Legal Definitions - Testamentary power of appointment

A testamentary power of appointment is a legal right granted to an individual (known as the donee) by another person (the donor) that allows the donee to decide, through their will, who will receive certain property or assets after the donee's death. The defining characteristic of this power is that it can only be exercised within the donee's last will and testament; it cannot be used or changed during the donee's lifetime.

Essentially, the donor gives the donee the authority to complete a part of the donor's estate plan, but this authority can only be acted upon by the donee's will, which takes effect upon their passing. The donee cannot make these decisions or transfer the property while they are alive.

• Example 1: Allocating Trust Assets Among Grandchildren

  A grandmother establishes a trust for her son, stating that upon his death, the remaining trust assets should pass to his children (her grandchildren). However, she grants her son a testamentary power of appointment to decide how those assets are specifically divided among his children in his will. The son cannot distribute the trust funds to his children during his lifetime. Instead, he must specify in his own will, for instance, that his eldest daughter receives 50% of the trust, and his two younger sons each receive 25%. This decision becomes legally binding only upon his death, as outlined in his will.

• Example 2: Designating an Heir for a Family Heirloom

  A collector leaves a valuable antique clock in a trust for his niece to enjoy during her lifetime. His will specifies that upon the niece's death, she has a testamentary power of appointment to name which of her own children will inherit the clock. The niece cannot give the clock to one of her children while she is alive, nor can she sell it and give them the proceeds. Her only way to exercise this power is to include a clause in her will, stating, for example, that her son, who shares her passion for antiques, will receive the clock after her passing.

• Example 3: Directing Funds to Specific Charities

  A philanthropist creates an endowment and grants a close friend a testamentary power of appointment to allocate a specific portion of the endowment's future income among a pre-approved list of educational institutions. The friend cannot direct any funds to these institutions during their lifetime. Instead, they must include instructions in their will, specifying, for example, that 40% of the designated income should go to University A, 30% to College B, and 30% to Scholarship Fund C. This decision, made in the friend's will, will dictate the distribution of funds after their death.