Because powers of attorney are often used as an elder care planning tool, they are also often used by the attorney-in-fact to manage the estate planning and finances of the principal.  The creation of a trust can be an important estate planning tool, so, if the principal wants to authorize his or her agent to create a trust, that authorization should be specifically granted in the power of attorney.  Not surprisingly, there is increasing litigation over the scope of power conveyed to an agent through a power of attorney, including litigation regarding the agent’s authority to create a trust for the principal.  In Dishman v. Dougherty, Kentucky was one of the latest states to have an appellate court weigh in.

Setting aside a very complex factual and procedural history that are recounted in detail in the opinion, one of the take-aways from the opinion was that this paragraph in a power of attorney did not authorize the attorney-in-fact to create a trust (particularly when considered in conjunction with the terms of an antenuptial agreement between the husband/principal and the wife/co-trustee/attorney-in-fact):

[Granting the power to] [c]onvey any real or personal property to the Trustee of any trust agreement between me and said Trustee and entered into either before or after the date of this instrument . . .

The appellate court held that “in order for an attorney-in-fact to create a trust pursuant to a POA, this authority must be expressly provided for in the instrument if it contains a specific provision related to trusts.”  Here, the power of attorney only permitted the attorney-in-fact to convey property into a trust rather than permitting the power to create a trust.  As a result, a trust purportedly created by the attorney-in-fact was void ab initio.

Estate planners and prospective principals should consider discussing the power to create a trust as one of the specific powers granted to an attorney-in-fact.  In addition, trustees accepting a trust purportedly created using a power of attorney should consider, as part of their due diligence in accepting the relationship, a thorough analysis of whether the the power of attorney actually permitted the creation of the trust.