Can a Power of Attorney be used to create a trust that empties the estate?

  • Yes
  • the Attorneys must acting in the best interests of the donor (granter) of the Power of Attorney
  • the trust must take effect immediately, not on the death of the donor
  • the trust must not defeat the provisions of the will

In Easingwood v. Cockcroft, Reg (the deceased), had four children from his first marriage and a second wife, Kay.  When Reg and Kay married, they signed a marriage agreement designed to ensure that the assets each had went to their own children.  Reg made a will that complied with his obligations to Kay as set out in the marriage agreement.  With Kay’s approval, Reg later signed an enduring Power of Attorney appointing two of his children as his Attorneys.  Reg became incompetent and the two children, Hank and Lauren, took over his business affairs.  Unfortunately, Hank became ill with cancer and it was believed that he would die before Reg.  The Power of Attorney stated that both Hank and Lauren had to act jointly, and there was no provision to appoint a replacement Attorney.  If Hank were to die, nobody would be able to manage Reg’s affairs.  Hank and Lauren did not want to apply to court to have themselves appointed as Committee.  They decided to create a trust that mirrored Reg’s will.  Hank died, and Reg died shortly after.  Kay then found out that there was not much left in Reg’s estate.  She sued, claiming that the Power of Attorney did not authorize the creation of the trust, and also making a claim under the Wills Variation Act.  If her suit had been successful, trust assets of $5.5M would have been returned to the estate of Reg, leaving a large pool of assets for her to claim against in her Wills Variation Act claim.

The trial judge ruled against her, and the Court of Appeal confirmed that decision.

A Power of attorney does allow the Attorney to create a trust, so long as the trust takes effect immediately rather than on the death of the donor.  However, if the trust has the effect of adding beneficiaries not named in the will, or avoiding a gift in a will, or avoids the effects of an intestacy where the donor never made a will, then the trust may be challenged since the Attorney has a duty to conform to the intentions of the donor.  Here the trust mirrored the will and took effect immediately, so was valid.

(Complex issues can arise with Powers of Attorney, but we can help.  Contact us.) info (at) pocolawyers (dot) com

Read the case:  Easingwood v. Cockroft

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