4.3.1 The Maryland rule as to inter vivos general powers of appointment seems to be that a credit may force exercise. In Brent v. State Cent. Collection Unit, 311 Md. 626 (1988), a beneficiary was given the power to withdraw from her father’s spendthrift trust certain percentage amounts of the trust at certain ages (1/2 at age 35, the remainder at age 40). Before reaching these ages, the beneficiary became permanently disabled and unable to direct the trustee to make the distributions. The Court held that regardless of her ability to withdraw funds, the power to withdraw took those funds out of the spendthrift protection and exposed the funds to creditor attachment.[1]
4.3.2 The rule regarding testamentary powers of appointment seems to be very different. In U.S. v. Field, 255 U.S. 257 (1921), the Court held that the existence of the power does not shift the subject property to the donee. If the donee exercises the power, however, then the exercise to someone other than the creditor is deemed a fraudulent conveyance:
Where the donee dies indebted, having executed the power in favor of volunteers, the appointed property is treated as equitable, not legal, assets of his estate; Clapp v. Ingrahm, 126 Massachusetts, 200, 203; Patterson & Co. v. Lawrence, 83 Georgia, 703, 707; and (in the absence of statute), if it passes to the executor at all, it does so not by virtue of his office but as a matter of convenience and because he represents the rights of creditors. O’Grady v. Wilmot [1916] 2 A.C. 231, 248-257; Smith v. Garey, 2 Dev. & Bat. Eq. (N.C.) 42, 49; Olney v. Balch, 154 Massachusetts, 318, 322; Emmons v. Shaw, 171 Massachusetts, 410, 411; Hill v. Treasurer, 229 Massachusetts, 474, 477.
Where the power is executed, creditors of the donee can lay claim to the appointed estate only to the extent that the donee’s own estate is insufficient to satisfy their demands. Patterson & Co. v. Lawrence, 83 Georgia, 703, 708; Walker v. Treasurer, 221, Massachusetts, 600, 602-603; Shattuck v. Burrage, 229 Massachusetts, 448, 452.
It is settled that (in the absence of statute) creditors have no redress in case of a failure to execute the power.”
The rule has been repeated (and, perhaps expanded, albeit in dicta) in various Maryland decisions. See, for example, Frank v. Frank, 253 Md. 413 (1969):
In Connor v. O’Hara, 188 Md. 527, in holding that for purposes of the Maryland inheritance tax laws, property passing by exercise of a testamentary power of appointment is regarded as passing not from the donee of the power but from the donor, Judge Markell, for the Court, said that this theory of passage not only is as fully applicable in Maryland as elsewhere but has been carried further here than in many other jurisdictions, and continued:
In England, and generally but not universally in this country, this rule is qualified by a rule that when a general power of appointment is exercised, equity will regard the property appointed as part of the donee’s assets for the payment of his creditors in preference to the claims of his voluntary appointees. In such cases the appointed property is treated as equitable, not legal, assets of the donee’s estate, and may pass to the executor, not by virtue of his office but as a matter of convenience and because he represents the rights of creditors. United States v. Field, 1921, 255 U.S. 257, 262, 263, 41 S.Ct. 256, 65 L. Ed. 617, 18 A.L.R. 1461. In Maryland this English rule has been rejected. Decisions of dicta of this court indicate that a donee has no power (unless expressly conferred) to appoint for payment of his own debts. Balls v. Dampman, 69 Md. 390, 16 A. 16, 1 L.R.A. 545; Price v. Cherbonnier, 103 Md. 107, 110, 111, 63 A. 209; cf. Wyeth v. Safe Deposit & Trust Co., 176 Md. 369, 376, 4 A. 2d 753; appointed property is not part of the donee’s estate, not subject to the jurisdiction of the Orphans’ Court, and not subject to payment of the donee’s debts. Prince de Bearn v. Winans, 111 Md. 434, 472, 74 A. 626. [188 Md. At 530-531]
Indeed, the Conner decision continued to reference O’Hare v. O’Hare, 185 Md. 321 for the proposition that a donee of a testamentary power could not during his life bind himself by contract as to the exercise of the power and that the subject matter of the power was not the donee’s property but that of the donor. Connor did not involve a creditor claiming against the donee of a power so its pronouncements are dicta. It is not fully clear which English rule has been rejected by Maryland but the passage strongly suggests that it is the rule pertaining to exercised powers. It may, however, merely be a reference to the restrictive nature of a Maryland general power of appointment without explicit authority to appoint to creditors, etc. See Rolling-Tarbox, “Powers of Appointment Under the Bankruptcy Code: A Focus on General Testamentary Powers,” 72 Iowa L. Rev. 1041 (1987) (a discussion of the potential inclusion of a general power in the bankruptcy estate. Even if included, the court should not have the authority to trigger exercise absent a specific statute under state law authorizing same).
