Existing law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment. Existing law provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. Existing law for these purposes defines a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a donee.

This bill would revise and recast those provisions. The bill would impose additional requirements on the creation of a power of appointment, including the existence of a legally valid creating instrument that manifests the donors intent to create a power of appointment and that transfers the appointive property, except as specified. The bill would define the term power of appointment for those purposes. The bill would instead define a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a powerholder. The bill would require, if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property to be allocated in the permissible manner in accordance with the terms of the creating instrument and to carry out the intent of the powerholder. The bill would require, if a powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment to share fully in unappointed property. The bill would make property subject to a special power of appointment subject to the claims of creditors of the powerholder or of the powerholders estate or the expenses of administration of the powerholders estate under specified circumstances. The bill would make conforming changes to related provisions, and would make changes to provisions related to an unexercised general power of appointment, as specified.

Existing law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment. Existing law provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. Existing law for these purposes defines a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a donee.

This bill would revise and recast those provisions. The bill would impose additional requirements on the creation of a power of appointment, including the existence of a legally valid creating instrument that manifests the donors intent to create a power of appointment and that transfers the appointive property, except as specified. The bill would define the term power of appointment for those purposes. The bill would instead define a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a powerholder. The bill would require, if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property to be allocated in the permissible manner in accordance with the terms of the creating instrument and to carry out the intent of the powerholder. The bill would require, if a powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment to share fully in unappointed property. The bill would make property subject to a special power of appointment subject to the claims of creditors of the powerholder or of the powerholders estate or the expenses of administration of the powerholders estate under specified circumstances. The bill would make conforming changes to related provisions, and would make changes to provisions related to an unexercised general power of appointment, as specified.

Existing law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment. Existing law provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. Existing law for these purposes defines a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a donee.

This bill would revise and recast those provisions. The bill would impose additional requirements on the creation of a power of appointment, including the existence of a legally valid creating instrument that manifests the donors intent to create a power of appointment and that transfers the appointive property, except as specified. The bill would define the term power of appointment for those purposes. The bill would instead define a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a powerholder. The bill would require, if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property to be allocated in the permissible manner in accordance with the terms of the creating instrument and to carry out the intent of the powerholder. The bill would require, if a powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment to share fully in unappointed property. The bill would make property subject to a special power of appointment subject to the claims of creditors of the powerholder or of the powerholders estate or the expenses of administration of the powerholders estate under specified circumstances. The bill would make conforming changes to related provisions, and would make changes to provisions related to an unexercised general power of appointment, as specified.

Existing law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment.

This bill would revise and recast those provisions. The bill would define the term power of appointment for those purposes. The bill would require, if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property to be allocated in the permissible manner to carry out the intent of the powerholder. The bill would require, if a powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment to share fully in unappointed property. The bill would make property subject to a special power of appointment subject to the claims of creditors of the powerholder or of the powerholders estate or the expenses of administration of the powerholders estate under specified circumstances. The bill would make conforming changes to related provisions, and would make changes to provisions related to an unexercised general power of appointment, as specified.

 CONSENT  

Bill No: AB 2846

Author: Maienschein (R)

Amended: 5/9/16 in Assembly

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 6/21/16

AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski

ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for vote

SUBJECT: Powers of appointment

SOURCE: Executive Committee of the Trusts & Estates Section of the State Bar

of California

DIGEST: This bill clarifies statutory law related to powers of appointment by replacing the term “donee” with “powerholder” in the powers of appointment portion of the Probate Code to avoid confusion; explicitly defining a “power of appointment;” providing how a power of appointment is created; clarifying the instances when a power of appointment is subject to claims of creditors; adopting the selective allocation doctrine as a rule of construction; and adopting a default rule that allows a taker-in-default to share fully in unappointed property when the powerholder makes a partial appointment to the taker-in-default. 

ANALYSIS:

Existing law:

1. Defines the following terms relating to powers of appointment:
   1. “Appointee” as the person in whose favor a power of appointment is exercised;
   2. “Appointive property” as the property or interest in property that is the subject of the power of appointment;
   3. “Creating instrument” as the deed, will, trust, or other writing or document that creates or reserves the power of appointment;
   4. “Donee” as the person to whom a power of appointment is given or in whose favor a power of appointment is reserved; and
   5. “Permissible appointee” as a person in whose favor a power of appointment can be exercised.
2. Provides that a power of appointment can only be created by a donor having the capacity to transfer the interest in property to which the power relates.
3. Establishes the Uniform Voidable Transactions Act, which provides that certain acts to hinder, delay, or defraud any creditor are voidable.
4. Provides that a power of appointment is a general power of appointment only to the extent that it is exercisable in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate, whether or not it is exercisable in favor of theirs.
5. Provides that a power to consume, invade, or appropriate property for the benefit of a person in discharge of the donee’s obligation of support that is limited by an ascertainable standard relating to the person’s health, education, support, or maintenance is not a general power of appointment.
6. Provides that a power exercisable by the donee only in conjunction with a person having a substantial interest in the appointive property that is adverse to the exercise of the power in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate is not a general power of appointment.
7. Provides that a power of appointment that is not “general” is special.
8. Provides that a power of appointment may be general as to some appointive property, or an interest in or a specific portion of appointive property, and be special as to other appointive property.
9. Provides that property covered by a special power of appointment (which means the powerholder cannot give the property to himself/herself) is not subject to the claims of creditors of the donee or of the donee’s estate or to the expenses of the administration of the donee’s estate.

