Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back

Know the Law: Powers of Appointment Add Flexibility in Trusts

Written by: Linda R. Garey

Published in the Union Leader (8/28/2017)

Q: I am planning to create a trust to benefit my husband and our children after my death. But what if the laws change, or my family’s financial situation changes? How can I plan for this? 

A: When you sign a trust, you cannot predict your family’s future personal or economic circumstances. One technique to address your concerns is including in the trust a provision that, after your death, grants your husband a “power of appointment.” This means the person you name will be able to “appoint” or direct the distribution of the trust assets, so it can adapt to changing circumstances. The power can be a lifetime or testamentary (at death) power. 

Let’s consider one scenario to show how this works. 

You grant a testamentary power of appointment to your husband in favor of your children, authorizing him to appoint assets, equally or unequally, outright or in trust, to any of them. If he doesn’t exercise the power, all of the assets will be given to your three children in equal shares. Years later:

Child No. 1 went to graduate school and has a great paying job. 

Child No. 2 becomes a teacher and and has a decent salary. 

Child No. 3 has developed a substance abuse problem and is in treatment. 

In this situation, your husband should exercise the power of appointment. He does this by including a provision in his will, referencing the power of appointment. He may decide that Child No. 1 does not need any (or as much) of the trust assets as the other children. He can either exclude Child No. 1 or appoint a smaller amount to Child No. 1 than an otherwise equal share.

Child No. 2 is doing well, so in his will your husband provides that her share be distributed to her outright.

It would not be wise to have Child No. 3 receive assets. Your husband provides that this child’s share remain in trust. Later, if circumstances change, your husband can change the provision in his will.

For high net worth individuals, there can be significant tax benefits to including both general and limited powers of appointment in their trusts. For most of us (with less than $5,490,000 in 2017), there should be no estate or income tax consequences to the exercise of a power of appointment. I encourage you to discuss this with your estate planning attorney.

Linda Garey can be reached at (603) 628-1325 or at linda.garey@mclane.com. Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. We invite your questions of business law. Questions and ideas for future columns should be addressed to: McLane Middleton, 900 Elm St., Manchester, NH 03101 or emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.

Integrity and trust

At McLane Middleton we establish and maintain long-standing relationships with our clients to help us better achieve their unique goals over time. This approach to building trust requires that our esteemed lawyers and professionals use their broad, in-depth knowledge and work together with integrity to ascertain sound resolutions to legal matters for their clients.

Strength in numbers

McLane Middleton is made up of more than 105 attorneys who represent a broad range of clients throughout the region, delivering customized solutions. As a firm we are recognized as having the highest legal ability rating. The firm is rated Preeminent by Martindale Hubbell and is recognized as one of the nation's leading law firms in Chambers USA. Our attorneys are distinguished leaders in their respective practice areas.

Meet Our People

Commitment and collaboration

McLane Middleton's versatile group of attorneys and paralegals become trusted authorities on each case through collaboration. We work with our clients to learn their individual needs first and foremost and, together, we develop comprehensive solutions to their specific legal matters. This approach helps us exceed our clients' expectations efficiently and effectively, client by client, case by case.

Practice Areas

A history of excellence

McLane Middleton was established in 1919 in New Hampshire, and has five offices across two states. However, deep historical roots don't allow you to become innate. Our firm is organized, technological, and knowledgeable. Our history means we are recognized. But our reputation is built on the highest quality of service and experience in very specific areas of law.

The Firm

Intelligence paired with action

Our team continuously seeks opportunities to enhance their professional development and put key learnings to action. The pursuit of further insight guides us to volunteer service opportunities, speaking engagements, and teaching roles. Our lawyers are sought after thought leaders across their industries, and recipients of leadership awards throughout the region.