Power Play: How a General Power of Appointment Trust Can Strengthen Your Clients'
Legacies
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Around Valentine's Day, themes of love and relationships can stress to clients the importance of
estate coplanning between couples and the options available to them. A proper estate plan can
help ensure that the surviving spouse is taken care of, that the deceased spouse's wishes are
honored after they pass away, and, if necessary, that the marital deduction is utilized to address
any estate tax concerns the couple may have. One solution for married couples is placing
assets for the surviving spouse in a general power of appointment (GPOA) trust. While this
estate planning tool is not as restrictive or protective as other options, a GPOA trust can still
provide some peace of mind for clients.
What Is a General Power of Appointment Trust?
A GPOA is the legal authority granted by one individual (the donor) to a different individual (the
donee, also known as the powerholder or appointer) that allows the donee to determine who will
receive certain assets, either during their lifetime or upon their death. This power is broad and
may include the ability to direct distribution of the assets to themselves, their creditors, their
estate, or their estate's creditors, making it distinct from more restrictive limited powers of
appointment. In a GPOA trust, the donee is the beneficiary and has a GPOA over the trust's
assets, meaning that the donee can make unlimited withdrawals from the trust.
Why Would a Client Use a General Power of Appointment Trust?
If your client intends to protect their assets, even in the hands of their spouse, you may wonder
why they would use a GPOA trust when the beneficiary spouse can withdraw and do whatever
they want with the assets. This type of arrangement sounds more like giving assets to a spouse
outright, which may lead to many problems down the road. Although the trustmaker spouse
gives up control over the assets, there are a few key benefits of a GPOA trust, including the
following:
- Incapacity protection. If the surviving spouse cannot manage their affairs when their
spouse passes away, no one has to worry about a guardianship or conservatorship for
these assets because the trustee will step in and manage the assets on behalf of the
surviving spouse. In other words, the assets held in the trust can generally be managed
without court oversight, whereas assets held in the spouse's name may require court
intervention.
- Asset segregation. Depending on the types of assets your client owns and applicable
state law, it may be beneficial to have certain assets set aside in a trust so they can be
managed independently and to avoid any future commingling should the surviving
spouse remarry.
- Probate avoidance. As long as the assets remain in the trust, the successor trustee can
take over management when the surviving spouse passes away, bypassing the need for
probate court involvement. This ensures a smoother transition and keeps the details of
the trust, including what and how much is left to beneficiaries, out of public view.
Requirements for a General Power of Appointment Trust
As with all trusts, certain requirements must be met, especially if clients want assets transferred
to this trust to qualify for the unlimited marital deduction. Some of these requirements are the
following:
- Mandatory income distributions. The surviving spouse must receive all income from
the trust at least annually.
- Power over assets. The surviving spouse must have the power to appoint assets to
either themselves or their estate.
- Only the spouse. Only the surviving spouse can exercise their power. No other person
can have the power to appoint the trust assets.
Talking to Your Clients About a General Power of Appointment Trust
As we celebrate love and relationships this month, we can extend this sentiment to our clients'
estate plans by explaining how, depending on their unique situation, they can use a GPOA trust
to accomplish their planning goals.
Our attorneys are available to advise you on the ins, outs, pros, and cons of a GPOA trust in
estate planning.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
