A power of appointment gives the holder of the power (usually the trustee of a trust) the right to appoint or give away property, usually the property held by the trust. The power may be limited by the trust document. A special power of appointment (one that a power holder cannot exercise in favor of himself, meaning that the power holder can't get the property out of the trust and into his or her own hands free and clear) is often teamed up with a marital deduction transfer to obtain tax savings.
Within the context of cutting estate taxes, this strategy usually goes like this: A spouse is given a special power of appointment over some property placed in a trust, and the power is exercisable during her lifetime, or by will. The spouse also receives a right to use the same property for life. Even if the spouse exercises the power by will, the trust property will not be taxed in her federal gross estate because she can't appoint it to herself.
In addition to its value as a tax minimization tool, a power of appointment
can be used to influence
a beneficiary's behavior.