Creditors and Powers

Creditors can claim property that a person has control over through a general power of appointment, whether or not that power has been exercised. In California, if the person’s own assets are not enough to satisfy debts, creditors can also reach property under an unexercised general power. However, they cannot access property that is controlled by a special power of appointment.

Jane has a general power of appointment over a trust fund worth $100,000. She owes $50,000 to creditors and decides to exercise her power to pay off her debts. The creditors can reach the trust fund because Jane exercised her general power, allowing them to satisfy her debts from that property.

General powers open the door for creditors, but special powers keep them out.

Exams may present scenarios where a donee has both general and special powers, leading students to mistakenly assume creditors can reach property under a special power.

Questions often involve fact patterns where a donee has debts and multiple powers of appointment, testing the candidate's ability to distinguish between general and special powers in relation to creditor claims.