In: Accounting
In our discussions about Asuper-B & ABC Trust Plans, we noted that the surviving spouse can be allowed certain powers of appointment over the property held in trust. But, it is critically important that the power of appointment not constitute a general power of appointment. What bad consequence would result if the surviving spouse were granted a general power of appointment? An alternate way of asking this question is as follows: If the QTIP'able trust had been fully (100%) QTIP'd, why would granting a general power of appointment to the surviving spouse be immaterial?
If the surviving spouse is granted general power of appointment rather than special power of appointment,it gives the holder very broader power to give away the decedent's property. The general power of appointment is abroad power that enables the beneficiary to allocate all or part of his/her share of trust or estate amoung individuals or organisation selected by beneficiary. A limited power of appointment permits the beneficiary to allocate his or her share of the estate or trust among certain classes of potential recipients, such as the testator’s descendants or charitable organizations, but not to the beneficiary, the beneficiary’s estate, or creditors of the beneficiary or the estate thereon.
The mere possession of general power of appointment over trust property will cause the power holder to be subject to Gift tax or Estate tax on that property whether or not general power of appointment is exercised rather limited power of appointment does not suject the power holder to gift or estate tax.