A power of appointment that permits the donee to allocate appointive property among a defined class of permissible appointees. The donee has no duty to exercise the power at all. If the donee chooses to exercise it, the appointment must confer a genuine benefit on each member of the class and cannot exclude any member entirely, even through nominal or illusory shares.
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How its tested
Common Examples
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Trustee Challenges Nominal Allocation
Derek placed company shares in trust and granted his sister Carla a power to appoint dividends among all surviving children and stepchildren, with no one to be excluded. Carla later directed nearly all dividends to Derek's two biological children and one dollar each to the stepchildren. The stepchildren sued the trustee, claiming the appointment violated the power's terms. The court set aside the exercise because the nominal payments functioned as an exclusion in substance.
Court Voids Selective Distribution
Grandfather's trust gave Father a nonexclusionary power to appoint among all grandchildren. Father awarded substantial trust assets to most grandchildren but gave Thomas Jr. nothing from the trust, though Father later transferred $25,000 of his own money to Thomas Jr. Thomas Jr. challenged the appointment. The court held the exercise invalid because the power required a genuine share from the appointive property itself for every permissible appointee.
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Practice Questions5
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Restatements
Sefton v. Sefton187 Cal.Rptr.3d 421 (Cal. Ct. App. 2015)
Joseph W. Sefton, Jr. executed his will on September 7, 1955. The will created a testamentary trust for the benefit of his son Thomas W. Sefton during the son's lifetime. Upon the son's death the trust was to terminate and its assets were to be distributed according to the will's terms. Three quarters of the trust estate was to be distributed to the son's then living issue as the son should appoint by his last will and testament, or in default of appointment to the issue on the principle of representation. Joseph died in 1966.
Thomas W. Sefton died in 2006 after executing a will on August 26, 1994. At the time of his death his then living issue included Thomas Jr. from his first marriage, Harley K. Sefton and Laurie Sefton from his second marriage, and several grandchildren. His will allocated the appointive property to two irrevocable trusts, one benefiting Harley and his children and the other benefiting Laurie and her child, with no allocation to Thomas Jr.
The trustee distributed approximately $37.8 million in cash, securities, and related income to the Harley Family Trust and $18.8 million to the Laurie Family Trust, along with loss carryovers, but made no distribution to Thomas Jr.
In 2010 Thomas Jr. filed a petition in the probate court challenging the distribution from his grandfather's trust. Harley as trustee of the Harley Family Trust filed a response and objection to the petition. Wells Fargo as trustee of the Laurie Family Trust filed a demurrer. The probate court sustained the demurrer and dismissed the petition. Thomas Jr. appealed the dismissal. This court issued its opinion in Sefton I in 2012, concluding that Father's power of appointment was nonexclusive. On remand the parties stipulated to allow Thomas Jr. to file a supplement to his petition and Harley and Wells Fargo to file supplements to their responses. Thomas Jr. sought one third of the appointive property as a taker in default. After a trial the probate court awarded Thomas Jr. $565,350 plus interest representing seven percent of a one seventh share and directed that one third of the award be paid from the Laurie Family Trust and two thirds from the Harley Family Trust. Thomas Jr. appealed the judgment.
Does the donee of a nonexclusionary power have a duty to exercise it?
No. The donee may decline to exercise the power entirely, in which case the appointive property passes under the default provisions of the instrument. The nonexclusionary limitation applies only when the donee chooses to make an appointment.
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What happens if a donee exercises a nonexclusionary power but gives only nominal amounts to some class members?
The appointment is invalid. Courts examine substance rather than form. A token sum such as one dollar, when the bulk of the property goes to others, constitutes an exclusion in fact and violates the requirement that each permissible appointee receive a genuine benefit.
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Can the donee favor some class members with larger shares under a nonexclusionary power?
Yes. The donee retains discretion to vary the size of shares among class members. The only restriction is that no member of the defined class may be left with nothing when the power is exercised.
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How does a court determine whether language creates a nonexclusionary power?
Courts look for explicit direction that the appointment must benefit each member of a defined class or that no appointee may be excluded. Phrases such as "all and every one" or statements requiring that each permissible appointee receive some share indicate a nonexclusionary power.
Supporting sources
Trusts and Estates Trusts and Future InterestsFuture interests · Powers of appointmentUBEIntermediate