Power of Appointment Types

There are two types of powers of appointment:  a general power of appointment and a limited (special) power of appointment.  Each of these types of powers carries different and significant tax implications.

General Power of Appointment:
In a general power of appointment the donor gives the donee authority to appoint (transfer) the donor's rights, assets, or items to anyone the donee wishes, including the donee himself.  Potential adverse tax consequences accrue to a donee who possesses a general power of appointment: the rights, assets, or items which the donee has power to appoint are considered the donee's property for gift and estate tax purposes.

Limited (Special) Power of Appointment:
In a limited (special) power of appointment the donor limits the donee's authority to appoint (transfer) the donor's rights, assets, or items.  The authority may be limited in various ways.  For example, the donee may be limited in regard the the persons to whom he or she can appoint assets; or the donee may be limited in regard to the times at which he or she can appoint assets; or the donee may be limited in regard to the purposes for which he or she can appoint assets (for instance, the health, education, maintenance, or support of the appointee).  In certain circumstances the donee possessing a limited power of appointment and the appointee may be the same person.  With a limited (special) power of appointment, the Internal Revenue Service usually does not consider the rights, assets, or items subject to appointment to be owned by the donee in determining the donee's own gift and estate taxes.  In estate planning, generally a limited (special) power of appointment is preferred over a general power of appointment.

Power of Appointment

Parties involved with a power of appointment are:
"Donor" is the person who creates a power of appointment.  The donor is usually the owner of rights, assets, or items being ultimately appointed by the donee.
"Donee" or "holder" refers to the person who possesses a power of appointment--who has been named to appoint or transfer all or a portion of an owner's rights, assets, or items.
"Appointee" is the person who receives the rights, assets, or items as a result of the power of appointment being exercised.
"Taker in Default" is the person who receives the rights, assets, or items if the power of appointment is not exercised.

General Definition:
A "power of appointment" is a unique power given to a donee (holder) by a donor to distribute the donor's rights, assets, or items usually at the donor's death to appointees.  A donee of a power of appointment is different than a personal representative or trustee.  A donee of a power of appointment does not have the responsibility of managing a person's estate or trust assets.  Rather, the donee has the authority to appoint the donor's rights, assets, or items to appointees.  There are two types of powers of appointment: a general power of appointment and a limited (special) power of appointment.  Each of these types of powers carries different and significant tax implications.

Family Care Agreements

A care agreement (also known as a family care agreement, personal care agreement, personal services agreement, care contract, etc.) is an agreement between a parent (or parents) and a family member (or members) in which the family member agrees to care for the parent and the parent agrees to pay the family member for the services performed on behalf of said parent.

Definition of the Week: Grantor

Grantor: A grantor is a person "granting" or transferring assets to a trust. Some practitioners and state statutes use the word "settlor" or "trustor" or "maker" or "creator." At Hughes Estate Group, we use the word used by the Internal Revenue Service, the tax courts, and most state courts: "grantor."

Definition of the Week: Trustee

Trustee: The trustee is the person who manages and distributes trust assets for the benefit of beneficiaries.

Definition of the Week: Simple Distribution Plan

Simple Distribution Plan: A simple distribution plan calls for immediate distribution of assets to your beneficiaries at your death. A simple distribution plan is relatively easy to draft and can sometimes be done without a trust. Because it is easier to prepare, a simple distribution plan is less expensive than a complex distribution plan.

Definition of the Week: Complex Distribution Plan

Complex Distribution Plan: A complex distribution plan requires at your death that your assets be distributed over time, in certain amounts, or under certain conditions. A complex distribution plan is generally more difficult and time consuming to draft than a simple distribution plan. A complex distribution plan requires use of a trust. A complex distribution plan is more expensive to prepare than a simple distribution plan. Hundreds of reasons exist for Complex Distribution Plans.

Definition of the Week: Fiduciary/Fiduciaries

Fiduciary/Fiduciaries: A fiduciary is an entity or person who manages your affairs if you are incapacitated or deceased. The word fiduciary is a general term referring to agents, personal representatives, or trustees.

Definition of the Week: Third Parties

Third Parties: The best way to define a "third party" is with an example.

Suppose you decide to give your car to a friend. You deliver to your friend the signed title and the keys. In this transaction, you are the first party. Your friend is the second party. And the Division of Motor Vehicles or DMV, where the new title must be recorded, is the third party. The DMV is not a party in the transaction between you and your friend, but they are involved in recording the transaction.

