What is a Power of Appointment?

Power of appointment is a right which is given by someone, known as a donor, to someone else, called the donee, which permits this person to distribute the estate of the donor. Powers of appointment must commonly come up in the context of a will and are sometimes referred to as testamentary powers of appointment in reference to this. People do not need to accept the power of appointment; someone asked to serve as the executor of a will, for example, could decline the responsibility, in which case a new executor would be appointed to handle the administration of the will.

If someone is given a general power of appointment, it means that he or she may distribute the contents of an estate in any way this person deems suitable. The donee could, for example, give the bulk of the estate to the decedent's children, but withhold part of the estate for personal use. For tax purposes, someone with a general power of appointment is often treated as the owner of an estate because he or she could potentially become the owner of the estate by choosing to assign ownership to him or herself.

In the case of a special or limited power of appointment, the donee's activities are restricted under the terms of the will in some way, usually by limiting the people to whom the estate can be distributed. For example, someone could indicate that she wants her estate to go to her children, and that her partner can decide how the estate should be distributed. In this case, the donee is empowered with the ability to distribute property, but the donee's powers are not unlimited.

When someone makes a will directly granting his or her estate to a particular person, that person is still considered to have the power of appointment. This individual can opt, for example, to transfer property to someone else, in which case she or he would be acting as a donee to redistribute the contents of the estate.

It is also possible to have a situation in which someone has control of assets owned by a living person. This most commonly happens when people establish a trust for their assets and a trustee is appointed to manage it. However, trustees have a legal obligation to steward the assets in their care responsibly. Donees given power of appointment are not charged with the same responsibility.