Author: CPT Team

California Legal Implications: Powers of Appointment Can Override Trustee Duties

In the complex world of California estate planning, the distinction between a trustee’s duties and a beneficiary’s rights is crucial. A recent case, *Tubbs v. Berkowitz*, highlights a significant legal nuance regarding Powers of Appointment. As detailed in the court opinion, the California Court of Appeal ruled that a trustee who is also granted a general power of appointment over trust assets may exercise that power to transfer assets to himself without violating fiduciary duties., the California Court of Appeal ruled that a trustee who is also granted a general power of appointment over trust assets may exercise that power to transfer assets to himself without violating fiduciary duties.

The case involved a dispute between a surviving spouse (who was also the trustee) and his daughter (a remainder beneficiary). After the wife passed away, the trust was split into a survivor’s trust and an irrevocable marital trust. The daughter objected to the father’s proposed allocation of assets. In response, the father exercised a “general power of appointment” granted by the trust, effectively transferring all assets in the marital trust to himself and removing the daughter’s future interest. The court affirmed that because he acted as a donee (the person holding the power of appointment) rather than a trustee, he was not bound by fiduciary duties regarding that specific action. (the person holding the power of appointment) rather than a trustee, he was not bound by fiduciary duties regarding that specific action.

Understanding the Power of Appointment

A Power of Appointment is a specific right given in a legal document, such as a Will or Trust, that allows a person (the donee) to decide how certain property will be distributed.
* General Power of Appointment: This allows the donee to appoint the property to anyone, including themselves, their estate, or their creditors.
* Limited Power of Appointment: This restricts the donee to distributing property only to a specific group of people (e.g., the couple’s children), often excluding themselves. This restricts the donee to distributing property only to a specific group of people (e.g., the couple’s children), often excluding themselves.

In *Tubbs v. Berkowitz*, the trust granted the husband a *general* power of appointment. This gave him the absolute authority to take the assets for his own benefit, regardless of the expectations of the other beneficiaries.

Fiduciary Capacity vs. Non-Fiduciary Capacity

This case serves as a critical lesson in understanding the different “hats” a person can wear in estate administration.
* Trustee (Fiduciary Capacity): Generally, a trustee has a strict fiduciary duty to act in the best interest of all beneficiaries, avoid conflicts of interest, and preserve trust assets.
* Donee (Non-Fiduciary Capacity): When exercising a general power of appointment, the individual is acting as a donee. As the court noted, a donee generally acts in a non-fiduciary capacity. When exercising a general power of appointment, the individual is acting as a donee. As the court noted, a donee generally acts in a non-fiduciary capacity.

The court reasoned that once the husband exercised his power as a donee to direct the assets to himself, he (as the trustee) had no choice but to comply. He could not be sued for breach of fiduciary duty for doing exactly what the trust terms authorized him to do.

The “Irrevocable” Trust Misconception

Many families believe that once a sub-trust becomes “irrevocable” (like a Marital Trust or Bypass Trust upon the death of a spouse), the assets are locked in for the future beneficiaries (often the children). However, this case demonstrates that if the surviving spouse retains a general power of appointment, the term “irrevocable” does not guarantee that the remainder beneficiaries will receive anything.

For families engaged in estate planning, it is vital to understand specifically what powers are being granted to the surviving spouse. If the goal is to ensure assets are preserved for children from a prior marriage or to protect the inheritance from future creditors or spouses, granting a general power of appointment may undermine those goals., it is vital to understand specifically what powers are being granted to the surviving spouse. If the goal is to ensure assets are preserved for children from a prior marriage or to protect the inheritance from future creditors or spouses, granting a general power of appointment may undermine those goals.

Importance of Precise Drafting

Disputes like the one in *Tubbs v. Berkowitz* often arise when there is a disconnect between the family’s understanding of the estate plan and the actual legal powers granted in the documents. To avoid litigation and ensure your legacy is distributed as intended, it is essential to work with experienced attorneys who can explain the implications of specific clauses, such as powers of appointment.

About This Case

Source: Tubbs v. Berkowitz: Powers of Appointment and Trustee Duties in California Trust Disputes

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Legal Disclaimer

This article is for informational purposes only. Consult with a qualified California estate planning attorney for advice specific to your situation.