How “Power of Withdrawal” is Defined - Commentary to Florida Trust Code

Legal Commentary on the Definition of “Power of Withdrawal”

Fla. Stat. § 736.0103(17) defines the term “power of withdrawal.” The text of the subsection reads:

“Power of withdrawal” means a presently exercisable general power of appointment other than a power:

(a) Exercisable by a trustee and limited by an ascertainable standard; or

(b) Exercisable by another person only upon consent of the trustee or a person holding an adverse interest.

A power of withdrawal typically is a trust beneficiary who has the ability to take a certain amount of trust assets from the trust without the approval of the trustee or anyone else. Often this is part of a Crummey Trust (see Crummey v. C.I.R., 397 F.2d 82 (9th Cir. 1968) for the pivotal case on these trusts). However, the term can include more than just Crummey powers, as any general power of appointment is a power of withdrawal so long as the power meets the three conditions discussed below.

First, the general power of appointment must be “presently exercisable.” For a power to be presently exercisable, the holder of the power must have the current ability to create an interest in a trust asset. The commentary to the Uniform Trust Code notes: “A power of appointment is not presently exercisable if exercisable only by the power holder’s will or if its exercise is not effective for a specified period of time or until occurrence of some event.” Thus, the ability to create an interest tomorrow is insufficient; a presently exercisable power can be used now.

Second, the general power of appointment must not be a power exercisable by a trustee and limited by an ascertainable standard. This is a reference to Fla. Stat. § 736.0504(3), which reads:

If the trustee’s discretion to make distributions for the trustee’s own benefit is limited by an ascertainable standard, a creditor may not reach or compel distribution of the beneficial interest except to the extent the interest would be subject to the creditor’s claim were the beneficiary not acting as trustee.

If a trustee has this discretion, such discretion will not be considered to be a power of withdrawal.

Third, the general power of appointment must not be exercisable by another person only upon consent of the trustee or a person holding an adverse interest. If you need the consent of a trustee or a person with an adverse interest, then you do not have a power of withdrawal. A power of withdrawal can be exercised by a beneficiary with or without the consent of the trustee or any other beneficiaries who interests would be affected by such a power.

History of the Definition of “Power of Withdrawal”

The term “power of withdrawal” has been consistently defined since the Florida Trust Code took effect in 2007. However, the placement of the definition has changed over time. For example, the term “power of withdrawal” was originally found in of Fla. Stat. § 736.0103(12).

The definition of “power of withdrawal” was taken verbatim from the Uniform Trust Code.

This article is part of the PTM Legal Commentary to the Florida Trust Code. Click here to navigate through the entire commentary.