The Power of Appointment in Florida

Today’s topic concerns a relatively unknown Florida estate planning tool called a “power of appointment. A power of appointment in Florida is a special power granted to an individual or class of persons as a part of your estate planning documents, usually in a Florida last will and testament or revocable living trust.

A power of appointment allows a person (or class of persons) the option to make certain changes at a later time concerning the  assets specified in the power of appointment.

Depending upon your specific estate planning circumstances, the power to make later changes may either rescue or destroy your originally intended estate plan.  A “simple definition” of what a Florida power of appointment is, the 2 basic types, and some pros and cons are the focus of today’s article.

A basic definition of a power of appointment is a power given by one person to allow another the right to determine who receive a particular asset or set of assets. 

How a Florida Power of Appointment Can Preserve or Torpedo an Estate Plan?

As an example, a power of appointment may be given to a son or daughter, as set forth in a Florida revocable living trust agreement as part of a Florida estate plan, to allow him or her determine upon death of the parents who will receive certain assets such the trust principal. This kind of power can be advantageous to the estate if the son or daughter is trustworthy and determines that one of the beneficiaries is not financially responsible or is suffering from drug addiction or creditor issues.

Thus, the estate could be preserved if a decision is made to defer a distribution to a drug addicted person.  In contrast, the son may appoint assets away from beneficiaries for reasons that the parents would not have agreed with, thus jeopardizing the original intent of the parents.

On the other hand, an power of appointment given to an irresponsible person can have the reverse affect by preventing a proper distribution from happening. Needless conflict and even court battles can be the unintended result.

2 Types of Powers of Appointment in Florida

The 2 Types of Florida powers of appointment and differences are:

A General Power of Appointment may allow the holder to appoint assets to anyone including himself, the estate or even creditors of the estate.  Generally, property appointed by a general power will be included within the estate.

A Special Power of Appointment is generally reserved for someone or a class of persons designated in the estate plan for the specific purpose of appointing assets outside of the estate to someone other than the holder of the power, the estate or to the creditors of the estate.

By referring to assets within the estate, I am referring to the taxable estate of the deceased person. An example of assets outside of the estate would be assets placed by the deceased person in an irrevocable trust. Because assets appointed by a special power are not included within the estate, this approach is often used to maximize the Federal inheritance tax advantages for larger estates and create flexibility when dealing with irrevocable trusts.

Special Powers of Appointment and Second Marriages

Of particular importance is considering the risks of a special power of appointment where there is a second marriage and children from a previous marriage.  If the surviving spouse is given such a power of appointment, it might be used to appoint assets to her own children and essentially disinherit the children of the deceased spouse.  Of course, this result would not have been intended by the deceased spouse and often results in estate litigation for obvious reasons.

On the flip side, a special power of appointment can offer great flexibility by allowing the surviving spouse to take into account the differing needs of beneficiaries and make needed adjustments due to unanticipated changes in circumstances, thereby protecting the original intent and integrity of the estate plan.

To summarize, powers of appointment in Florida are an important estate planning option and like most options, they must be used carefully and with precision. In my experience, planning precision is especially important when doing estate planning for blended families and where previous marriages are concerned in order to avoid a possible estate planning torpedo down the road.

Steve Gibbs, Esq.