A power of appointment is a power granted to an individual (the “powerholder”) to direct trust assets to a specified person or class of people. A powerholder may be a beneficiary or another person (other than the grantor) who has no other interest in the trust. This type of power generally allows the powerholder to direct distributions to one or more people, change the beneficiaries of the trust and/or change the terms that apply to the trust, as long as the directions are consistent with the power of appointment granted. The scope of such power is defined by the grantor and can be as limited (e.g., only the beneficiary’s or grantor’s descendants) or as broad (e.g., any person or organization) as the grantor chooses. A power of appointment can be given to an individual during the grantor’s life and after the grantor’s death, allowing one generation to plan for the next as the family and the world change.
A trust protector is a person who has power over the trust but is not the trustee. Trust protectors have been growing in popularity as they provide a lot of flexibility to a trust. A trust protector is typically given a variety of powers, including the power to remove or replace trustees, change beneficiaries, divide the trust, change administrative provisions or change trust situs. Through these powers, a trust protector can address trust issues and solve problems that weren’t—or couldn’t have been—anticipated when the trust was created.
While it can be difficult to know where to start when creating a trust, considering the building blocks above can help a grantor think through the many aspects of that trust. The considerations above have many variations and can be used in conjunction with a variety of planning techniques. It is critical to work with qualified professionals when choosing and implementing planning strategies, especially considering this year’s uncertainty regarding tax reform.
Theresa Marx is a managing director and senior wealth strategist in the Chicago office of CIBC Private Wealth, US. She is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high-net-worth clients.