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Jan 24, 2019

What is a Power of Appointment Trust?

Probate Estate

Making decisions around end-of-life matters can involve learning a lot about the legal process of distributing your assets. There can be a lot of vocabulary and many concepts to familiarize yourself with. Here we’re going to demystify the Power of Appointment Trust and the 2 types of Power of Appointment that can go along with it.

What is a Power of Appointment Trust?

This is a trust fund, or legal entity that holds property or financial assets, that your Power of Appointment beneficiaries will be dispersing. Basically, you legally create a group of assets that only properly appointed representatives can make decisions regarding. This means that where your assets are allocated is still fluid at your passing. Money can be kept in the fund and dispersed as needed over time, by those given Power of Appointment.

What are the advantages of Trust Funds over simply willing your assets to beneficiaries?

If you choose to will your assets directly to your beneficiaries, then the control of assets set aside for minors goes to their guardians. With a trust, you may choose to have children wait until they’re adults to receive your assets. This can protect from the poor money management of parents or allow assets to continue maturing in an interest-bearing account. With a trust, you can also choose to have your assets disbursed slowly over time instead of all at once. The way that you accomplish this delayed disbursement in by having a trust fund manager with Power of Appointment.

There are two types of powers of appointment: a Limited Power of Appointment and a General Power of Appointment.

Limited Power of Appointment

A Limited Power of Appointment gives the ability to decide who will receive entrusted property, within limits. The holder of a Limited Power of Appointment can transfer property to anyone other than themselves. The holder cannot transfer the property to their creditors, or their own estate. This makes it easy for an adult to transfer assets to children once they’re legally adult, or for a trusted friend to select charities for donation.

General Power of Appointment

A General Power of Appointment is a much broader power. It allows the beneficiary to allocate all or part of their share of the trust to any individuals or organizations they choose. This most often goes to the deceased’s closest human connection, like their spouse, or child. This is a perfect fit when you want all assets to be overseen by the selected person.

For guidance or the best estate planning choices for you, contact Lewman Law today.

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