A typical Bypass Trust and/or Marital QTIP Trust created after the death of a spouse (i.e. the “Deceased Spouse”) often requires the trust be automatically distributed to remainder beneficiaries after the death of the Surviving Spouse. There is typically no power granted to the Surviving Spouse to “appoint” trust property in different amounts, percentages, or to different beneficiaries than those already written into the trust.
A similar issues arises when a trust is established for any beneficiary where the beneficiary has no control over the ultimate distribution of the trust property at the beneficiary’s death.
An irrevocable trust can be modified to grant the beneficiary of a trust a “limited” or “general” power of appointment. A power of appointment gives a trust beneficiary to “appoint” the property of the trust to one or more ultimate beneficiaries, following the guidelines set forth in the power.
If properly drafted, such a power can be used to reward “good” beneficiaries, punish “bad” beneficiaries, create new beneficiaries, divide trust property in different amounts or percentages, and provide for beneficiaries that are or have become “special needs” beneficiaries.