New Powers of Appointment Changes to the Pa. Probate, Estates & Fiduciaries Code

On July 8, 2016, a number of changes were made to the PEF Code, as SB 1104 became Act 79.

 Powers of Appointment.

As reported by Attorney Bob Wolf, the repeal of the Power of Appointment provision in PEF Code §2514 and the addition of Chapter 76 (“Powers of Appointment”) is a consequence of Power of Appointment law being very difficult to find in Pennsylvania (essentially the law has developed only through court decisions).

  •  2514. Rules of Interpretation.  Subsection 13 “Power of Appointment,” is repealed in its entirety.
  • 2514(13) is replaced by an entirely new chapter of the PEF Code, i.e. Chapter 76.

Powers of Appointment (Chapter 76).

7601. Definitions.

Broad Powers of Appointment.”  A power of appointment that may be exercised by the donee in favor of:

(1) One or more persons selected by the donee;

(2) The donee;

(3) The donee’s estate;

(4)  Every person other than the donee, the donee’s creditors, the donee’s estate or the creditors of the donee’s estate.

Limited Power of Appointment.”  Any power of appointment that is not a “Broad Power of Appointment.”

7602. Exercise of Powers of Appointment.

  • A power of appointment may be exercised only by specific reference to the power if the instrument creating the power so requires.
  • A broad power of appointment may be exercised only by the donee’s instrument (unless contrary intent appears in the instrument creating the broad power of appointment or in the donee’s instrument exercising the power):

(1)        Making specific reference to the power;

(2)        Making a general reference to any or all powers of appointment held by the donee;

(3)        Making a testamentary or inter vivos gift specifically describing the appoint of power;

(4)        Making an insufficiently funded testamentary pecuniary legacy – to the extent to satisfy the legacy;

(5)        Making a general testamentary gift; or

(6)        Making a testamentary residuary gift.

  • Exercise of a limited power of appointment. A limited power of appointment may be exercised only by the donee’s instrument (in the absence of a contrary intent appearing in the instrument creating a limited power of appointment or in the donee’s instrument exercising the power) and making specific reference to the power if the instrument creating the power so requires:

(1)        Making specific reference to the power;

(2)        Making a testamentary inter vivos gift specifically describing the appoint of property;

(3)        Making a general testamentary gift to all, and only to all, the objects of the power; or

(4)        Making a testamentary residuary gift to all, and only to all, the objects of   the power.

Note:  In regard to testamentary gifts to all the objects of the power or testamentary residuary gifts to all the objects of the power, those who have a common ancestor shall be only those descendants of the common ancestor determined on a per stirpes basis.

  • A power of appointment may be exercised even before a testamentary power of appointment is actually granted (i.e., unless contrary intent appears in the instrument creating the power of appointment, the donee instrument may exercise the power of appointment existing at the donee’s death even though the power of appointment was granted after the date of the donee’s instrument exercising that power).
  • Limitations on testamentary powers of appointment include:

(1)        Unless a contrary provision appears in the instrument creating the power of appointment, a testamentary power of appointment shall not be exercisable in favor of the donee or the donee’s creditors;

(2)        The grant of a testamentary power of appointment to the donee’s creditors shall be construed as a power to appoint to the creditors of the donee’s estate;

(3)        Any attempt at exercise of a testamentary power of appointment in favor   of the donee’s creditors shall be construed as also an exercise in favor of  those creditors of the donee’s estate which creditors were creditors of the donee at the time of the donee’s death; and

(4)        In the instance where the donee is an issue of the donor, a testamentary power of appointment to the donor’s issue cannot be exercised in favor of the donee, his or herself, or the donee’s estate.

7603. Contract to Exercise Power.

Prohibition – Unless the donor and donee are the same person, the donee of a power of appointment, not presently exercisable, may not contract to exercise the power.

A promisee’s action for recovery of damages or for specific performance on a contract which is prohibited under this Section 7603, is prohibited.  However, the promisee may obtain restitution from the donee for the value given for the promise, unless the donee has exercised the power pursuant to the contract.

