A Special Power of Appointment Trust (or SPAT) is an estate planning tool that can be used to take advantage of the increased federal gift and estate tax exemption amount.  A SPAT is especially useful for clients who want to preserve access to the assets transferred to irrevocable trusts or who require flexibility in their planning.  Using a SPAT, the grantor makes a gift to an irrevocable trust for the benefit of the beneficiaries.  The grantor also grants an individual (called an "Appointer"), the power to direct the trustee to make distributions of trust assets to an individual included within a special class of persons (for instance, descendants of the grantor's grandparents) or to anyone other than the Appointer, their creditors, their estate, or creditors of their estate.  This power of the Appointer is called a special power of appointment.  This power would further provide the Appointer with the ability to direct the trustee to make distributions to the grantor.  Given the foregoing, the SPAT is a particularly attractive technique because the grantor is not a beneficiary of the trust; however, the special power of appointment may be utilized as a means to, if desired, give assets back to the grantor at some future point, while also maintaining asset protection benefits.

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SPATs are typically structured as grantor trusts, such that the trust is disregarded as being separate from its grantor for income tax purposes.  Trust income is, thus, taxable to the grantor and is reported on the grantor's personal income tax return.