The term power of appointment refers to the ability of a person writing a will to designate a beneficiary that will dispose of property. While anyone can exercise the power of appointment at any time, it is nearly always used as part of a will.
When an individual writes their will, they have the option of bestowing the power of appointment to one or more of their beneficiaries. This power enables the beneficiary to determine who receives property held in a trust or an estate; the two forms of this power include:
When an individual is granted general power of appointment over property held in a trust, they may be subject to gift or estate taxes, even if the power is not exercised. However, limited power of appointment, if worded according to the language outlined by the Internal Revenue Service (IRS), may not subject the individual granted this power to gift or estate taxes.