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Lexis Fed. Tax J. Q., March 2016 at ch. 1.


As children, and sometimes as adults, we wish for magical powers to order the world in the way we want. Estate planners can make that wish come true for some clients and beneficiaries with judicious use of powers of appointment. Powers of appointment are uniquely suited to achieving targeted planning goals and increasing trust flexibility. Planning techniques, old and new, including the oft used Crummey trust1 and the more recently developed array of acronym trusts designed to achieve specific tax consequences, such as the intentionally defective grantor trust (IDGT)2 and the Delaware incomplete non-grantor trust (DING)3 to name a few, rest in large part on creative uses of powers. The magic of the power of appointment lies in the fact that its form informs its substance. Powers of appointment can avoid the strictures of fiduciary duties and courts recognize the form of powers of appointment regardless of a decision to exercise the power. Powers of appointment designed to avoid characterization as general powers, can achieve beneficial income, estate, gift and generation-skipping transfer tax consequences, assist in the avoidance of creditor claims, provide for modification of trust terms, and center decision making in family members. Is there any other legally enforceable right over or interest in property that can be used to achieve such a broad array of planning goals?

The article begins by addressing the niche, historical and present, served by powers of appointment in Part 2. It moves to exploring the “magic” of the power of appointment which derives from its flexible nonfiduciary characteristics and also from the respect courts accord its form for tax purposes. The ability of planners to mesh substance in the design of the power’s form yields a legally enforceable right with respect to property that can be used by clients to achieve targeted goals and flexibility to change with circumstances. Both state law and tax law work to implement these important characteristics, and the article discusses both in Parts 3 and 4, respectively. The article concludes with an analysis of how planners currently use powers to achieve a variety of client goals for flexibility, control and tax minimization in Part 5.


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