Powers Of Appointment

Question 1

Definition and Tax implications for Powers of Appointment

Special Power

Answer 1

A special power is exercisable only with the consent of the creator of the power or a person having a substantial adverse interest. Not a general power of appointment.

Tax implications:
• No gift tax implications
• No estate tax implications

Question 2

Definition and Tax implications for Powers of Appointment

Ascertainable Standard

Answer 2

A power that is limited by an ascertainable standard relating to health, education, maintenance or support (HEMS) determined by the power holder. Not a general power of appointment.

Tax implications:
• No gift tax implications
• No estate tax implications

Question 3

Tax implications for Powers of Appointment

General Powers

Answer 3

Power is exercised, released or lapsed

Tax implications:
• Gift tax implications: Taxed
• Estate tax implications: Taxed

Power is exercised, released or lapsed with a 5 or 5 power

Tax implications:
• No gift tax implications
• Estate tax: greater of 5% or $5,000 is taxed

Question 4

Definition for Powers of Appointment

General Powers

Answer 4

A general power allows the holder to exercise the power in any manner he/she wishes. The power holder may appoint the property to him/herself, his/her creditors, his/her estate, or the creditors of his/her estate. A general power is virtually the same as outright ownership.