This bill:

1. Replaces the word “donee” with “donor” and defines a “donor” as the person who creates or reserves a power of appointment.
2. Defines “power of appointment” as a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property.
3. Specifies that “power of appointment” does not include a power of attorney.
4. Defines “powerholder” as the person to whom a power of appointment is given or in whose favor a power of appointment is reserved.
5. Provides that a power of appointment is created only if all of the following are satisfied:
   1. There is a creating instrument;
   2. The creating instrument is valid under applicable law;
   3. The creating instrument transfers the appointive property (but this does not apply to the creation of a power of appointment by the exercise of a power of appointment); and
   4. The terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.
6. Provides that if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property shall be allocated in the permissible manner in accordance with the terms of the creating instrument and that best carries out the powerholder’s intent.
7. Provides that unless the terms of the instrument creating or exercising a power of appointment manifest a contrary intent, if the powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment may share fully in unappointed property.
8. Replaces the word “donee” with “donor” and defines a “donor” as the person who creates or reserves a power of appointment.
9. Provides that property covered by a special power of appointment (which means the powerholder cannot give the property to himself/herself) is not subject to the claims of creditors of the powerholder or of the powerholder’s estate or to the expenses of the administration of the powerholder’s estate, except that property subject to the special power of appointment shall be subject to the claims of creditors of the powerholder or of the powerholder’s estate or the expenses of administration of the powerholder’s estate when:
   1. The powerholder owned the property and, reserving the special power, transferred the property in violation of the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code); or
   2. The initial gift in default of the exercise of the power is to the powerholder or the powerholder’s estate.
10. Provides that property subject to an unexpired general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate.
11. Provides that property subject to a general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate, except to the extent the donor effectively irrevocably appointed the property subject to the general power of appointment in favor of a person other than the donor or the donor’s estate. 

Background

Current law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment. A power of appointment is an estate planning tool that provides an owner of property additional flexibility in devising his or her estate. A power of appointment is a traditional feature of property law that permits the owner of property to name a third party and give that person the power to direct the distribution of property among some class of permissible beneficiaries. The power of appointment may also be structured to provide tax advantages and protections from creditors. Existing law provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. Existing law defines a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a “donee.” This bill contains provisions that would make California’s power of appointment laws, codified at Probate Code Section 610, et seq., more user-friendly. The provisions of this bill are generally modeled after a few provisions of the Uniform Law Commission’s model Uniform Powers of Appointment Act. The provisions of this bill clarify California’s law on powers of appointment in order to provide further guidance to estate planners and families in creating powers of appointment that are consistent with the donors’ and powerholders’ intent and the rights of creditors. Accordingly, this bill replaces the term “donee” with “powerholder” in the powers of appointment portion of the Probate Code to avoid confusion, explicitly defines a “power of appointment,” provides how a power of appointment is created, and clarifies the instances when a power of appointment is subject to claims of creditors. This bill also adopts the selective allocation doctrine as a rule of construction and adopts a default rule that allows a taker-in-default to share fully in unappointed property when the powerholder makes a partial appointment to the taker-in-default. 

Comments

The author writes:

A power of appointment is a traditional feature of property law that permits the owner of property to name a third party and give that person the power to direct the distribution of that property among some class of permissible beneficiaries to add flexibility to the estate plan.  This bill introduces provisions to clarify issues regarding the creation, exercise, and release of powers of appointment over trust property in a manner consistent with common law.

This bill proposes amendments to clarify the scope and type of powers subject to these rules, provide guidance regarding operation of powers of appointment consistent with the donors’ and powerholders’ intentions, and clarify the rights of creditors with respect to property subject to powers of appointment.

Makes existing power of appointment law more user friendly

This bill makes current power of appointment law more user-friendly.  This is accomplished by replacing the term “donee” in the power of appointment portion of the Probate Code with the term “powerholder.” The use of the term “donee” throughout the power of appointment portion of the Probate Code is unnecessarily confusing because the term “donee” exists throughout the Probate Code with a definition which conflicts with the definition of “donee” in the context of the power of appointment. As explained by the sponsor, this “is confusing, as the term ‘donee’ also may refer to donees who receive property through gifts or bequests, or who receive the appointive property pursuant to exercise of a power of appointment by the person who holds that power.” It is appropriate to replace the term “donee” with the term “powerholder.” Notably, the definition of “donee” for this power of appointment portion of the Probate Code does not change. However, the more appropriate term of “powerholder” is used in its stead. Additionally and importantly, the term “donee” is replaced throughout the power of appointment portion of the Probate Code (Probate Code Section 600 et seq. (part 14 of Division 2) with the more accurate term of “powerholder” to describe the person who holds the power of appointment.

The power of appointments portion of the Probate Code is further enhanced by placing into the power of appointment section of the Probate Code the definition of “power of appointment” that is appropriate to this portion of law.  Accordingly, it is made clear that the traditional “power of appointment” for trust law purposes is distinguished from powers held by fiduciaries, such as “agents” under powers of attorney.  Under this bill, “power of appointment” would be defined as “a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property.”  The statute further clarifies that “power of appointment” in this portion of the Probate Code does not include a power of attorney. 

