Exercise Powers of Appointment During Marital Trust Administration

During a trust administration, you may be called upon to serve as a successor trustee of a marital deduction trust. These trusts typically give the surviving spouse something known as a “power of appointment” over the assets held in the marital trust—allowing some amount of control and decision making authority over who should receive the trust assets even after the first spouse dies. There are two main types of powers of appointment.

Two Types of Power of Appointment in a Marital Deduction Trust

The following is an overview of the two types of power of appointment you may encounter as a successor trustee:

  1. General power of appointment. If the surviving spouse has a general power of appointment, he or she can name anyone to receive the trust property during life or after death. The surviving spouse is also entitled to designate himself or herself as the recipient of the trust property.
  2. Limited power of appointment. If the surviving spouse is given a limited power of appointment over the trust property, the power is more narrowed in scope. When drafting the trust, the creator designates a group of acceptable people who can receive the trust property under the power of appointment. For example, the surviving spouse may be entitled to direct that the trust assets go to his or her children, siblings, or another group of people.

The type of power of appointment that the surviving spouse receives is indicated with the trust instrument itself. To exercise the power, the surviving spouse can include a provision in his or her will or exercise the power through a separate document. It is important for the successor trustee to understand the type and nature of the power of appointment because it will impact how the remaining trust assets should be distributed upon the death of the surviving spouse.

 

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