A third party is a "person who is not a party in a transaction or agreement, but is involved in or affected by the transaction or agreement." (Black's Law Dictionary)

The importance of third parties in Asset Transfer Planning cannot be underestimated. These third parties include county recorders, banks, motor vehicle divisions, investment firms, life insurance companies, transfer agents, retirement fund custodians, and others. To transfer ownership of assets, you, your fiduciaries, and your beneficiaries have no choice but to work with these third parties and comply with their policies and rules.

Purpose Of Estate Planning

The purpose of estate planning is to transfer assets to beneficiaries at the times and in the manner desired by the owner efficiently, with minimal taxes, and without conflicts. This concise definition of the purpose of estate planning involves a lot of issues. The individual participating in estate planning must gain an understanding of all the issues. Look at the following site for an in-depth introduction to the various issues involved with estate planning.

Definition of the Week: Power of Attorney

Power of Attorney: A power of attorney is a legal document in which you give an agent the power to act as your attorney in the event you are mentally incapacitated and cannot act or speak for yourself. Sometimes people refer to a person as "power of attorney." That grates a little. It is easier and more correct to say, "John is my agent." Finally, you, the creator of the power of attorney, are called the principal. So, in brief, the principal designates a person in his or her power of attorney to act as his or her agent. Use these simple and correct terms on your estate planning lawyer and he will be impressed.

Definition of the Week: Principal (the person)

Principal (the person): In estate planning, this term most generally refers to the person who creates a power of attorney.

Definition of the Week: Agent

Agent/Agents: In estate planning, an agent is the individual whom you (the principal) name in a power of attorney to represent you if you are ever absent or mentally incapacitated.

Definition of the Week: Benefactor

Benefactor: A person who wants to benefit someone else. A father who wants to give assets to his children is a benefactor. A peron who wants to give $100,000 to the Red Cross is a benefactor.

Definition of the Week: Adult

Adult: In Utah "the period of minority extends in males and females to the age of 18 years; but all minors obtain their majority by marriage." Utah Code 15-2-1

In regard to payment of social security benefits, the term "adult" may refer to an individual who has graduated from high school or is older than eighteen (18) years of age, whichever is later, but in all cases an individual who is nineteen (19) years of age or older is considered an adult.

Definition of the Week: Trust

Trust: In the briefest of terms, a trust is an entity, created pursuant to state and federal law, which can own assets, and which directs, subject to law, how the assets are to be administered and distributed by a named trustee for the benefit of named beneficiaries.

Definition of the Week: Estate Planning

Estate Planning: To understand what estate planning is, we need to first ask, "What is an estate?" The word "estate" simply refers to the things you own, your assets. For example, money in a checking account is an asset you own. If you have a checking account, you have an asset and you have an estate. Equity in your house or a life insurance policy or anything else you own are additional assets comprising your estate.

Estate planning is planning how your estate will be managed when you cannot manage it yourself. If you ever become mentally incapacitated or after you die, an estate plan will control how your checking account and other assets are managed and distributed. If you want to decide who receives your assets, and how and when they receive your assets, when you cannot make those decisions in person, then estate planning is for you.

Estate planning is like building a bridge over a chasm. The chasm is a deep gorge and dangerous river of confusion, wasted money, resentments, fraud, and probate litigation. Point A on this side of the chasm is the date of your incapacity or death. At point B on the side of the chasm stand your heirs, your beneficiaries, those you care most about. Estate planning is the bridge, the road over the deep gorge and dangerous river, which is used to transfer your assets safely, efficiently, and peacefully from point A to those you care most about at point B.

Definition of the Week: Estate

Estate: The word "estate" simply refers to the things you own, your assets. For example, money in a checking account is an asset you own. If you have a checking account, you have an asset and you have an estate. Equity in your house or a life insurance policy or anything else you own are additional assets comprising your estate.

Definition of the Week: Beneficiary

Beneficiary: A person or persons who benefit from the generosity of a grantor or benefactor. A person who receive an inheritance. The beneficiary may be a child, grandchild, or any other natural person or a charitable organization. Beneficiaries are the persons named in a testamentary document as recipients of a benefactor's or grantor's generosity. The grantor or benefactor may be a parent, grandparent, or any individual. A beneficiary is not necessarily an heir (or child). For example, your church may be a beneficiary, but would not be defined as an heir. Also, an heir (or child) is not necessarily a beneficiary. For example, you may disinherit an heir (or child), which means that particular heir (or child) would not be a beneficiary.

Definition of the Week: Medical Directive

Medical Directive: A Medical Directive is a document in which you dictate (1) whether mechanical procedures should be applied that will (2) allow your essential bodily organs to function (3) for a greater or lesser period of time (4) in the event you are suffering a non-curable medical condition that will (5) result in your short-term natural death if (6) the mechanical procedures are not applied. Sometimes referred to as a "living will" or pull-the-plug document."