4.2 Creditors and Limited Powers of Appointment

As a general rule, creditors of the donee of a limited or special power of appointment cannot reach the property.   In Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158 (1934), a woman created a self settled trust and retained an income interest for life and retained a testamentary power of appointment to heirs.   In the absence of a showing of fraud in the inception of the trust, creditors had no recourse against the principal of the trust.   In U.S. v. Baldwin, 283 Md. 586 (1978), a settlor retained income for life, could name himself as trustee, and retained a broad (but not general) testamentary power of appointment.   The Court held that the principal was beyond the reach of creditors (including the U.S. as creditor based on income tax liability.)