Solicitor’s Tip – March 2025
A power of appointment is a unique tool for will-drafters. While a testator may not delegate their ability to make a will,[1] the testator may use their will to empower a third party to decide how to dispose of estate assets through a power of appointment. A power of appointment has been described as “a right given by the owner of property, called the donor of the power, to another person, called the donee of the power, to dispose of, or appoint the donor’s property.”[2] An advantage to including a power in a will, as noted by Professor Albert Oosterhoff, is that it delays disposition of the affected property, thereby permitting the donee to determine who should have the property at a later time.[3]
This Solicitor’s Tip is the first part of a two-part series on powers of appointment. This first Tip addresses general considerations that are pertinent when including a power of appointment in a will, whereas the second Tip will focus on issues specific to granting a power of appointment to estate trustees.
Three Types of Powers of Appointment
There are three different types of powers of appointment that may be included in a will. The first is a general power of appointment. Such a power was upheld by the Ontario Court of Appeal in Re Nicholls,[4] a case in which the will directed the executor “to follow the dictates and directions given to him from time to time” by a third party as to the distribution of the residue of the testator’s estate. A general power of appointment does not specify who is to benefit from the exercise of the power, leaving the donee to “exercise it in favour of such person or persons as he or she pleases,”[5] even potentially including the donee themself. If a general power of appointment is included in a will, the client ought to be advised that the donee will not be required to consider the client’s intentions if the donee chooses to exercise the general power.
The second type of power is a specific, or limited, power of appointment. With this power, the client specifies who may benefit if the power of appointment is exercised. When incorporating a specific power of appointment into a will, it is important to identify the objects who may benefit clearly, as the power will be invalid if the court cannot “say with certainty whether any person in the world either falls within the class of objects as described or does not.”[6]
Lastly, a will may include a hybrid power of appointment, which specifies individuals who are not eligible to benefit from the power of appointment. The description of the individuals or class who may not benefit must also pass the certainty of objects test, meaning that the description is sufficiently clear that the donee can exercise the power of appointment, if they so choose to do so.[7]
Clearly Identifying the Power Property
When drafting a power of appointment, be it a general power, a specific power, or a hybrid power, the property which may be distributed must also be identified with certainty. In other words, it must be evident, on a balance of probabilities, whether estate property “is or is not power property.”[8]
Addressing What Will Happen to the Power Property if the Power is Not Exercised
Before including a bare power of appointment in a will, the client ought to be aware that the power may never be exercised – a power of appointment is “merely an authorization and not an obligation to perform.”[9] In this way, a power of appointment is distinct from a trust – whereas a trust must be performed and failure to do so constitutes breach of trust, there is no similar breach for failing to exercise a mere power of appointment if the donee is appointed in their personal capacity.[10] The essence of a power of appointment is that its exercise is discretionary. In fact, a donee appointed in their personal capacity may even release or surrender the power.[11]
With this in mind, the client may want to address how they want the power property to be distributed if the power of appointment is not exercised.[12] For example, one solution is to include a gift over with a power of appointment.[13] Otherwise, if this point is not addressed in the will, the power property will revert back to the testator’s estate and simply be included in the estate residue.[14] Alternatively, if the power applies to the distribution of the residue of the estate but is not exercised, the residue ought to be distributed on an intestacy, like a lapsed gift.[15] Similarly, if the power lapses because the donee predeceased the testator (and the donee was appointed in their personal capacity), the property will be included in the residue of the estate.[16] That said, it is possible to draft a will to provide for an alternate donee, in case the original donee predeceases the testator.[17]
Conclusion
For a client interested in authorizing a third party to decide how to distribute their estate assets after they are gone, a power of appointment may be a suitable tool. Matters that ought to be considered when drafting a will to include a bare power of appointment include:
- what type of power of appointment to utilize – general, specific, or hybrid;
- what property to identify as power property, and how to describe it with certainty; and
- how the power property ought to be distributed if the donee does not exercise the power of appointment.
If you’re interested in drafting tips specific to granting a power of appointment to an estate trustee, we will be covering this information in next month’s Solicitor’s Tip.
[1] See, for example, the Substitute Decisions Act, 1992, SO 1992, c 30, ss. 7(2), 8(1)(c), 31(1).
[2] Albert H. Oosterhoff et al, Oosterhoff on Wills, 9th ed (Toronto: Thomson Reuters, 2021) at 374 [Oosterhoff on Wills].
[3] Ibid.
[4] 1987 CanLII 4398 (Ont CA) [Nicholls].
[5] CED 4th (online) Wills, “General and Special Powers” XVIII.A at § 169.
[6] Oosterhoff on Wills, supra note 2 at 156.
[7] See Lubberts Estate, 2014 ABCA 216 at paras 47-48.
[8] Ibid at para 40. Justice Wakeling then provides the following examples:
… Suppose that A declares that she gives to B to donate to any publicly-funded Canadian art gallery her Dorothy Knowles paintings which were painted while Robert Hurley, another well-known Saskatchewan landscape painter, was alive. Suppose also that Knowles signs and dates her paintings. The date of Hurley’s death is beyond doubt. These facts would allow an adjudicator to identify with sufficient certainty the paintings subject to the power.
41 But suppose that A declares that she gives to B to donate to the Art Gallery of Alberta her Dorothy Knowles’ paintings which the famous painter William Perehudoff, Knowles’ husband, thought were the ten best Knowles’ paintings A owned. And suppose that there is no evidence that Perehudoff ever expressed such an opinion. This standard would be far too imprecise to identify the power property.
[9] Albert H. Oosterhoff, Robert Chambers and Mitchell McInnes, Oosterhoff on Trusts, 9th ed (Toronto: Thomson Reuters, 2019) at 145 [Oosterhoff on Trusts].
[10] Ibid at 151. The next Tip in this series will address the consequences of failing to act if a fiduciary is appointed as donee.
[11] Ibid at 146.
[12] See Lubberts, supra note 7 at para 68.
[13] Oosterhoff on Wills, supra note 2 at 374-375.
[14] Lubberts, supra note 7at para 35, citing Eileen E. Gillese, The Law of Trusts, 3rd ed (Toronto: Irwin Law, 2014).
[15] For example, in Frohlich Estate v. Wedekind et al, 2012 ONSC 3775 at para 10, the court held: “A lapsed residuary gift passes on intestacy, unless there is a contrary intention in the Will.”
[16] Oosterhoff on Trusts, supra note 9 at 146.
[17] See Nicholls, supra note 4. The will in this case provided for an alternate donee to direct the distribution of the estate in case the original donee predeceased the testator.