This bill also places into statute what criteria need to be satisfied for a valid power of appointment to be created.  Specifically, all of the following must be satisfied to create a power of appointment:

• There is a creating instrument;
• The creating instrument is valid under applicable law;
• The creating instrument transfers the appointive property (but this does not apply to the creation of a power of appointment by the exercise of a power of appointment); and
• The terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/24/16)

Executive Committee of the Trusts & Estates Section of the State Bar of California (source)

OPPOSITION: (Verified 6/24/16)

None received

ASSEMBLY FLOOR: 78-0, 5/12/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Burke, Jones-Sawyer

Prepared by: Margie Estrada / JUD. / (916) 651-4113

6/24/16 14:33:54

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2015-2016 Regular Session

Bill No: AB 2846 (Author:Maienschein)

Version: May 9, 2016

Hearing Date: June 21, 2016

Fiscal: No

Urgency: No

Consultant: ME

SUBJECT

Powers of appointment

DESCRIPTION

To clarify statutory law related to powers of appointment, this bill would replace the term “donee” with “powerholder” in the powers of appointment portion of the Probate Code to avoid confusion; explicitly define a “power of appointment;” provide how a power of appointment is created; clarify the instances when a power of appointment is subject to claims of creditors; adopt the selective allocation doctrine as a rule of construction; and adopt a default rule that allows a taker-in-default to share fully in unappointed property when the powerholder makes a partial appointment to the taker-in-default.

BACKGROUND

Current law provides a statutory body of law relating to powers of appointment, including the creation and exercise of, and the revocability of the creation, exercise, or release of, a power of appointment. A power of appointment is an estate planning tool that provides an owner of property additional flexibility in devising his or her estate. A power of appointment is a traditional feature of property law that permits the owner of property to name a third party and give that person the power to direct the distribution of property among some class of permissible beneficiaries. The power of appointment may also be structured to provide tax advantages and protections from creditors. Existing law provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. Existing law defines a person to whom a power of appointment is given or in whose favor a power of appointment is reserved as a “donee.” This bill contains provisions that would make California’s power of appointment laws, codified at Probate Code Section 610, et seq., more user-friendly. The provisions of this bill are generally modeled after a few provisions of the Uniform Law Commission’s model Uniform Powers of Appointment Act. The provisions of this bill clarify California’s law on powers of appointment in order to provide further guidance to estate planners and families in creating powers of appointment that are consistent with the donors’ and powerholders’ intent and the rights of creditors. Accordingly, this bill replaces the term “donee” with “powerholder” in the powers of appointment portion of the Probate Code to avoid confusion, explicitly defines a “power of appointment,” provides how a power of appointment is created, and clarifies the instances when a power of appointment is subject to claims of creditors. This bill also adopts the selective allocation doctrine as a rule of construction and adopts a default rule that allows a taker-in-default to share fully in unappointed property when the powerholder makes a partial appointment to the taker-in-default.

CHANGES TO EXISTING LAW

Existing law relating to powers of appointment defines “appointee” as the person in whose favor a power of appointment is exercised. (Prob. Code Sec. 610(a).)

Existing law relating to powers of appointment defines “appointive property” as the property or interest in property that is the subject of the power of appointment. (Prob. Code Sec. 610(b).)

Existing law relating to powers of appointment defines “creating instrument” as the deed, will, trust, or other writing or document that creates or reserves the power of appointment. (Prob. Code Sec. 610(c).)

Existing law relating to powers of appointment defines “donee” as the person to whom a power of appointment is given or in whose favor a power of appointment is reserved. (Prob. Code Sec. 610(d).)

This bill replaces the word “donee” with “donor” and defines a “donor” as the person who creates or reserves a power of appointment.

Existing law relating to powers of appointment defines “permissible appointee” as a person in whose favor a power of appointment can be exercised. (Prob. Code Sec. 610(f).)

This bill defines “power of appointment” as a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property.

This bill specifies that “power of appointment” does not include a power of attorney.

This bill defines “powerholder” as the person to whom a power of appointment is given or in whose favor a power of appointment is reserved.

Existing law provides that a power of appointment can only be created by a donor having the capacity to transfer the interest in property to which the power relates. (Prob. Code Sec. 620.)

This bill provides that a power of appointment is created only if all of the following are satisfied:

• there is a creating instrument;
• the creating instrument is valid under applicable law;
• the creating instrument transfers the appointive property (but this does not apply to the creation of a power of appointment by the exercise of a power of appointment); and
• the terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

This bill provides that if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property shall be allocated in the permissible manner in accordance with the terms of the creating instrument and that best carries out the powerholder’s intent.

This bill, unless the terms of the instrument creating or exercising a power of appointment manifest a contrary intent, if the powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment may share fully in unappointed property.

Existing law establishes the Uniform Voidable Transactions Act, which provides that certain acts to hinder, delay, or defraud any creditor are voidable. (Civ. Code Sec. 3439.)

Existing law provides that a power of appointment is a general power of appointment only to the extent that it is exercisable in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate, whether or not it is exercisable in favor of theirs. (Prob. Code Sec. 611(a).)

Existing law provides that a power to consume, invade, or appropriate property for the benefit of a person in discharge of the donee’s obligation of support that is limited by an ascertainable standard relating to the person’s health, education, support, or maintenance is not a general power of appointment. (Prob. Code Sec. 611(b).)

Existing law provides that a power exercisable by the donee only in conjunction with a person having a substantial interest in the appointive property that is adverse to the exercise of the power in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate is not a general power of appointment. (Prob. Code Sec. 611(c).)

Existing law provides that a power of appointment that is not “general” is special. (Prob. Code Sec. 611(d).)

Existing law provides that a power of appointment may be general as to some appointive property, or an interest in or a specific portion of appointive property, and be special as to other appointive property. (Prob. Code Sec. 611(e).)

Existing law provides that property covered by a special power of appointment (which means the powerholder cannot give the property to himself/herself) is not subject to the claims of creditors of the donee or of the donee’s estate or to the expenses of the administration of the donee’s estate. (Prob. Code Sec. 681.)

