The Perils of Powers of Appointment?
Powers of Appointment may appear in a Will when a testator wishes to entrust the donee with authority to direct who will be the recipients of the testator’s property. A not uncommon scenario is one in which the donee of the power is given a life interest in the testator’s estate and a Power of Appointment to determine which of the donee’s issue shall be the recipients of the residue of the testator’s estate on the death of the donee.
To exercise such Power of Appointment, the donee has to, first of all, survive the testator and, secondly, make a Will which successfully exercises the Power of Appointment. If the donee dies before the testator whose Will grants the Power of Appointment, the power clearly lapses and the Will will presumably provide a gift over to address such eventuality.
Such a decision to effectively delegate testamentary authority is not without its perils and counsel should probably carefully review with the testator the ramifications of granting a Power of Appointment respecting the distribution of residue. For instance, if the testator has a good relationship with her grandchildren (i.e. the donee’s children) the testator ought not to presume how the donee will in fact exercise the Power of Appointment. In addition, the donee’s Will may be vulnerable to a challenge which could conceivably defeat the testator’s intention in granting the Power of Appointment
David M. Smith