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Creditor General Powers of Appointment

What are the tax considerations if state law limits appointive property to the underlying debt for GPAs?

Basis optimization for credit shelter and irrevocable trusts often involves granting the trust beneficiary a general power of appointment (GPA) over trust assets to achieve stepped-up basis.  One planning variation limits appointees to the powerholder’s creditors or creditors of his estate (creditor GPAs). This seemingly achieves basis step-up without much risk of having property diverted to appointees outside the donor’s dispositive scheme.


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