This bill provides that property covered by a special power of appointment (which means the powerholder cannot give the property to himself/herself) is not subject to the claims of creditors of the powerholder or of the powerholder’s estate or to the expenses of the administration of the powerholder’s estate, except that property subject to the special power of appointment shall be subject to the claims of creditors of the powerholder or of the powerholder’s estate or the expenses of administration of the powerholder’s estate when:

• the powerholder owned the property and, reserving the special power, transferred the property in violation of the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code); or
• the initial gift in default of the exercise of the power is to the powerholder or the powerholder’s estate.

Existing law provides that property subject to an unexpired general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate. (Prob. Code Sec. 683.)

This bill provides that property subject to a general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate, except to the extent the donor effectively irrevocably appointed the property subject to the general power of appointment in favor of a person other than the donor or the donor’s estate.

COMMENT

1. Stated need for the bill

According to the author:

A power of appointment is a traditional feature of property law that permits the owner of property to name a third party and give that person the power to direct the distribution of that property among some class of permissible beneficiaries to add flexibility to the estate plan. This bill introduces provisions to clarify issues regarding the creation, exercise, and release of powers of appointment over trust property in a manner consistent with common law.

This bill proposes amendments to clarify the scope and type of powers subject to these rules, provide guidance regarding operation of powers of appointment consistent with the donors’ and powerholders’ intentions, and clarify the rights of creditors with respect to property subject to powers of appointment.

2. Makes existing power of appointment law more user friendly

This bill makes current power of appointment law more user-friendly. This is accomplished by replacing the term “donee” in the power of appointment portion of the Probate Code with the term “powerholder.” The use of the term “donee” throughout the power of appointment portion of the Probate Code is unnecessarily confusing because the term “donee” exists throughout the Probate Code with a definition which conflicts with the definition of “donee” in the context of the power of appointment. As explained by the sponsor, this “is confusing, as the term ‘donee’ also may refer to donees who receive property through gifts or bequests, or who receive the appointive property pursuant to exercise of a power of appointment by the person who holds that power.” It is appropriate to replace the term “donee” with the term “powerholder.” Notably, the definition of “donee” for this power of appointment portion of the Probate Code does not change. However, the more appropriate term of “powerholder” is used in its stead. Additionally and importantly, the term “donee” is replaced throughout the power of appointment portion of the Probate Code (Probate Code Section 600 et seq. (part 14 of Division 2) with the more accurate term of “powerholder” to describe the person who holds the power of appointment.

The power of appointments portion of the Probate Code is further enhanced by placing into the power of appointment section of the Probate Code the definition of “power of appointment” that is appropriate to this portion of law. Accordingly, it is made clear that the traditional “power of appointment” for trust law purposes is distinguished from powers held by fiduciaries, such as “agents” under powers of attorney. Under this bill, “power of appointment” would be defined as “a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property.” The statute further clarifies that “power of appointment” in this portion of the Probate Code does not include a power of attorney.

The bill also places into statute what criteria need to be satisfied for a valid power of appointment to be created. Specifically, all of the following must be satisfied to create a power of appointment:

• there is a creating instrument;
• the creating instrument is valid under applicable law;
• the creating instrument transfers the appointive property (but this does not apply to the creation of a power of appointment by the exercise of a power of appointment); and
• the terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

3. Adopts National Conference of Commissioners on Uniform State Laws (NCCUSL) recommendation regarding the selective allocation doctrine

This bill would adopt the selective allocation doctrine in an effort to protect the powerholder’s intent as long as the appointive property allocation is consistent with the donor’s intent.^[1] This bill codifies the rule of selective allocation as follows: “if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property shall be allocated in the permissible manner in accordance with the terms of the creating instrument and that best carries out the powerholder’s intent. It is common for a donor to restrict a power of appointment so that it can only be exercised (by the powerholder) to a limited group of individuals (permissible appointees). A powerholder oftentimes specifies in his/her testamentary instrument how they wish to exercise their power of appointment. In that same testamentary document, the person, who happens to also be the powerholder may also indicate their wishes to dispose their own property to individuals who are permissible appointees and impermissible appointees. This bill adopts the selective allocation doctrine to resolve this situation. The selective allocation doctrine seemingly strikes a balance in protecting the powerholder’s intent while also ensuring that the appointive property allocation is consistent with the donor’s intent.

The following example, provided by the author, demonstrates how the selective allocation doctrine is consistent with the donor’s instructions and also consistent with the powerholder’s intent:

D died, leaving a will that devised property worth $100,000 to T in trust. T is directed to pay the net income to S (Donor’s son) for life and then “to pay the principal to S’s descendants as S shall by will appoint, and in default of appointment to pay the principal by representation to S’s descendants then living, and if no descendant of S is then living, to pay the principal to X-Charity.” S dies. The trust property over which S has the special (limited) power of appointment (the “appointive property”) is worth $200,000 at his death. S’s owned property at his death is worth $800,000. S’s will provides as follows: “All property I own or over which I have any power of appointment shall be used first to pay my debts, expenses of administration, and death taxes, and the balance I give outright to my daughters.” S’s debts plus the death taxes payable on S’s death plus the expenses of administering S’s estate total $200,000. If the appointive property is allocated pro rata to the payment of such $200,000 of debts/taxes, one-fifth of the $200,000 would be an ineffective appointment, because it would benefit impermissible appointees. That one-fifth of $200,000 ($40,000 of the appointive property) would pass in default of appointment, and S’s own personal property would have to pick up the full payment of the debts, taxes, and expenses of administration. A selective allocation in the first instance of S’s own personal property to the payment of debts, taxes, and expenses of administration preserves the appointive property as appointed only to permissible appointees of the special power of appointment, and nothing passes under the default clause.

