The power of appointment allows a donee to distribute a donor’s estate, with general powers allowing for any distribution and limited powers being restricted to the terms of the will. Trustees have a legal obligation to responsibly administer assets, while those with the power of appointment do not.
The power of appointment is a right that is given by someone, known as a donor, to someone else, called a donee, which allows that person to distribute the donor’s estate. Appointing powers are commonly to arise in the context of a will and are sometimes referred to as testamentary appointing powers in reference to this. People don’t need to accept the power of appointment; someone called upon to act as an executor, for example, could decline liability, in which case a new executor would be appointed to handle the administration of the will.
If someone is vested with a general appointing power, it means that he can distribute the contents of an estate in any way that person sees fit. The donee might, for example, give most of the estate to the deceased’s children, but retain some of the estate for personal use. For tax purposes, a person with a general power of appointment is often treated as an owner of property because he could potentially become the owner of the estate by choosing to assign the property to him.
In the case of a special or limited power of appointment, the assets of the donee are limited in some way to the terms of the will, usually by limiting the persons to whom the estate may be distributed. For example, someone could indicate that he wants his estate to go to his children and that his partner can decide how to distribute the estate. In this case, the donee has the power to distribute the property, but the donee’s powers are not unlimited.
When someone makes a will by directly granting their estate to a particular person, that person is deemed to still have the power of appointment. This individual may choose, for example, to transfer the property to someone else, in which case he or she would act as the donee to redistribute the content of the property.
It is also possible to have a situation where someone has control of assets owned by a living person. This most commonly happens when people establish a trust for their assets and a trustee is appointed to manage it. However, trustees have a legal obligation to responsibly administer the assets entrusted to them. The same responsibility is not attributed to those who have received the power of appointment.
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