There are many estate planning tools at your disposal to ensure that your life and end-of-life experiences are handled as you wish and to ensure that your loved ones are provided for. One of these tools is the power of appointment.
What is the power of appointment?
The power of appointment in the estates and trust document context is the grant of authority to a person to designate who receives property held in an estate or a trust.1 This means that you can grant your beneficiary the right to direct how to distribute his or her share of property.2 The parties to a power of appointment are the appointee (i.e. the property recipient), the donor (i.e. the grantor who owns the property), and the donee (i.e. the holder of the power of appointment).3 Basically, the power is used as an estate planning tool to give someone the power to designate who will receive property.
There are two different types of powers of appointments: limited (i.e. special) and general. The difference between the two is all in the wording. To start off, a general power of appointment means that the donee or holder can exercise the power without any restrictions attached.4 The general power allows the donee to appoint the power to him or herself, his or her creditors, his or her estate, and his or her estate creditors.5 A holder of a general power may represent and bind people whose interests are subject to the power. A.R.S. § 14-1405. In contrast, a special power does have limitations. Only a limited group of people can be among beneficiaries in a special power of appointment; that is, the donee or holder of a limited or special power of appointment cannot pass property to him or herself, his or her creditors, or his or her estate.6
In a trust, a trustee can have a special power to appoint to another trust unless the trust instrument specifically says otherwise. A.R.S. § 14-10819. Trustees of a trust are fiduciaries and can often be given discretion to invade principal for a life income beneficiary or someone else at his or her discretion.7 The power to invade the principal of a trust for the benefit of the beneficiary is an exercise of a special power of appointment. A.R.S. § 14-10819(C).
How do I validly create a power of appointment?
To create a power of appointment it must be in writing and through a deed, trust, or will.8 You do not need to write anything too specific to create a general power of appointment as long as you clearly state your intention to create one in writing. If a power is a specific or limited power of appointment, you will need to note that in the way you write the power in your document.
The power of appointment that you create could have an express requirement that the power be exercised by reference, such as an express reference or specific reference to its source. A.R.S. § 14-2704. If you choose to do this, it will be assumed that you did not want an inadvertent exercise of the power. A.R.S. § 14-2704. Otherwise, once you create a power of appointment it will be assumed that the donee can exercise it by a general residuary clause in a will or a will that generally disposes of the donee’s property expresses an intention to exercise the power of appointment. A.R.S. § 14-2704.
Call to speak directly with the experienced estate planning lawyers at Ariano & Reppucci to find out more about powers of appointment.
 Cindy J. Ackerman & Richard J. Kelber, Powers of Appointment 3, mossandbarnettonwcco.com, available at http://www.mossandbarnettonwcco.com/documents/Powers_of_Appointment.pdf (last visited Jan. 20, 2015).
3 Liquidity, Powers of Appointment, and Trusts – Powers of Appointment, investopedia.com, http://www.investopedia.com/exam-guide/cfp/liquidity-appointment-trusts/cfp3.asp (last visited Jan. 21, 2015).
6 Limited Power of Appointment Law & Legal Definition, definitions.uslegal.com, http://definitions.uslegal.com/l/limited-power-of-appointment/ (last visited Jan. 21, 2015).
7 Estate Planning – Powers of Appointment, frutkinlaw.com (Mar. 18, 2014), http://www.frutkinlaw.com/estate-planning-powers-of-appointment/.
8 Power of Appointment, legal-dictionary.thefreedictionary.com, http://legal-dictionary.thefreedictionary.com/Power+of+Appointment (last visited Jan. 20, 2015).