The terms, power of appointment and power of attorney, sound similar but mean something very different. They are both estate planning terms.

First, a power of appointment, is the term you may not be familiar with; most people arent. A power of appointment is a legal right to determine who gets assets after you (i.e. at your death.) Its granted in a will or trust and must be exercised in a will or trust.

The person who gives the power of appointment is called the grantor. The person who is given the power of appointment is called the holder.

For example,

Meg designed her estate plan, passing her assets to trusts for her two children, Sandy and Cheri, at her death. Meg also gave the children limited powers of appointment. This means that Sandy and Cheri can dictate in their own will or trust who, among their descendents, will inherit their trust shares created by Meg.

Typically, limited powers of appointment mean that the assets can only be distributed among descendents. General powers of appointment are used when the individual doing estate planning wants the trust assets to be taxed in her beneficiaries estates.

This may sound odd, but sometimes being taxed actually saves taxes as in the case of the federal estate tax and generation skipping tax.

Please continue reading Is a Power of Appointment a Power of Attorney? (Part Two of Two) to learn more.