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Powers of Appointment in Trusts and Estates: Tax Consequences and Benefits of General and Limited POAs

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, October 27, 2021

Recorded event now available

or call 1-800-926-7926

This course will discuss using general and limited powers of appointment to incorporate adaptability in an estate plan. Our panel of trust and estate experts will discuss utilizing these powers to circumvent future unanticipated issues and the tax consequences of these choices.

Description

A power of appointment is the authority given to a beneficiary or donee to designate who will enjoy and receive an interest in property. Powers of appointment can be presently exercisable or not, general or limited. Incorporating these provisions in a trust can provide flexibility to handle unforeseen future circumstances.

Granting, holding, exercising, or releasing a power of appointment may give rise to tax consequences. A general power, which allows the grantee to appoint the subject property to anyone including herself, will cause the subject property to be included in her gross estate, regardless whether she exercises the power or not. The distributee takes a fresh basis at date of death value. Ordinarily, a limited power, which allows the grantee to appoint only to an identified class, does not cause estate tax inclusion and does not trigger a basis adjustment. But there are situations in which the exercise of a limited power can trip the so-called "Delaware tax trap," causing inclusion in the power holder's estate. And there are situations in which the release of a power exercisable during life will be treated as a taxable gift. Understanding the complexities of these rules is critical for trust and estates advisors.

Listen as our authoritative panel explains the benefits of powers of appointment for trust and estates and the corresponding tax consequences.

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Outline

  1. Powers of appointment
  2. Utilizing powers of appointment
  3. General vs. limited
  4. Tax considerations
    1. Income tax
    2. Estate and gift tax
    3. GST
  5. Recent rulings and cases
  6. Potential changes to the current tax regime

Benefits

The panel will cover these and other key issues:

  • What specific life circumstances might warrant including powers of appointment in a trust instrument, and how broad or narrow should those powers be?
  • When might the tax consequences of including a general power outweigh its benefits?
  • When does a trustee's discretionary power to distribute or accumulate amount to a taxable power of appointment?
  • How powers of appointment can be used in generation-skipping transfer tax planning.

Faculty

Willis, Russell
Russell A. Willis, III, JD, LLM
Consultant
Planned Gift Design Services

Mr. Willis works as a freelance paralegal consultant with nonprofits, donors, and their advisors in structuring...  |  Read More

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