Powers of appointment may be “disclaimed or released” in whole or in part.

Comment:  This language is interesting and worthy of note.  While commentators have engaged in much discussion regarding “disclaimers” and the opportunity to disclaim/renounce/release interests, little attention has been given to the latter “renunciation” or “release.”  The use of the terms “disclaimer” and “release” in this section is interesting and, perhaps, instructive.  A disclaimer under Chapter 62 of the PEF Code does not eliminate the interest but merely passes the interest on to other parties in interest.  A renunciation or release, on the other hand, terminates that interest. (i.e., “I renounce or release a gift” terminates that interest as with an attempted transfer of undesirable property.)

7604. Manner of Appointment.

Subject to the above discussion regarding the exercise of testamentary powers, and unless expressly prohibited by the instrument creating the power of appointment, the donee of a power of appointment may exercise the power by appointing in any of the following manners (including, but not limited to):

(1)        Appointing outright to one or more of the objects of the power;

(2)        Appointing to one or more trustees to hold the appointed property in trust for the benefit of one or more of the objects of the power while specifically setting forth  the terms and administrative provisions of the trust and the powers and duties of the trustees (even if the trustees are not, themselves, objects of the power);

(3)        Creating a broad power of appointment exercisable by any one or more objects of  the original power of appointment to whom the donee could have appointed outright, even if some of the objects of the new power are not among the objects of the original power; and

(4)        Creating a limited power of appointment exercisable by any one or more objects of the original power to whom the donee could have appointed outright, even if  some of the objects of the new power are not among the objects of the original power (other than a power to appoint to the donee’s creditors or the creditors of the donee’s estate):

  1. If all of the objects of the original power are among the objects of the new  power; or
  2. All the takers in default of exercise of the new power are among the objects of the original power.

Exclusive/Non-Exclusive Powers –  The donee may exclude any object of the power as the donee deems appropriate unless the instrument creating the power of appointment expressly specifies a minimum share/minimum pecuniary amount/or particular item of appointive property.

7605. Anti-Lapse Provision.

An exercise of a power of appointment in favor of the following classes of individuals (similar to PEF Code §2514(9)):

(a)        A child or other issue of the donee;

(b)        A brother or sister of the donee; or

(c)        A child of a brother or sister of the donee shall not fail if the appointee is not living at the time the appointment becomes effective unless otherwise provided in the instrument creating the power of appointment or in the donee’s instrument exercising the power of appointment.

This provision will apply if one or more issue of the appointee are living at the time the appointment becomes effective and these per stirpial donees are objects of the power.  However, as indicated above, property appointed to the deceased appointee’s issue shall pass per stirpes to those issue living at the time the appointment becomes effective, provided     however, appointment to a brother or sister or child of a brother or sister of the donee shall fail to the extent that the property would otherwise pass to the spouse   or issue of the donee if the appointment were to lapse.

In regard to a lapsed share of the residue and absent any contrary intent appearing in the donee’s instrument exercising a power of appointment, in the instance where a power of appointment of an amount or share of the residue of the property subject power of appointment fails, the amount or share not otherwise appointed shall pass to the other appointees of the residue of the property subject to the power of appointment, if any, in proportion to the shares in the residue of the property subject to that power.

7606. Partially Effective Exercise.

Contrary to any intent appearing in the instrument creating the power of appointment or in the donee’s instrument exercising that power, a partially ineffective exercise of a power of appointment shall not make ineffective any otherwise effective portion of the exercise unless the exercise of the power of appointment regarded as a whole constitutes such an integrated plan that the parts cannot be separated without defeating that plan.

Upright_Kirby G_08

Kirby G. Upright
King, Spry, Herman, Freund & Faul, LLC, Bethlehem

By | 2017-05-19T22:51:21+00:00 July 28th, 2016|Categories: Estate Planning and Administration|Tags: , , |Comments Off on New Powers of Appointment Changes to the Pa. Probate, Estates & Fiduciaries Code

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