chapter 9 building flexibility into trusts powers of appointment
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Chapter 9: Building Flexibility into Trusts: Powers of Appointment

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Chapter 9: Building Flexibility into Trusts: Powers of Appointment. What is a Power of Appointment?.

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A power of appointment is the authority one person (“the donor”) gives to another (“the donee”) that permits the donee to determine, at a future point in time, what persons will be entitled to enjoy the property over which the donee has the power.

donor
Donor

The person who grants another a

power of appointment

donee
Donee

The person to whom a power

of appointment has been

granted by a donor

objects
Objects

The person(s) to who the donee

may appoint the property if

the donee exercises the power

appointees
Appointees

The person(s) to whom the donee

appoints the property upon

exercise of the power

takers in default of appointment
Takers in Default of Appointment

The person(s) who would take

the property if the donee

fails to effectively exercise the

power

general special
Testamentary

Intervivos

To Self or Estate

Interest in property

Testamentary

Intervivos

Not to Self

Not to Estate

Exclusive

Nonexclusive

Agency theory

GeneralSpecial
non exclusive special power
Non-exclusive Special Power

“Among all (express or implied) my children”

exclusive special power
Exclusive Special Power

“Any one or more or all of my children”

irvin union bank and trust v long
Irvin Union Bank and Trust v. Long
  • What are the facts of this case?
  • What is the issue presented to the court?
    • Whether creditors of the donee of a presently exercisable general power can reach the assets subject to the power?
  • Do you agree with the result?
  • Problem, pg. 677
why create a general power
Why Create a General Power?
  • Marital deduction
  • Annual exclusion for gifts to minors
  • GST $1million exemption
sterner v nelson
Sterner v. Nelson
  • To Mary absolutely with power to dispose of property as she desires, any property remaining at her death to Gladys
  • Options:
    • Mary has a FSA
    • Mary has a fee simple with gift over to Gladys and her children
        • Valid
        • Repugnant
      • Mary has a life estate with a power to consume
  • What does court hold?
  • Do you agree?
sterner v nelson17
Sterner v. Nelson
  • How might instrument have been drafted?
seidel v warner
Seidel v. Warner
  • What are the facts of this case?
  • Contract to exercise general power in the future in a certain way is not specifically enforceable, but for breach, restitution is possible. Why?
  • Could promise be construed as release and would that have accomplished the promised goal?
beals v state street bank and trust
Beals v. State Street Bank and Trust
  • What are the facts of this case?
  • Cut down general
  • Effect of general residuary clause
    • Under NY law
      • Exercises general and special powers
    • Under Mass. Law
      • Exercises general
      • Exercises special if so intended
  • Choice of law
    • Law of donor’s domicile
    • Law of trustee’s domicile
    • Law of donee’s domicile
beals v state street bank and trust20
Beals v. State Street Bank and Trust
  • Law of donor’s domicile controls.
    • Why
    • Agree or disagree?
  • What result here?
    • Court treats power as general and therefore exercised even under Massachusetts law
donor imposed restrictions on exercise of powers
Donor Imposed Restrictions on Exercise of Powers
  • Specific Reference Clause
    • Why imposed?
    • Effect if imposed
  • Blanket Exercise Clause
    • All the rest, residue and remainder of my estate including any property over which I may have a power of appointment
      • Exercises all powers unless donor imposed a specific reference requirement
lapse of power
Lapse of Power
  • T appoints property to A. A dies before T.
  • General Power
  • Special Power
manner of exercise
Manner of Exercise
  • Outright to Objects
  • In trust for objects
    • To any one or more of my parents issue and spouses of such issue as X may appoint, outright or in further trust, and in such shares manner and proportions and upon such terms and conditions as X may determine
capture
Capture
  • Applicable to general powers
marshalling of assets
MARSHALLING OF ASSETS
  • Applicable to special powers.
  • D has special power to appoint $100,000 to children
  • D has a probate estate of $100,000
  • D, using a blanket exercise clause, appoints 1/2 to wife and 1/2 to son
  • General distribution rule-pro rata
  • Marshalling (non-pro rata)
loring v marshall
Loring v. Marshall
  • What are the facts of this case?
  • Power in Cabot to appoint to wife and issue
  • Appoints to wife Anna for life, no appointment of remainder
  • At wife’s death, who is entitled to trust principal?
    • Estate of deceased object of power, implied gift theory
    • Equally to estates of Cabot, Jr. and Anna
    • Estate of Anna only
    • Heirs of donor of power
ad