Legal Definitions - special power

A special power, also known as a limited power of appointment, is a legal authority granted by one person (the "donor") to another (the "donee") to decide who will receive certain property or assets, but with very specific restrictions on who the beneficiaries can be. The donee cannot appoint the property to themselves, their estate, their creditors, or the creditors of their estate. Instead, the donee must choose recipients from a defined group of individuals or organizations specified by the donor. This mechanism allows the donor to maintain some control over the ultimate distribution of their assets while still providing flexibility for future circumstances.

Here are some examples illustrating a special power:

• Estate Planning - Grandparent's Trust:

  Eleanor sets up a trust for her grandchildren. In her will, she grants her son, David, a special power. This power allows David to decide how the trust's assets will be divided among Eleanor's grandchildren when they reach a certain age. However, David cannot give any of the trust money to himself, his wife, his creditors, or anyone outside the group of Eleanor's grandchildren.

  This illustrates a special power because Eleanor (the donor) has given David (the donee) the authority to distribute property, but strictly limited the potential recipients to a specific class (her grandchildren). David cannot benefit personally or appoint the property to anyone outside that designated group.

• Philanthropic Trust - Family Foundation:

  The Chen family establishes a charitable foundation with a substantial endowment. They appoint their daughter, Dr. Lena Chen, as a trustee and grant her a special power to allocate a portion of the foundation's annual grants. This power dictates that Dr. Chen can only distribute funds to non-profit organizations focused on medical research or educational programs for underserved youth. She cannot direct funds to her own private medical practice, her personal investments, or any organization that doesn't fit these specific criteria.

  Here, the Chen family (donor) has given Dr. Lena Chen (donee) the authority to distribute funds, but the special power restricts the beneficiaries to specific types of charitable organizations. Dr. Chen cannot use this power for her personal benefit or for causes outside the defined scope.

• Business Succession - Family Business Shares:

  Mr. Rodriguez, the founder of a successful family business, places a significant block of company shares into a trust for future generations. He names his eldest daughter, Maria, as the trustee and grants her a special power. This power allows Maria to distribute these shares among any of Mr. Rodriguez's lineal descendants who are actively employed by the family business for at least five years. Maria cannot give shares to herself (unless she meets the criteria as a descendant and employee), her spouse, or any descendant who has not worked in the business for the specified duration.

  This demonstrates a special power because Mr. Rodriguez (donor) has empowered Maria (donee) to distribute property (shares), but the recipients are strictly limited to a defined group: lineal descendants meeting specific employment criteria within the family business. Maria's discretion is confined to this group, preventing her from appointing the shares more broadly or for her direct personal gain outside the defined terms.