a person to alter gifting within a small class of people, taking into account any event which occurs following the testator’s death.
As you might imagine, a power of appointment can be quite complex, therefore your estate planning can benefit greatly from seeking advice from a knowledgeable estate planning attorney.
How These Powers Of Appointment Can Be Used In A Trust Creation
As you create a trust today, it is impossible to predict where your family’s economic or personal situation might be 30 years down the road. A power of appointment provides flexibility by permitting the person holding that power to alter a trust’s distribution plan in response to altered family situations.
In other words, the person who holds the power of appointment can re-evaluate family situations to determine how asset distribution should be changed.
As just one example, suppose one child is left certain assets in a will – however, after the decedent’s death that adult child has serious drug problems, and is not in a position to properly manage those assets. The power of appointment would grant another person the ability to delay gifting those assets until such a time as he or she believes the adult child is ready to manage the assets.
General powers of appointment and limited powers of appointment have very different tax consequences, and therefore it is extremely important to discuss the issue thoroughly with your estate planning attorney.
Why WealthPLAN, PC, Is The Firm To Contact
If you are in the midst of estate planning and are considering a power of appointment, it is essential that you have all the necessary information prior to memorializing the documents. The law firm of WealthPLAN, PC, has developed a strong referral network of other attorneys and law firms in the area and we support our staff’s continuing education, ensuring they are always up-to-date on the latest information.
While striving to create a personal experience for each and every client, we place a high value on honesty and service for our clients. In fact, we have led nationally recognized cases with positive results for our clients. If you are interested in powers of appointment or other estate planning tools, contact WealthPLAN, PC, today.