Special Power of Appointment Trust
A Special Power of Appointment Trust is a trust where the donee can only choose appointees from a certain class of people. The appointees can be over only certain parts of the property or over the entire trust. In a Special Power of Appointment Trust, the donee can’t appoint themselves to benefit from the trust in any way; they don’t have an interest in the assets they are overseeing.
Power of appointment trusts in general, are trusts where power is given by the donor to a donee of the donor’s choosing the right or power to enjoy certain assets within the trust. In these types of trusts, the donee can only choose non creditors as the appointees who get to enjoy and use the property. This is not a transfer of property but is protected from creditors in a legal, upfront way and is not seen as defrauding the creditors.
Since the creators of Special Power of Appointment Trusts are not considered to be the owners of the property any longer, unless they are the grantor, the trust doesn’t need to be disclosed for tax purposes or in the event the creator claims bankruptcy.
If it is a grantor trust, than any income from the trust must be reported but nothing else. A non grantor trust doesn’t even need to be disclosed in divorce proceedings or when applying for government health insurance. (Medicaid) The creator just needs to be certain that the trust was created properly so no laws are broken. This affords the creator a lot of privacy and the ability to remain anonymous and is a very wise way to obtain asset protection.
There are two types of Special Power of Appointment Trusts: exclusive and non-exclusive. In an exclusive Special Power of Appointment Trust, the donee can appoint all of the property in the trust to one appointee if they so choose, to the exclusion of the other appointees named. In a non-exclusive Special Power of Appointment Trust, they must give some property to each appointee but it is not required to be equal amounts. That is still up to the donee’s discretion.
A trust of this type is allowed to have its own bank accounts, do its own investments and will be assigned a tax payer number so it can do these things. There are no restrictions on what the assets in the trust can be used for so technically the trust can buy property, and own businesses.
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