General appointment power may be used to avoid the levying of transfer taxes by generation. By granting a general appointment power to a first-generation beneficiary that will be included in the beneficiary's estate, the unified tax credit can be used to avoid taxation of the general power. The beneficiary can then transfer the property to the testator's second or later generations without the GST tax being imposed on it.
General appointment authority allows the donor to give any person, including herself, her estate or her creditors, the subject property. The appointing property may be given outright, placed in a trust or the appointment power may be transferred to another person.
The holder of a general appointment power is considered the owner of the appointive property for tax purposes and creditor remedies until she appoints the property to someone else. Any appointment of property to other beneficiaries may, therefore, result in a gift tax liability, and if the holder of the general appointment power dies before it is exercised, the appointing property will be included in her estate.
Special appointment power does not permit the donor to appoint the property to himself, to his estate, to his creditors or to the creditors of his estate.
Under common law, it was expected that the holder of a special power would exercise it by passing on the property to someone else. Nevertheless, the modern trend has been to allow the holder to place the appointing property in a trust or to transfer the appointment power as long as the permissible appointments of the transferred power are the original permissible appointments as determined by the original authorizing document.
11. What is a general power of appointment? What effect does it have versus a limited...
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