Donald M. Thompson - Wills, Trusts, and Estate Planning


Power of Appointment

This the right to designate who gets income or assets. For instance assets may be left on death to a trustee to hold for the benefit of the decedent's spouse for the spouse's life, and to pay the assets on the spouse's death to whomever the spouse designates. The spouse has a power of appointment. It is called a general power of appointment because the spouse can designate anyone. If the trust provided the spouse could designate only among a certain class of people or institutions, such as descendants or charities, the power would be called a limited or special power of appointment.

If someone has only the right to income from assets for life then those assets are not usually in their taxable estate when they die. At least if they received the life interest from someone else. However, if they have a general power of appointment over the assets on their death the assets with be in their taxable estate.

If someone has a right to designate who gets income, that can cause the income to be taxable to that person even if the person cannot designate him or her self. Trustees often have the right to designate who gets income. However, if their right is limited by an ascertainable standard, then the income is not taxable to them.

Release of a general power of appointment can create a gift of the persons who get the property instead of the holder of the power. Lapse of the power (the time to exercise it expired) has the same effect. However, these rules apply only if the value of the property which could have been appointed exceeds the greater of $5000 or 5% of the value of the assets out of which the exercise could be satisfied.

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Donald M. Thompson * Illinois Power of Appointment
55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: