You may think you have your estate plan in order, but if your plans include leaving property in a trust, it can be a complicated matter to keep track of what happens to those assets.

To help keep control, give a trust beneficiary "power of appointment" over some or all of the property.

 

 


The advantage: A power of appointment allows the beneficiaries more time to make smart decisions about what to do with the property.

Let's say you leave property in trust for your son and give him a power of appointment over the assets. Eventually, your son can decide if his children (who are still minors) are capable of holding the property outright or if another trust should be set up for them.

The terms of the trust document can provide the flexibility your family needs.



There are two categories of powers of appointment:

 General. To qualify, the power holder must be able to "appoint" (give or bequeath) the property to himself, his estate, his creditors, or his estate's creditors. 
 Limited (or special). If the power holder can't specifically appoint the property to any of the parties listed above, a limited or special power of appointment is appropriate.

Family circumstances may dictate which route you take, but taxes can also play a role. Property covered by a general power of appointment is included in a decedent's estate and subject to estate tax. Property covered by a limited power is not included in the power holder's estate.

Therefore, a general power of appointment is advisable if you don't expect estate taxes to be a factor. Each person gets a $5.12 million estate tax exemption for 2012 (up from $5 million in 2011). Consult with your tax adviser for more information.