What is a power of appointment in a trust, and what classifications are common?

• A. A power of appointment grants the trustee complete control of all assets without restrictions.
• B. A power of appointment lets the holder designate beneficiaries or distributions; classifications include discretionary vs non-discretionary, and general vs limited or class gifts.
• C. A power of appointment is only used in charitable trusts.
• D. A power of appointment cannot be revoked or changed.

Answer: (B)

A power of appointment in a trust is authority given to a person to decide who will receive some or all of the trust assets or how distributions will be made, within the limits the trust sets. It’s a flexible tool that lets the appointer influence future beneficiaries without rewriting the trust.

Common classifications are twofold. First, discretionary versus non-discretionary. If the appointer has a discretionary power, they can decide whether to exercise the power, when, and to whom or in what amounts distributions should be made. If the power is non-discretionary, distributions are fixed or directed by the trust terms with little or no choice by the appointer.

Second, general versus limited (often called nongeneral or class) powers. A general power lets the appointer designate anyone, including themselves, their estate, or their creditors. A limited or nongeneral power restricts appointment to a defined class or specific individuals or organizations and cannot be used to benefit the appointer personally.