According to comments by the NCCUSL, in the Uniform Powers of Appointment Act:

The result of applying selective allocation is always one that the powerholder could have provided for in specific language, and one that the powerholder most probably would have provided for had he or she been aware of the difficulties inherent in the dispositive scheme. By the rule of selective allocation, courts undertake to prevent the dispositive plan from being frustrated by the ineptness of the powerholder or the powerholder’s lawyer. For an early case adopting selective allocation, see Roe v. Tranmer, 2 Wils. 75, 95 Eng. Rep. 694 (C.P. 1757).

(National Conference of Commissioners on Uniform State Law, Uniform Powers of Appointment Act, (Sep. 24, 2013) p. 31)

4. Codifies the NCCUSL recommendation regarding disposition of unappointed property if partial appointment to taker in default

The author notes that the “Probate Code currently does not address the issue of the ability of a taker in default to share in the unappointed property remaining after operation of a partial exercise of a power of appointment in favor of that taker.” This bill would adopt the NCCUSL recommendation and codify the following:

Unless the terms of the instrument creating or exercising a power of appointment manifest a contrary intent, if the powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment may share fully in unappointed property.

According to the NCCUSL’s comments in support of codifying their recommendation regarding the disposition of unappointed property if partial appointment to taker in default:

If a powerholder makes a valid partial appointment to a taker in default, leaving some property unappointed, there is a question about whether that taker in default may also fully share in the unappointed property. In the first instance, the intent of the donor controls. In the absence of any indication of the donor’s intent, it is assumed that the donor intends that the taker can take in both capacities. This rule presupposes that the donor contemplated that the taker in default who is an appointee could receive more of the appointive assets than a taker in default who is not an appointee. The donor can defeat this rule by manifesting a contrary intent in the instrument creating the power of appointment, thereby restricting the powerholder’s freedom to benefit an appointee who is also a taker in default in both capacities. If the donor has not so manifested a contrary intent, the powerholder is free to exercise the power in favor of a taker in default who is a permissible appointee. Unless the powerholder manifests a contrary intent in the terms of the instrument exercising the power, it is assumed that the powerholder does not intend to affect in any way the disposition of any unappointed property.

The rule of this section is consistent with, and this Comment draws on, Restatement Third of Property: Wills and Other Donative Transfers § 19.24 and the accompanying Commentary.

The author offers the following example to illustrate where this doctrine is helpful:

D died, leaving a will that devised property worth $100,000 to T in the XYZ Trust for the benefit of S (Donor’s son) for life and then “to pay the principal to S’s descendants as S shall by will appoint, and in default of appointment to pay the principal by representation to S’s descendants then living, and if no descendant of S is then living, to pay the principal to X-Charity.” S dies. S’s will provides as follows: “I exercise my power of appointment over the XYZ Trust by directing that 25% of the trust property of the XYZ Trust shall be distributed outright to my daughter, D.” S partially exercised his power of appointment to give 25% of the XYZ Trust to D, but does not exercise his power of appointment over the remaining 75% of the XYZ Trust. This proposed statute would clarify that D also shares in the distribution of the unappointed 75% balance of XYZ Trust along with S’s other living descendants, and that the partial appointment of 25% to D does not preclude her from sharing in that 75% distribution.

5. Clarifies instances when a special power of appointment is subject to claims of creditors and when a general power of appointment is subject to claims of creditors

Under the Probate Code, a power of appointment is general if it is exercisable in favor of the powerholder, even if it is exercisable in favor of others. A power of appointment is considered special if it is exercisable in favor of appointees that exclude the powerholder. Additionally the Probate Code specifies that a power of appointment that is not “general ” is “specific.” A creditor of a powerholder of a special power of appointment may not reach the appointive property. According to the author, when the bright line rule under Probate Code that any power of appointment that is not general is special, is coupled with the rule that property subject to a special power of appointment is not subject to the claims of creditors, leads to situations where “creative debtors [can] engage in effective (fraudulent) creditor avoidance planning.” For these reasons, the author seeks to codify two circumstances under which a creditor may reach property subject to a special power of appointment. Accordingly, this bill would provide that property subject to a special power of appointment shall be subject to the claims of creditors of the powerholder, or of the powerholder’s estate, or the expenses of administration of the powerholder’s estate under either of these circumstances:

• to the extent that the powerholder owned the property and, reserving the special power, transferred the property in violation of the Uniform Voidable Transactions Act; or
• if the initial gift in default of the exercise of the power is to the powerholder or the powerholder’s estate.

Additionally, according to the author, the probate code currently “leaves open the possibility that a powerholder may ‘exercise’ a general power of appointment in anticipation of possible creditor action against the powerholder, but then later revoke the exercise of the power.” Although, as the author notes, a “court could void such an ‘exercise’ of a power of appointment as a fraudulent transfer,” the bill would codify a straightforward rule that provides that an unexercised general power of appointment is not subject to creditors if the donor effectively and irrevocably appoints the property in favor of a person other than the donor or the donor’s estate. Codifying these rules would arguably ensure that property is not being transferred to improperly escape creditors while also still providing flexibility in estate planning.

