Powers of attorney and trust instruments have each been the subject of many an estate plan. They each have also been the subject of multiple estate litigations. In combination, the two have served as fodder for controversies surrounding the agent’s authority over the trust and its terms. Pursuant to the provisions of Uniform Trust Code §602(c), a settlor’s agent acting under a power of attorney can revoke  or amend a revocable trust, when authorized by the terms of the trust or the terms of a power of attorney.[1]  New York has no comparable statute under the EPTL or the SCPA, or, for that matter, under the General Obligations Law. Stemming from this silence, came two decisions that addressed the issue, albeit with different results; the first, Matter of Goetz, 8 Misc 3d 200 (Sur Ct, Westchester County 2005), in the context of a revocable trust, and the second, Matter of Perosi v. LiGregi, 98 AD3d 230 (2d Dept 2012) in the context of an irrevocable trust. Both decisions provide valuable instruction for drafters and litigators.

In Goetz, the petitioner, a child of the decedent, contended that the decedent’s spouse lacked authority, as his attorney-in-fact,  to amend a revocable trust created by the decedent, in order to confer upon herself a limited power of appointment over the trust remainder. The subject power of attorney was executed in 1995 and provided the agent with the full authority included in the form at the time.

While the terms of the trust instrument, as originally executed, divided the trust principal equally among the grantor’s four children, the amendment in issue provided the grantor’s spouse with a limited power of appointment over the principal exercisable in favor of any one or more of the children as she determined. Several days after the amendment was drafted, it was signed by the decedent’s spouse, as his agent. Shortly thereafter, the decedent, who was ill at the time, passed away. Two years following the decedent’s death, his spouse passed away leaving a last will and testament expressly disinheriting the petitioner, and exercising the power of appointment in favor of her other three children.

The petitioner maintained that the trust amendment was invalid and exceeded the authority granted the decedent’s spouse under the power of appointment. The respondent, the executor of both the decedent’s and his spouse’s estates, claimed that the trust amendment was consistent with the decedent’s expressed wishes and testamentary plan, and was within the scope of the powers conferred upon the decedent’s spouse as his attorney-in-fact.

The court rejected the respondent’s position, and declared the trust amendment invalid, opining that a grantor’s power of revocation is generally a personal right that terminates upon death, unless otherwise provided in the trust instrument. The subject trust contained no such provision. Moreover, recognizing a revocable trust as the lifetime equivalent of a will, the court was troubled by a ruling that would sustain an agent’s authority to essentially alter a principal’s testamentary plan.

Finally, and most importantly, the court held that neither the trust instrument nor the power of attorney at issue explicitly granted the extent of authority sought to be invoked by the agent in amending the trust (see EPTL §7-1.17(b)), concluding “[i]nstruments must be construed as written by their terms, and courts may not add to or alter their provisions in the guise of interpreting them, nor interpolate into them broad grants of authority not included by the parties.”

In Matter of Perosi, the Second Department took a different view from the court in Goetz on the issue of the agent’s authority, and distinguished the opinion in reaching its result. It is questionable whether the distinctions drawn upon the Court are sound, given the rationale of Goetz, and the rules of construction invoked in Goetz in interpreting the subject trust and power of attorney.

As compared to the trust in Goetz, the trust instrument in Perosi was irrevocable, and was established for the benefit of the creator’s three children, one of whom was his attorney-in-fact. The trustee of the trust was the creator’s brother. The power of attorney executed by the creator granted his agent the authority to act with respect to “all matters”, as well as with respect to “estate transactions.” Additionally, the major gifts rider to the power authorized the agent to establish and fund revocable or irrevocable trusts, transfer assets to a trust, make gifts and act as grantor and trustee.

The attorney-in-fact, with the consent of the beneficiaries, executed an amendment to the trust pursuant to EPTL §7-1.9, which removed the named trustee and his successor, and designated two others, including the son of the attorney-in-fact, in their place. Two weeks thereafter, the creator of the trust died.

