March 6, 2014
Authored by: Luke Lantta
The words within the four corners of a trust instrument mean something. In Harvill v. Harvill, a federal case from Tennessee that we’ve previously looked at here, we see that sometimes those express words mean so much that a plaintiff is prevented from making a claim based on allegations that directly contradict the words in the trust. But, it’s also the part of the opinion about an amendment of the trust pursuant to a power of attorney – something that the court didn’t need to address – that also interests us. But, before we get into that, let’s first look at what the court had to say about the trustee’s exercise of discretion under the trust instrument.
Peggy D. Harvill created a revocable trust that was subsequently amended several times. A final purported amendment was drafted by F. Evans Harvill, the plaintiff’s father and Ms. Harvill’s widower, a little more than 2 months before Ms. Harvill’s death by exercising “his authority pursuant to the . . . Power of Attorney he held for Peggy D. Harvill.” The plaintiff, Catherine Evans Harvill, sued on a number of grounds. In this opinion, the federal court dismissed the plaintiff’s attempt to add claims for fraud and constructive fraud on the grounds that they failed to state a claim upon which relief could be granted.
The court found that the plaintiff’s claims were inconsistent with the trust instrument. The plaintiff contended that, under the trust agreement, the trustee should have considered the resources available to Mr. Havill before making distributions of principal to him. Under the language of the trust agreement, however, the trustee was granted considerable discretion in determining whether to distribute principal to Mr. Harvill. Indeed, the trust instrument provided that “[t]he trustee shall recognize that [Mr. Harvill] is the object of my bounty and great affection, and I wish him provided for to the full extent of my ability to do so while maintaining a reasonable preservation of the TRUST for his benefit.” So, by the terms of the trust, the trustee didn’t have to consider Mr. Harvill’s resources.
The plaintiff also contended that the trustee should have considered her interests when administering the trust. But, again, the trust instrument specifically undercut that argument. Here, the trust instrument provided that the trustee shall not give “any consideration” to “the potential contingent beneficiary [i.e., the plaintiff] that would take after death of my spouse.” In addition, the trustee was given authority to distribute the entire principal to support Mr. Harvill if the trust’s income was insufficient to meet his needs. Interestingly, this “insufficient to meet his needs” provision suggests that perhaps the trustee was, in some circumstances, required to consider Mr. Harvill’s resources before distributing principal. If there was a contradiction here, however, the court did not address it in its opinion.
But the court didn’t stop there. The plaintiff’s claims also centered around the amendment to the trust and its alleged invalidity. The court went on to say that it would be difficult to see how or why an amendment made pursuant to the exercise of authority granted through a power of attorney would be invalid. The power of attorney under which Mr. Havill acted expressly permitted the attorney-in-fact to “[e]xercise any powers of revocation, amendment, or appointment which the Principal may have over the income or principal of any Trust.”
Great power can be bestowed on an attorney-in-fact through a power of attorney. It could very well be the case that F. Evans Harvill’s exercise of the power to amend the trust under the power of attorney is exactly what Peggy D. Harvill wanted. And, it could very well be the case that many people would want to grant that same broad power to their attorneys-in-fact. This case, however, should remind us that a discussion about the scope of a power of attorney may be a conversation worth having. So, instead of simply signing onto a form power of attorney, it may be worth taking a few minutes to consider how broad a scope of financial power should be included in the document.