Can an agent (or “attorney-in-fact”) under a durable power of attorney create a trust on behalf of the grantor (or “principal”) of the power of attorney? This has long been an open question, but the Massachusetts Supreme Judicial Court has ruled in Barbetti v. Stempniewicz (490 Mass. 98, June 28, 2022) that the answer is no, at least for now.
The Case at Issue
In 2013, when Lubov Stempniewicz was 91 years old, she signed a durable power of attorney appointing her son, Edward Stempniewicz as her agent. Edward subsequently used the power of attorney to create and fund a revocable trust for the benefit of Lubov during her life. The trust provided that after Lubov’s death $25,000 would be distributed to each of Lubov’s four grandchildren and the remainder of the assets would be held in further trust for the benefit of two of her grandchildren who were Edward’s children.
After Lubov’s death, the two grandchildren who were not included in the ongoing trust, Regan and Ryan Barbetti, challenged its creation under the durable power of attorney, arguing that the trust was void ab initio. (They also made several other legal claims which were not part of the SJC decision.)
In its decision, the SJC starts by observing that it “never has determined whether the power of a settlor to create a trust is delegable, either at common law or under the Massachusetts Uniform Trust Code (MUTC),” which was enacted in 2012. It then reviews the MUTC, which states that an agent under a durable power of attorney may act to revoke, amend or distribute property in a trust to the extent such powers are “expressly authorized under the trust and the power.” It points out that in this regard the MUTC is more narrow than the Uniform Trust Code on which it is based.
Unfortunately, the MUTC does not address the issue of trust creation. So the SJC looks at what other states that have enacted the UTC have done in this regard, finding that where they have authorized an agent under a DPA to create a trust, they have required that such a power be included in the DPA itself, concluding: “Thus, although jurisdictions vary in their conclusions as to whether the power to create a trust is ever delegable, our review of the statutes and case law of other States reveals an underlying principle: where the power to create a trust is delegable, either pursuant to a statute or judicial opinion, it is only so where there is an express grant of the power to create a trust in the power of attorney.”
Looking at its own decisions, the SJC states that “where a power of attorney contains a general grant of authority, we have declined to interpret such grant to provide more authority than absolutely necessary to effectuate the purpose of the power, absent some additional express authorization.” Based on its own precedent and consistent with the practice of other states that have adopted the UTC, the SJC rules that an agent under a DPA may not create a trust on behalf of the DPA grantor if such power is not expressly granted in the document.
Application to the Facts of the Case
The Court then looks at Lubov’s DPA. While it included many powers related to trusts, including the power to transfer assets into trusts that Lubov may have created previously, it does not specifically give Edward the power to create a trust on her behalf. As a result, the Court rules in favor of the Barbetti grandchildren that Lubov’s trust was void ab initio.
Leaving the Question in Limbo
While the SJC in this case rules in the negative, that an agent under a DPA may not create a trust on behalf of the grantor if such power is not expressly granted in the DPA document, it specifically states that it is not ruling on whether such trusts can be created if the DPA does expressly grant that power:
“[W]e do not decide whether, as a matter of law, a settlor may ever delegate the authority to create a trust pursuant to a power of attorney. If this court were to so conclude, it would raise questions related to how the trust creation requirements set forth in G. L. c. 203E, § 402, may be observed when a trust is created on behalf of a settlor by an attorney-in-fact.”
While acknowledging “the critical importance of powers of attorney in the area of elder life planning,” the Court also observes that they may be “used as tools of abuse against the very people they are intended to assist.” It specifically defers to the Massachusetts Legislature the question of whether agents under DPAs should have the power to create trusts if such powers are expressly granted.
This still leaves a large gray area for practitioners and clients with respect to trusts created under DPAs where such power is expressly granted. At present, whether such power may be exercised has not been determined by either the legislature or the SJC. It appears that the Legislature’s failure to grant this power in the MUTC was an oversight since it provided for the power of to revoke or amend existing trusts if such powers are granted in both the DPA and trust documents. It should extend such powers to the creation of trusts as soon as possible.