Purpose of Powers of Appointment

(1) Deferring a decision on designating beneficiaries serves several non-tax purposes:

  • (1.1) It provides flexibility in the event of changed circumstances, such as a change in the law, in the beneficiaries (e.g., a death, birth, divorce, or lawsuit), or in the economy.
  • (1.2) It allows a person who creates an irrevocable trust to retain some control by creating an incentive for intended beneficiaries to comply with the wishes of the power holder because the power holder can remove any beneficiaries.

(2) A power of appointment can also serve tax purposes:

  • (2.1) A general power of appointment leads inclusion of the asset in the donor’s gross estate.

  • (2.2) A limited power of appointment makes a gift to a trust incomplete for purposes of the gift tax.