By law, certain estate planning documents must be signed using proper formalities. Sometimes, however, you can require additional procedures that a beneficiary must follow to exercise their rights within your estate planning documents.
A number of reasons exist for doing this, ranging from ensuring proper notice is given to relevant parties such as your trustee, to limiting the time frame in which the beneficiary can exercise their rights, or to avoiding the possibility that someone might fraudulently exercise a beneficiary's power.
Powers of Appointment
One area where you may provide specific instructions or formalities is with respect to "powers of appointment". A power of appointment is a right that is granted to another person to direct the disposition of property.
For example, if I give you a power of appointment over my property, then I'm giving you the right to decide who will receive my property and how they are going to receive it. Often a beneficiary of a trust may have a power of appointment over the trust assets, which is effective at the time of the beneficiary's death (provided that the proper formalities are followed). In essense, this allows you to give whatever remains in the trust to others, subject to the restrictions contained in the trust document.
A few typical formalities come up with respect exercising powers of appointment (or an exercise of another power):
- The trust might require a person to exercise the power in his or her Will or a codicil to his or her Will.
- The trust may require the document in which a person exercises his or her power to be notarized.
- The trust might require the document in which a person exercises his or her power to be given to the trustee before his or her death.
This issue does not crop up all the time, but it's important to be aware of proper formalities if you are someone with such a power so that you can effectively exercise it.