Trusts are confusing enough as it is. We've separated legal title to an asset, which is held by a trustee, from the beneficial interest in that asset, which is held by the beneficiary. When a grantor, settlor, or trustor creates a trust, they can give the beneficiary a power of appointment over the trust.

A power of appointment is a right given to a trust beneficiary to override the default distribution pattern for a trust. The default distribution is usually to the beneficiary's descendants, or the grantor's descendants if the beneficiary doesn't have any descendants.

Some trust grantors take the position “I don’t want the beneficiary changing what I’ve decided to do with my assets,” and then don't give the beneficiary a power of appointment. Trust assets will only be distributed to the default beneficiaries identified in the document.

Other trust grantors take the position “Only my family and charity” can benefit from my assets, and then give a power of appointment that allows the beneficiary to reallocate the remaining trust assets only among the trust grantor's descendants and one or more charitable organizations.

And other trust grantors don't care what the beneficiaries do with the remaining assets, and allow the beneficiary to reallocate the remaining trust assets among any person, trust, or entity.

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Strohmeyer Law is a law firm based in Houston, Texas, specializing in tax law, estate planning, and probate law.

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