A General Power of Attorney Does Not Authorize Agent to Establish An Irrevocable Trust
In the case of In RE Estate of Edler, PICS Case No. 14-0270 (C.P. Lycoming, January 31, 2014) the Honorable Marc Francis Lovecchio ruled that in absence of express direction to the contrary, general power of attorney does not authorize agent to establish irrevocable trust.
While in the hospital, Edler executed a power of attorney naming son her agent. A few months later, son created an irrevocable trust in Edler’s name, into which he transferred all of her assets. Edler received income from the trust, but it divested her of any interest in or benefit of the corpus.
Edler was dissatisfied with her inability to access the principal and son terminated the trust and transferred all assets back to Edler.
After Edler died, son petitioned to restore the trust. He argued that the general, broad language in the power of attorney authorized him to transfer all Edler’s property into an irrevocable trust and that the return of property to Edler was a legal nullity. Estate contended that the creation of an irrevocable trust was a legal nullity because, absent specific language in the power of attorney, §5603 of the Probate Estate and Fiduciary Code precluded the creation of an irrevocable trust. The court of common pleas denied the petition to restore the trust.
Section 5602 of the PEF Code provides that, unless it “expressly directs to the contrary,” a power of attorney will be construed in accordance with Chapter 56, which includes the limitation contained in §5603. The power of attorney did not specifically give son the power to create an irrevocable trust or contain any other language to explicitly indicate that the powers granted to him would not be construed in accordance with the conditions contained in §5603. Moreover, the specific power “to create a trust for my benefit” does not include the power to create an irrevocable trust.
This case presents the type of situation that §5603 was designed to prevent. Contrary to her wishes, son created an irrevocable trust that divested Edler of the corpus of all her assets. The trust did not conform to the limitations contained in either §5603(b) (1) (income and corpus must be distributable to principal or guardian or applied for principal’s benefit) or (b) (2) (deed of trust may be revoked at any time by principal or agent). In contravention of this statute, the trust created by son precluded any payment to be made to or for the benefit of Edler and precluded Edler from altering, amending, modifying, revoking or terminating the trust in any capacity whatsoever. Absent explicit language to the contrary, the general assembly clearly intended to limit the creation of a trust by an agent under a power of attorney to a revocable trust where both income and corpus are distributed to principal or applied for her benefit. Therefore, the creation of an irrevocable trust which divested Edler of the corpus of all her assets was a legal nullity.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly (March 4, 2014)
Filed Under: Estate Litigation; General Power of Attorney; Irrevocable Trust