Juan C. Antunez, writes about Sefton v. Sefton, — Cal.Rptr.3d —-, 2015 WL 1870302 (Cal.App. 4 Dist. April 24, 2015), where a California court invalidated a power of appointment, resulting in the decedent’s disinherited heir receiving a 1/3 interest in a $55 million trust. Mr. Antunez’s article begins as follows:
Assume you have a case involving a $55 million trust created under “Grandfather’s” Will, that provides for a life-time trust for his son (“Father”), containing the following testamentary power of appointment (“POA”):
[T]hree quarters (3/4) [of the Trust estate] shall be distributed to [Father’s] then living issue as [Father] shall by his Last Will and Testament appoint, and in default of appointment, to his then living issue on the principle of representation.
In his Will, Father exercised this POA in a way that disinherited or “excluded” one of his three children (i.e., one of Father’s “then living issue”). Is that legal? The answer to that question depends in large part on whether the POA is deemed to be exclusionary or nonexclusionary. If it’s exclusionary, Father was authorized to disinherit (i.e., “exclude”) his child, if it’s nonexeclusionary, he wasn’t. The POA’s ambiguous on this point because it doesn’t explicitly say one way or the other. So what’s the default presumption? Under English common law, POAs were deemed to be nonexeclusionary unless expressly stated otherwise, which means every member of the class covered by the POA was presumed to be entitled to a “substantial” and not “illusory” share of the trust. (This presumption’s been abolished by statute in England).
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.