Legal Definitions - Takers in Default

In legal terms, "Takers in Default" refers to the individuals or groups who are designated to receive property if a specific instruction, known as a "power of appointment," is not properly carried out.

A power of appointment is a right given by one person (the "donor") to another (the "donee" or "holder") to decide who will ultimately receive certain assets, often specified in a will or trust. If the donee fails to exercise this power, or exercises it improperly, the property then goes to the "takers in default" as originally specified by the donor in the legal document. Essentially, they are the fallback beneficiaries.

• Example 1: A Grandparent's Will

  Eleanor's will establishes a trust for her son, David, and grants him a power of appointment over the trust's remaining assets upon his death. The will states that David can choose how to distribute these assets among his own children (Eleanor's grandchildren) in any proportions he deems fit. However, the will also includes a clause specifying that "if David fails to exercise this power, the remaining trust assets shall be divided equally among all of Eleanor's grandchildren."

  Illustration: If David passes away without having made a will or other legal document that exercises this power of appointment, his children (Eleanor's grandchildren) will inherit the trust assets in equal shares. In this scenario, Eleanor's grandchildren are the takers in default because they receive the property due to David's failure to exercise his power.

• Example 2: A Marital Trust

  Mr. Chen creates a marital trust for his wife, Maria, in his estate plan. Upon Maria's death, the trust document gives her the power to appoint the remaining trust principal to any of their descendants (children or grandchildren). The trust further stipulates that "should Maria not exercise this power, the trust principal shall be distributed to their children, in equal shares."

  Illustration: If Maria dies without having specified how the trust principal should be distributed among their descendants, the assets will be divided equally among their children. The children are the takers in default because they are the designated beneficiaries if Maria does not use her power of appointment.

• Example 3: A Specific Heirloom

  Aunt Carol's will leaves a valuable antique desk to her niece, Sarah, but grants Sarah a limited power of appointment: Sarah has the authority to decide which of Aunt Carol's two nephews, Mark or Peter, will ultimately receive the desk. The will also states, "If Sarah does not make this decision before my estate is settled, the antique desk shall be sold, and the proceeds divided equally between Mark and Peter."

  Illustration: If Sarah fails to choose between Mark and Peter, perhaps because she passes away before making a decision or simply neglects to do so, the desk will be sold, and the money from the sale will be split between Mark and Peter. In this case, Mark and Peter (or the proceeds from the desk's sale) are the takers in default, as they receive the benefit if Sarah's power of appointment is not exercised.