If a beneficiary is given a testamentary limited power of appointment in a trust document, the beneficiary is granted the power to appoint in writing (typically by Will, Trust, or other written instrument) to permissible appointees (classes of people or charities named in the trust document) where the trust property will go upon the beneficiary’s death.  When planning with testamentary limited powers of appointment, it is wise to include special language in the limited power of appointment that specifically prohibits the beneficiary from appointing to himself/herself, to the creditors of the beneficiary’s estate or to the beneficiary’s estate.

The ”limited power of appointment creates a power of appointment that is not a “general” power of appointment under Section 2041 of the Internal Revenue Code and the property remaining in the beneficiary’s trust will not be included in the beneficiary’s estate for federal estate tax purposes (allowing the property to pass to additional generations free from generation-skipping transfer tax).  Because the inclusion ratio is zero, the property remaining in the trust will not be subject to a generation-skipping transfer tax as a taxable termination or taxable distribution.

If you or a family or family member need help planning to minimize estate or generation-skipping transfer taxes on an estate, please reach out to our firm at 760-448-2220 or contact us on our contact page at https://www.geigerlawoffice.com/contact.cfm.

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