Support: None Known

Opposition: None Known

HISTORY

Source: Executive Committee of the Trusts & Estates Section of the State Bar of California (TEXCOM)

Related Pending Legislation: None Known

Prior Legislation: None Known

Prior Vote:

Assembly Floor (Ayes 78, Noes 0)

Assembly Judiciary Committee (Ayes 10, Noes 0)

**************

1. The Selective Allocation Doctrine is part of the Uniform Powers of Appointment Act of 2013. See National Conference of Commissioners on Uniform State Law, Uniform Powers of Appointment Act, (Sep. 24, 2013) pp. 30-32. ↑

Date of Hearing: May 3, 2016

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 2846

Author:(Maienschein) – As Introduced Ver:February 19, 2016

PROPOSED CONSENT (As Proposed to be Amended)

SUBJECT: POWER OF APPOINTMENTS

KEY ISSUE: SHOULD CERTAIN PROVISIONS OF THE UNIFORM POWERS OF APPOINTMENT ACT DEVELOPED BY THE UNIFORM LAW COMMISSION BE ADOPTED TO PROVIDE ADdITIONAL CLARITY IN ESTATE PLANNING?

SYNOPSIS

This non-controversial bill adopts several provisions of the Uniform Law Commission’s model legislation, Uniform Powers of Appointment Act. A power of appointment is an estate planning tool that provides an owner of property additional flexibility in devising his or her estate. Depending on how a power of appointment is structured, it may also provide families tax advantages and protections against creditors.

Given that California’s body of law relating to powers of appointment has primarily been based on common law, this bill seeks to clarify California’s law on powers of appointment in order to provide further guidance to estate planners and families on creating powers of appointment, consistent with the donors’ and powerholders’ intent, and the rights of creditors. This bill is sponsored by Executive Committee of the Trusts and Estates Section of the State Bar (TEXCOM) and has no opposition on file.

SUMMARY: Adopts several provisions of the Uniform Powers of Appointment Act. Specifically, this bill:

1. Replaces the term “donee” with “powerholder” where applicable.
2. Defines “power of appointment” to mean a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in, or another power of appointment over, an appointive property. The term does not include a power of attorney.
3. Provides that if a powerholder exercises a power of appointment in a disposition that also disposes of property the powerholder owns, the owned property and the appointive property shall be allocated in the permissible manner, in accordance with the terms of the creating instrument, and that best carries out the powerholder’s intent.
4. Provides that unless the terms of the instrument creating or exercising a power of appointment manifest a contrary intent, if the powerholder makes a valid partial appointment to a taker in default of appointment, the taker in default of appointment may share fully in any unappointed property.
5. Provides that property covered by a special power of appointment (which means the powerholder cannot give the property to himself or herself) is not subject to the claims of creditors of the powerholder or of the powerholder’s estate or to the expenses of the administration of the powerholder’s estate unless provided otherwise.
6. Provides that property that is subject to a special power of appointment shall be subject to the claims of creditors of the powerholder or of the powerholder’s estate or the expenses of administration of the powerholder’s estate under either of the following circumstances:
   1. To the extent that the powerholder owned the property and, reserving the special power, transferred the property in violation of the Uniform Voidable Transactions Act.
   2. If the initial gift in default of the exercise of the power is to the powerholder or the powerholder’s estate.
7. Provides that property that is subject to a general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate, except to the extent the donor effectively irrevocably appointed the property subject to the general power of appointment in favor of a person other than the donor or the donor’s estate.
8. Provides that a power of appointment is created only if (1) there is a creating instrument; (2) the creating instrument is valid under applicable law; (3) the creating instrument transfers the appointive property unless provided otherwise; and (4) the terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

EXISTING LAW:

1. Establishes that to the extent that the common law rules governing powers of appointment are modified by statute, the common law as to powers of appointment is the law of this state. (Section 600 of the Probate Code. Unless stated otherwise, all further statutory references are to the Probate Code.)
2. Defines a donor as the person who creates or reserves a power of appointment. (Section 610.)
3. Defines a donee as the person to whom a power of appointment is given or in whose favor a power of appointment is reserved. (Ibid.)
4. Distinguishes a general power of appointment from a special power of appointment with the following rules:
   1. A power of appointment is general only to the extent that it is exercisable in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate, whether or not it is exercisable in favor of others.
   2. A power to consume, invade, or appropriate property for the benefit of a person in discharge of the donee’s obligation of support that is limited by an ascertainable standard relating to the person’s health, education, support, or maintenance is not a general power of appointment.
   3. A power exercisable by the donee only in conjunction with a person having a substantial interest in the appointive property that is adverse to the exercise of the power in favor of the donee, the donee’s estate, the donee’s creditors, or creditors of the donee’s estate is not a general power of appointment.
   4. A power of appointment that is not “general” is “special.”
   5. A power of appointment may be general as to some appointive property, or an interest in or a specific portion of appointive property, and be special as to other appointive property. (Section 611.)
5. Provides that a power of appointment can be created only by a donor having the capacity to transfer the interest in property to which the power relates. (Section 620.)
6. Provides that property covered by a special power of appointment is not subject to the claims of creditors of the donee or of the donee’s estate or to the expenses of the administration of the donee’s estate. (Section 681.)
7. Provides that property subject to an unexercised general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the administration of the donor’s estate. (Section 683.)
8. Establishes the Uniform Voidable Transactions Act, which among other things, provides that certain acts to hinder, delay, or defraud any creditor are voidable. (Civil Code Section 3439.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: A power of appointment is an estate planning tool which enables the owner of property (in this case, the donor) to have additional flexibility in devising his or her estate. Generally speaking, the donor vests with another person (the donee or the powerholder) the power to designate who receives an interest in the donor’s property in accordance to the terms established by the donor. Depending on the terms and characteristics of the power of appointment, it may also provide tax advantages and protections against creditors. Indeed, “[p]owers of appointment are particularly helpful in this day for long-term (dynasty) trusts that exploit the generation-skipping transfer (GST) exemption and try to keep property outside of the transfer tax system as long as possible.” (California Estate Planning (Cont.Ed.Bar 2007) Powers of Appointment, § 9.2, p. 389.)

