Exercising a Valid Power of Appointment: Insight into the Requirements of Probate Code Section 632
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In Estate of John O’Connor,1 the Court of Appeal for the Fourth District of California addressed the enforce ability of the power of appointment exercised in the will of decedent John O’Connor (“John”)2 . Decades before John passed away, John’s parents created a trust (the Arthur P. O’Connor and Hildis M. O’Connor Family Trust, hereafter, the “Trust”), naming John and his siblings as beneficiaries. The initial Trust dictated that upon the death of either of John’s parents, the Trust estate would be divided into a Marital Deduction Subtrust (or the decedent’s subtrust),an Insurance Subtrust, and a Survivor’s Subtrust for the surviving spouse. A subsequent amendment to the Trust directed that upon the death of both settlors, the Trust estate will be held and administered in one trust for three of John’s siblings (Kevin, Brian, and Astrid), with a separate subtrust for John, to which the trustee would pay $1,000 per month for John’s benefit. The amendment gave John a power of appointment with respect to his subtrust as follows: “Upon the death of [John], the principal and undistributed net income of his trust shall be distributed to such of his issue, the issue of the Trustors, or the creditors of his estate, either outright or in trust, as he shall appoint by a will specifically referring to and exercising this general testamentary power of appointment.”
Hildis passed away in 1992, thereby rendering the Marital Deduction Subtrust (and John’s power of appointment over his portion of this subtrust) irrevocable; subsequently, however, Arthur executed an amendment with respect to his subtrust (the Survivor’s Subtrust), which removed the provision granting John a power of appointment over the Survivor’s Subtrust after Arthur’s passing. Accordingly, under his mother’s Marital Deduction Subtrust, John had a power of appointment, but under his father’s Survivor’s Subtrust, John no longer had a power of appointment.
John passed away more than two decades after his mother, leaving behind a wife and no children. Two weeks before he passed away, John executed a Will, leaving his entire estate to his wife and appointing his brother, Kevin, as his agent. The relevant language of John’s will read:
I exercise any Power of Appointment which I may have over that portion of the trust or trusts established by my parents for my benefit or any other trusts for which I have Power of Appointment I exercise [sic] in favor of my brother Kevin O’Connor.
After John passed away, Kevin filed a petition to probate John’s Will, seeking to be appointed as executor of John’s estate. Kevin’s petition sought an order establishing the validity of both the will and the power of appointment contained therein. But two of John’s and Kevin’s other siblings, Brian and Astrid, objected to Kevin’s petition, alleging that the power of appointment contained in John’s will was too general and therefore failed to comply with the specificity requirement of Probate Code section 632 (“Section 632”), which states:
If the creating instrument expressly directs that a power of appointment be exercised by an instrument that makes a specific reference to the power or to the instrument that created the power, the power can be exercised only by an instrument containing the required reference. (emphasis added)
No party disputed that the Trust language required John to make a “specific” reference to power of appointment contained in the Trust, so Section 632 was applicable. Brian and Astrid argued that the reference in John’s will to “any Power of Appointment which I may have” did not specify by name the trust or subtrust which conferred this power of appointment and therefore it was unenforceable.In response, Kevin petitioned to reform John’s will so that John’s intent to exercise the power of appointment in favor of Kevin would be carried out. A judicial referee found that John intended to exercise the power of appointment in the Marital Deduction Subtrust, even though his Will referenced“any other trusts for which I have Power of Appointment” and not specifically the Trust or Marital Deduction Subtrust by name. The probate court subsequently adopted the referee’s statement of decision, and held that reformation of John’s Will was not necessary, as the language in the Will was clearly intended to exercise the power of appointment in the Marital Deduction Subtrust in favor of Kevin, and therefore satisfied the specificity requirements of Section 632.
On appeal, the court looked to the Court of Appeal’s decision in Estate of Eddy. In Eddy, the court reviewed the will of a predeceased husband, which granted to the man’s wife a power of appointment, to be deemed exercised only by specific reference in her will. The wife’s will provided that if her husband did not survive her, all of her property “‘including, but not by way of limitation, any property over which I have a power of appointment, shall go as follows . . .’.”3 The Court of Appeal found that this language did not constitute a specific reference sufficient to exercise her power of appointment.
The Eddy court relied, in part, on the Law Revision Commission Comment on Section 632, which states that the requirement of a specific reference to a power of appointment “precludes the use of form wills with ‘blanket’ clauses exercising all powers of appointment owned by the testator’.”4 The Eddy majority also looked to the ruling in Holzbach v. United Virginia Bank,5 in which the Virginia Supreme Court found that “[t]he test is not whether donee intended to appoint but rather whether donee manifested her intent in a manner prescribed by donor, i.e. by making specific reference ‘in her will’ to the power granted by donor’s will. . . .”6 The Eddy and Holzbach courts found such language insufficient where a will “‘makes general reference to powers of appointment, [but] it makes no specific reference to donor, to his will, or to the power created by his will’.”7
Thus, in order to constitute a “specific reference” to a power of appointment, the O’Connor court determined that “a donee’s exercise must not merely state that he or she exercises all or any powers of appointment that he or she owns, but contain enough detail such that it is reasonable to conclude from the words used alone that he or she made an intentional and deliberate, not inadvertent, exercise of the particular power or powers of appointment granted to him or her by the donor.”The court held that the Legislature’s use of the word “or” in Section 632 allowed a specific reference to the power or to the instrument, and that a reference to both was not required.8
Accordingly, the O’Connor court rejected Brian’s and Astrid’s argument that the language in John’s will was too vague and acted as a “blanket” exercise of any powers of appointment, whether or not such powers existed. Instead, the court sided with Kevin, finding that the provision was sufficiently specific, because it referenced John’s parents, the type of document which created this power (their Trust), though not specifically by name or by subtrust, and John’s power of appointment thereto. Further, the court was persuaded by the fact that unlike in Eddy, John’s will referenced the power of appointment itself and not merely the property over which he held the power. John’s power of appointment was therefore upheld.
Nonetheless, this case serves as a cautionary tale for estate planners; as a general rule, the more specifically a power of appointment references the power and the persons and documents which conferred its power, the more likely the power of appointment will be valid and enforceable under Section 632.
1(2018)26 Cal.App.5th 871.
2“A power of appointment is ‘a power conferred by the owner of property (the ‘donor’) upon another person (the ‘donee’) to designate the persons (‘appointees’) who will receive the property [(‘appointive property’)] at some time in the future’.” Estate of O’Connor, citing Sefton v. Sefton (2012) 206 Cal.App.4th 875,882;Estate of Daily (1982) 130 Cal.App.3d 993, 998. “Such a power can be general—exercisable in favor of anyone, including the holder of the power of that person’s estate—or limited—exercisable only in favor of the person or class specified in the instrument creating the power.” Estate of O’Connor, citing Giammarrusco v. Simon, 171 Cal.App.4th 1586, 1595.
3Estate of O’Connor, citing Eddy at 296.
4The Comment continues, explaining that the basis for this preclusion is that “[t]he use of blanket clauses may result in passing property without knowledge of the tax consequences and may cause appointment to unintended beneficiaries.” Cal. Law Revision Com. com., 52 West’s Ann. Prob. Code (2002 ed.) foll. § 632, p. 333.
5Holzbach v. United Virginia Bank (1975) 216 Va. 482.
6Eddy at 301, citing Holzbach, at 871.
7Id., citing Holzbach, at 872.
8The court looked to the plain and ordinary meaning of the word “or” as well as the dictionary definition of the word “specify”, “specific”, and “express”.