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Sexton, Bailey Attorneys, PA

SEXTON BAILEY ATTORNEYS, PA an Arkansas Estate Planning & Trust Information Center

Sexton, Bailey Attorneys, PA

Northwest Arkansas Estate Planning Attorneys (479) 443-0062

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Home / Estate Planning Articles / Expecting the Unexpected

Expecting the Unexpected

February 29, 2012 by Audra Bailey Wilcox

Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys

Has your life turned out exactly as you expected? Most of us would answer this question with a resounding “No!” For better or for worse, plans change, surprises arise, and we adapt. Maybe you chose a career that is completely different from the one you envisioned for yourself back in college. Perhaps your children chose very different paths in life than you would have picked for them.

Flexibility is essential in dealing with life’s curveballs, and it is also one of the keys to an effective estate plan. It is impossible to know what your family’s circumstances will be in the months and years following your death. This makes it difficult to make an estate plan that sets in stone your long-term wishes for your loved ones. When you build flexibility into your estate plan, you can empower your spouse or children to stand in your place and make decisions based on your family’s changed circumstances.

One way to build flexibility into your estate plan is to establish a Trust that includes a power of appointment. With a power of appointment, the ultimate disposition of assets in the Trust can be controlled by the beneficiary at the beneficiary’s death.

There are two different types of powers of appointment. A general power of appointment allows the power holder to appoint the Trust assets to anyone, including him or herself. This type of power carries with it adverse tax consequences. For example, you could give your spouse a general power of appointment, and she could use the power to redistribute Trust assets among her creditors and your children upon her death. However, these assets would be taxed in her estate, as if she owned them outright.

A limited power of appointment is more restrictive but much more useful. It cannot be used in favor of the power holder, his or her creditors, or the creditors of his or her estate. Unlike a general power of appointment, a limited power of appointment results in no adverse tax consequences for the power holder. For example, you could give your son a limited power of appointment, and he could use the power to allocate Trust assets among his children at his death.

The true benefit of powers of appointment lies in long-term estate planning flexibility. Since none of us have a crystal ball, there is just no way to know what the future holds for our families. For example, your estate plan might leave each of your two children an equal inheritance. As they graduate from college and enter the workforce, one might choose a career that is financially rewarding, while the other might choose a lower paying job with a focus on public service. With a power of appointment over your Trust, your spouse would have the flexibility to adjust your estate plan to provide more assets to the child who earns less.

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