Definition: The power granted to a beneficiary by will or trust which allows such beneficiary to select who may receive the benefit of inherited property upon their death.
Context: Frequently, gifts left to individuals in trust, rather than outright, include provisions where the trust beneficiary is allowed to designate who should receive any property remaining in the trust upon their death. These provisions may allow the beneficiary to have an unlimited choice in who can receive the property (also called a general power of appointment), or such authority may be restricted in multiple ways, such as to keep property in the family or to avoid exposure to potential creditors (also called a limited power of appointment).
Significance: If a trust beneficiary has a power of appointment over the property in the trust, they should consult an attorney to determine possible restrictions and considerations in exercising such power. If they choose to exercise the authority, they often will need to do so through specific direction in their own will or other estate planning documents.
Example: Martha leaves her daughter, Angie, $1,000,000 in trust with a limited power of appointment allowing Angie to name any of her descendants as beneficiaries of the remaining trust assets upon Angie's death. Angie exercises this power in her own will, designating that each of her two children should receive 40% of the remaining trust assets upon Angie's death, and her grandson should receive 20% of the trust assets.