A petition was then filed by the new trustee and the attorney-in-fact for an accounting by the predecessor trustee, who moved to set aside the trust amendment on the grounds that the trust was irrevocable. The petitioners opposed, relying upon the provisions of EPTL §7-1.9, which permitted the amendment during the creator’s lifetime, with the beneficiaries’ consent.

The Supreme Court granted the trustee’s motion and denied the petition, finding that the power of attorney did not authorize the amendment of estate planning devices created prior to its execution. Further, the court held that the statutory right to revoke or amend an irrevocable trust was a personal right, which was not expanded by the terms of either the trust instrument or the power of attorney. The Second Department reversed.

The Court found that although the trust was irrevocable, the creator nevertheless possessed the authority to amend or revoke the instrument pursuant to EPTL §7-1.9. In view of the beneficiaries’ consent to the amendment, the Court was confronted with the issue of whether the power of attorney empowered the attorney-in-fact to effectuate the amendment on the creator’s behalf. Notably, despite the authority granted to the agent with respect to “estate transactions” and “all other matters”, the Court concluded that neither the power of attorney nor the General Obligations Law specifically authorized the attorney-in-fact to amend the trust. (cf. Goetz).

Nevertheless, as compared to the analysis in Goetz, this did not end the inquiry for the Court, which went on to observe that an attorney-in-fact is an alter ego of the principal, authorized to act with respect to any and all matters, with the exception of those which by their nature, public policy, or otherwise, require personal performance. The Court noted that these matters would include the execution of a principal’s Will, the execution of a principal’s affidavit upon personal knowledge, or the entrance into a principal’s marriage or divorce.

Finding that the amendment of the trust by the attorney-in-fact did not fall into any one of these categories, the Court concluded that since the trust did not prohibit the creator from amending the trust by way of his attorney-in-fact, “the attorney-in-fact, as the alter ego of the creator”, properly did so.

Notably, in reaching this result, the Court distinguished Goetz on two grounds; the first, to the extent that it relied on the principal that the power of revocation was a personal, not delegable right; and the second, that the Goetz trust specifically reserved to the creator the right to amend or revoke the trust. Nevertheless, despite these purported distinctions, it is difficult to reconcile the results in in Perosi and Goetz.

Indeed, both courts were concerned with the fact that neither the language of the trusts or the powers of attorney at issue authorized the agent to amend or revoke the trust instrument. Moreover, the fact, mentioned by the Perosi court, that the creator in Goetz reserved in the instrument a power to revoke or amend its terms, should not be considered a distinguishing factor that would justify a contrary result, since the trust in Perosi was irrevocable, and thus, would not have given the creator that right. Nevertheless, like the instrument in Goetz, the statute, EPTL §7-1.9, relied upon in Perosi, which authorized the trust amendment, also did not confer that right upon an attorney-in-fact.  However, rather than end the inquiry, as the court did in Goetz, that omission served as a basis for the Perosi court to find that the attorney-in-fact could amend the trust, a result antithetical to the principle enunciated in Goetz, which cautioned against “interpolating instruments into broad grants of authority not included by the parties.”

With the foregoing in mind, it would seem that the more critical distinction between the opinions in Goetz and Perosi is the fact that the former involved a revocable trust- – a testamentary substitute — and, as such, the equivalent of a will, which both the courts in Perosi and Goetz, recognized could not be amended or revoked by an attorney-in-fact.

The distinction aside, the lesson to be learned from both Goetz and Perosi is to insure that the language of a trust and/or power of attorney be specific as to the extent of the agent’s authority to amend or revoke the instrument.

[1] Although not yet adopted in New York, a New York Uniform Trust Code has been the subject of significant analysis by the New York State Bar Association and the New York City Bar Association.