A power of appointment can be grouped into two types: general and special. A general power of appointment vests the donee with the ultimate power to decide who receives the appointive property, including the power to appoint the property to him- or herself. Indeed, a power of appointment is considered general if it is exercisable in favor of the powerholder – even if it is exercisable in favor of other permissible appointees. However, there is an exception. If the power of appointment would allow the powerholder to consume, invade, or appropriate the property, limited to an ascertainable standard like health, education, support or maintenance of the powerholder, this type of power of appointment is not considered general; in other words, a power of appointment that is limited by an ascertainable standard is not subject to creditors. In comparison, a special power of appointment vests the donee with the power to decide among a group of certain beneficiaries or permissible appointees. Similar to property subject to a power of appointment limited by an ascertainable standard, property subject to a special power of appointment may not be reached by the donee's creditors.

When a power of appointment is drafted in an estate instrument, it is common for the drafter (usually, an attorney) to specify the extent of the power, and how the power may be exercised. According to estate planning experts, it is common for a donor to require the powerholder to exercise the power of appointment by a testamentary will. Thus, by the time that the powerholder has exercised the power, any badly-drafted terms must be resolved by the beneficiaries, their attorneys, and the court. In California, the body of law governing power of appointments is based upon common law unless statute provides otherwise. Many times, statutory rules are sufficient to instruct courts on how to interpret certain phrases, terms, or situations; but, of course, there are moments when there are no available default rules, and courts must discern the intent of the powerholder’s exercise.

According to the author, this bill seeks to clarify the body of statutory law on powers of appointment in order to provide further guidance on the existing body of law relating to powers of appointment, consistent with the donors’ and powerholders’ intent, and the rights of creditors.

This bill adopts several provisions based on the 2013 Uniform Powers of Appointment Act (UPOAA) approved by the Uniform Law Commission, a non-partisan nationwide organization that seeks to promote clarity and stability in areas of state statutory law. This bill does not seek to adopt the entire UPOAA. Indeed, in 2014, this Committee reviewed AB 1622 (Bonta) which sought to introduce the entire UPOAA. Based on the Committee’s initial questions on whether a wholesale adoption would confuse the body of law in California, and based on concerns raised by the Trusts and Estates Section of the State Bar, AB 1622 was not heard by this Committee.

The changes in this bill are modest. According to the author, this bill is limited to certain provisions of the UPOAA in order to address areas of the law that are currently silent or ambiguous on powers of appointment. In summary, this bill, as proposed to be amended, does the following things: (i) replaces the term “donee” with “powerholder” as it relates to powers of appointment; (ii) explicitly defines a power of appointment; (iii) adopts the selective allocation doctrine as a rule of construction; (iv) adopts a default rule that allows a taker-in-default to share fully in unappointed property when the powerholder makes a partial appointment to the taker-in-default; (v) clarifies the instances when a power of appointment (general and special) is subject to claims of creditors; and (vi) provides how a power of appointment is created. This analysis reviews each of these provisions in turn.

To reduce confusion among practicing attorneys, this bill replaces the term “donee” with “powerholder.” Under current law, the person who is vested with the power to designate whom receives an interest in the donor’s property is considered the donee. However, because the interchange between the terms donor and donee is confusing to some (including practicing attorneys), many courts have relied on the term “powerholder” to describe the donee. As proposed to be amended, this bill adopts the Uniform Law Commission approach and replaces the term “donee” with “powerholder” throughout the Probate Code in those relevant sections relating to powers of appointment.

Defines power of appointment and clarifies that a person vested with a power of appointment is not a fiduciary. This bill defines a “power of appointment” as a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property, and provides that the power does not include a power of attorney. This definition is consistent with the development of a power of appointment. Although there might be moments when a powerholder appoints property to impermissible appointees, there should be a fiduciary, such as a trustee or an executor (who owe fiduciary duties) to stop the impermissible appointments, without resort to the courts.

This bill adopts the selective allocation doctrine which maximizes the effectiveness of the powerholder’s exercise of the power to ensure that the appointive property is not allocated to impermissible appointees, but is also consistent with the powerholder’s intent. As previously mentioned, a donor may restrict a power of appointment so that it can only be exercised to a limited group of individuals or appointees. Since it is a common practice for a powerholder to exercise the power of appointment by testamentary instrument, a scenario arises when the powerholder exercises the power over the (donor’s) appointive property, and also deposes the powerholder’s own property to individuals who are both permissible and impermissible appointees.

This bill adopts the selective allocation doctrine. Specifically, this bill, as proposed to be amended, provides that if a powerholder exercises a power of appointment in a disposition that also disposes of the property the powerholder owns, the owned property and the appointive property shall be allocated in the permissible manner in accordance with the terms of the creating instrument and that best carries out the powerholder’s intent. By adopting the selective allocation doctrine, this bill maximizes the effectiveness of the powerholder’s exercise of the power by ensuring that the appointive property is allocated to permissible appointees, and the powerholder’s own assets are allocated to beneficiaries, consistent with the intent of the powerholder—even if those beneficiaries happen to be impermissible appointees who did not receive appointive property. Ultimately, the selection allocation doctrine seeks to protect the powerholder’s intent, as long as the appointive property allocation is consistent with the donor’s intent.

