Words matter: The interaction of Powers of Attorney and Trust documents
Before we dive in, a quick couple of helpful definitions for you the reader. A “principal” in the context of this article is the giver of a power of attorney, the “attorney in fact” is the person acting as power of attorney, and a “grantor” is the person who created a trust.
So by way of those definitions, when someone (the “principal”) executes a power of attorney, they are giving the attorney in fact authority to act on behalf of the principal as defined by the Power of Attorney document. The authority granted in a power of attorney and language defining the powers granted to the attorney in fact is important. The Tennessee Court of Appeals recently reminded us of this in the case of In Re: Estate of Robert McKeel Bone.
In Estate of Bone, Tennessee Court of Appeals held that an attorney in fact was authorized to execute a Trust amendment to Mr. Bone’s living trust. This trust amendment cut out the children of his deceased daughter (Mr. Bone’s grandchildren) and redistributed their share of the Trust to his children living at the time of his death.
Mr. Bone executed a Power of Attorney in 2009 which granted the attorney in fact the right to execute amendments regarding the “income or principal of any Trust”. The Power of Attorney also provided the powers granted to the attorney in fact were general and the attorney in fact had the power to “do all acts and things for me of any nature or kind that I could legally do for myself”.
Years later in 2017, Mr. Bone executed a living trust distributing his estate. The Trust included language indicating the power to amend the living trust was personal to him and “not to be exercised” by anyone else “during any time that I am incompetent, unless I have expressly granted the power to amend or revoke this Agreement in writing”. In other words, the Trust language made it sound as though no one other than Mr. Bone could amend the Trust during his life unless he specifically put in writing that another person had authority to amend his specific living trust.
Two years after Mr. Bone executed the living trust, Mr. Bone’s attorney in fact, executed a trust amendment which changed the trust distribution. It’s important to note Mr. Bone wasn’t incompetent (no Alzheimer’s disease or other mental health issues).
When Mr. Bone died, his grandchildren challenged the trust amendment saying the attorney in fact under the 2009 POA didn’t have the authority to amend the living trust. The Tennessee Court of Appeals disagreed and here’s why:
- The Trust language didn’t address whether an attorney in fact could amend the Trust during Mr. Bone’s lifetime while he was competent. The trust language only dealt with an amendment by an attorney in fact during Mr. Bone’s incompetency.
- The power of attorney given by Mr. Bone was effective immediately (that is to say, the attorney in fact’s powers and ability to act were not contingent on Mr. Bone becoming incompetent or incapacitated).
- The power of attorney provisions specifically provided that the attorney in fact may amend any trust created by Mr. Bone and take all action that Mr. Bone could take on his own behalf.
- Tennessee Code Annotated s 35-15-602 specifically provides “A [grantor’s] powers with respect to … amendment…of trust property may be exercised by an agent under a power of attorney only to the extent expressly authorized by the terms of the trust or the power [of attorney]”. (Emphasis and brackets added).
The Bone decision is a great reminder that a thorough estate planning attorney should review all powers of attorney currently in place and ensure they don’t authorize anything the client does not wish to permit. At Vasek & Robbins, PPLC we create and review all the documents which make up a client’s estate plan and go over possible outcomes with our clients to ensure the documents which make up their estate plan, such as a power of attorney and a Will or Trust, work together to accomplish the client’s goals. We also perform this review to minimize unintended consequences of blending older estate planning documents with new ones.
Had Mr. Bone’s power of attorney specified that his attorney in fact could not take action unless he was incompetent or incapacitated (called a “springing” power of attorney) then we might have had a different result in the Bone case and the power of attorney and the living trust would have worked together in a more consistent manner. Remember, words matter and the interaction between a power of attorney and other estate planning documents is just as important as the Will or Trust itself.