Power of appointment is a clause in a trust that allows the beneficiary to decide who will be the beneficiaries(s) of the trust upon their death. A narrow power of appointment can require the trust be sent to a specific beneficiary or class of beneficiaries like grandchildren. A broad power of appointment can allow for the trust to be appointed to anyone, except for creditors. A broad power of appointment gives a beneficiary the power to send the trust to their new partner, a charity or more importantly the power to prevent the next generation from automatically receiving the trust, which is why we sometimes refer to this power as the power of disappointment.
Sometimes the terms of the power of appointment require it to be exercised in a last will and testament and other times they can be exercised by a signed writing other than a will, either way it will not be effective until the beneficiary passes away.
Powers of appointment can be limited or general, which refers to their tax status. The dynasty trust will have a limited power of appointment, which means it is not subject to estate tax when it is appointed to the next beneficiary. A general power of appointment is subject to the estate tax.