For example, imagine that Grandmother Dawn has given her son, Sonny, a special power of appointment to devise by will $1,000 to Sonny’s daughters, Apple, Banana, Coconut; Dawn prohibits Sonny from devising the appointive property to Sonny’s son, Eeyore. Sonny later dies with a $600 estate. In Sonny’s will, Sonny provides the following: “I give all my property in equal shares to my children.” In order to satisfy Sonny’s intent of giving each of his four children an equal amount of $400 ($1600 ÷ 4), there are two steps. First, the appointive property of $1,000 must be divided between Apple, Banana, and Coconut ($333.33 each). Then, Sonny’s estate of $600 must be divided in such a way that each child ends up with $400. Thus, from Sonny’s estate alone, Eeyore would receive $400, and Apple, Banana, and Coconut would each receive $66.66. Under the selective allocation doctrine, the allocation is consistent with the donor’s instructions, but is also consistent with the powerholder’s intent.

This bill adopts a default rule of construction that provides that when a powerholder only makes a partial appointment to a taker-in-default, the taker-in-default may also fully share in the unappointed property. In the event that a powerholder does not exercise the power of appointment, a well-drafted estate plan may provide for what happens when the exercise doesn’t occur. Typically, property subject to a power that was not exercised will flow to takers-in-default. Sometimes, a powerholder will partially exercise the power; that is, the powerholder only appoints some of the property, but not all of it. Accordingly, the property subject to the remaining exercise flows to the takers-in-default. A problem arises when a partial exercise is made to an individual who happens to be a taker-in-default; the question is whether that individual also gets to benefit from the remaining exercise. This bill adopts a default rule of construction that provides that when a powerholder makes a partial appointment to an individual who is also taker-in-default, that individual will also get to benefit from the unexercised appointive property.

For example, imagine the following factual scenario: an estate plan provides for the following takers-in-default: Tim, Ina, Dee, and Fred; the Powerholder makes the following exercise: “I exercise my power of appointment directing that 25% of the property go to Tim.” Under this bill, 75% of the remaining appointive property flows to Ina, Dee, Fred, and Tim (thus, Tim gets 43.75%, and Ina, Dee, and Fred each get 18.75%). Although the donor may override this default rule of construction to ensure that the donor’s intent controls, this bill presumes that in the absence of the donor’s specific instructions, a taker-in-default who is treated as an appointee in a partial exercise may still get to fully share the unappointed property as a taker-in-default.

This bill clarifies the instances when a special power of appointment is subject to claims of creditors. As previously mentioned, a power of appointment is considered general if it is exercisable in favor of the powerholder – even if it is exercisable in favor of others. In contrast, a power of appointment is considered special if it is exercisable in favor of appointees that exclude the powerholder. Accordingly, a creditor of a powerholder of a special power of appointment may not reach the appointive property. Given that property subject to a special power of appointment cannot be claimed by a powerholder’s creditors, some powerholders who hold a special power of appointment try to escape creditors by impermissibly transferring appointive property to themselves.

This bill provides that property covered by a special power of appointment is subject to creditors of a powerholder and creditors of a powerholder’s estate if: (1) the powerholder owned the property and then reserved a special power, and transferred the property in violation of the Uniform Voidable Transactions Act; or (2) the initial gift in default of the exercise of the power is to the powerholder or the powerholder’s estate. These rules are consistent with the body of law on powers of appointment which seeks to provide flexibility in estate planning, but also ensures that property is not being transferred to escape creditors.

This bill clarifies the instances when a general power of appointment is subject to claims of creditors. As previously mentioned, a power of appointment is considered general if it is exercisable in favor of the powerholder – even if it is exercisable in favor of others. Thus, a general power of appointment is subject to creditors of a powerholder and creditors of the powerholder’s estate.

Sometimes, a donor might create a general power of appointment, and reserving a power to him- or herself. Then, the donor might “exercise” a general power of appointment, in anticipation of the possibility that a creditor will take action against the donor, but then revoke the exercise of the general power once the creditors have gone away. Existing law provides that property subject to an unexercised general power of appointment created by the donor in the donor’s favor, whether or not presently exercisable, is subject to the claims of the donor’s creditors or the donor’s estate and to the expenses of the donor’s estate. This bill creates an exception—consistent with the intent of the statute—that provides that an unexercised general power of appointment is not subject to creditors if the donor effectively and irrevocably appoints the property in favor of a person other than the donor or the donor’s estate.

Given that this the bill seeks to discourage fraudulent exercise of powers of appointment to avoid creditors, the author should also consider whether these provisions should be expanded to also apply to powerholders who might seek to exercise-and-later-revoke a power of appointment to avoid creditors.

As proposed to be amended, this bill clarifies how a power of appointment may be created. As previously stated, this bill adds the definition of “power of appointment” to statute. Current law also defines the “creating instrument” to mean the deed, will, trust, or other writing or document that creates or reserves the power of appointment. However, current law does not specify how a power of appointment is to be created. Indeed, a California estate planning practice guide appears to agree:

Another basic requirement should be that the exercise be in writing. Surprising as it may seem, the statute does not require a writing, merely that the powerholder manifest his or her intent to exercise a power. (California Estate Planning (Cont.Ed.Bar 2007) Powers of Appointment, § 9.40, p. 407.)

As proposed to be amended, this bill provides that a power of appointment is created only if: (1) there is a creating instrument; (2) the creating instrument is valid under applicable law; (3) the creating instrument transfers the appointive property unless provided otherwise; and (4) the terms of the creating instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

REGISTERED SUPPORT / OPPOSITION:

Support

Executive Committee of the Trusts and Estates Section of the State Bar (TEXCOM)

Opposition

None on file

Analysis Prepared by: Eric Dang / JUD. / (916) 319-2334