In Matter of Conklin, 2015 NY Slip Op 25094 (Sur Ct, Nassau County 2015), a contested accounting proceeding, the Nassau County Surrogate’s Court addressed, among other things, whether specifically bequeathed property sold by an attorney-in-fact prior to the decedent’s death, adeemed.  My article entitled Ademption and the Power of Attorney, published in the Fall 2009 New York State Bar Association Trusts & Estates Law Section Newsletter, contains a thorough discussion of the ademption doctrine in the context of conveyances by attorneys-in-fact.  While the article predated revisions to the General Obligations Law intended to curb abuses of power by attorneys-in-fact, this recent decision demonstrates that the law has not evolved significantly on the subject despite such changes.

As explained in my article,

Ademption is the ‘extinction or withholding of some legacy in consequence of some act of the testator which, though not directly a revocation of the bequest, is considered in law as equivalent thereto, or indicative of an intention to revoke.’ A bequest adeems when property that had been specifically devised no longer exists at the time of the testator’s death. (Jaclene D’Agostino, Ademption and the Power of Attorney, NYSBA Trusts & Estates Section Newsletter, at p.7, Vol. 42 [Fall 2009]).

In Conklin, one of the decedent’s two attorneys-in-fact, Lori Conklin (“Lori”) sold his cooperative apartment while he was residing in a nursing or rehabilitation facility. The decedent’s will had specifically devised the apartment to his two children and first wife, with a direction that it be sold after his death and the proceeds divided among the three of them. But a sale prior to death meant that the proceeds would become part of the decedent’s residuary estate, of which Lori’s mother and co-agent, Joan Conklin (“Joan”), was the sole beneficiary.

The attorney who prepared the power of attorney testified at the hearing.  He explained that Lori initially contacted him regarding preparing a power of attorney and doing Medicaid planning for the decedent. Lori and Joan had several meetings with the attorney on the subject– none of which included the decedent. The attorney advised them that the decedent should execute a new power of attorney because the old one (under which Lori and Joan had both been appointed) did not contain a major gifts rider. He further advised that the decedent’s apartment should be sold for purposes of Medicaid planning, and the proceeds thereof be deposited into an account in the decedent’s name.

The decedent executed the new power of attorney on March 24, 2010, at the nursing or rehabilitation facility where he resided.  It named Lori and Joan as co-agents, and contained a major gifts rider, authorizing the agents to make gifts to themselves or others in any amount (see GOL §5-1514).  The attorney met the decedent for the first time on that date, when he supervised the execution of the document. He testified that at that meeting, he discussed with the decedent his recommendation that the apartment be sold.

The attorneys-in-fact subsequently sold the apartment. On the date of the closing, the attorney contacted the decedent to ensure that he was still alive. The agents then deposited the $125,500 proceeds from the sale into an account in the decedent’s name. The decedent died approximately two weeks thereafter.

The proceeds benefitted Joan, as the residuary beneficiary of the estate. Mere days after the decedent’s death, Lori used her power of attorney to close the decedent’s account (a fact that raises its own issues), and utilized the proceeds to pay off Joan’s home equity loan.

Despite the fact that Joan ultimately benefitted from the sale, the court rejected the contention that there had been a breach of fiduciary duty by the attorneys-in-fact in selling the apartment and thus, that the proceeds of the sale should be returned to specific devisees. The court explained the general rule that if a specifically bequeathed item is sold, given away, lost or destroyed during a decedent’s lifetime, then the bequest generally fails, or adeems. “Moreover, ‘it matters not whether [the sale] came to pass because of an intentional or voluntary act of the testator’” (Matter of Conklin, supra at *5 [quoting Matter of Wright, 7 NY2d 365, 367 [1960]). In addition, “once the devise is found to be adeemed, the court is not permitted to substitute something else for it. This includes tracing the proceeds from the sale of the real property” (Matter of Conklin, supra at *6 [relying on Labella v Goodman,198 AD2d 332 [2d Dept 1993]; see also Matter of Wallace, 86 Misc 2d 175, 180 [Sur Ct, Cattaraugus County 1976] [opining proceeds of a sale of specifically bequeathed property “do not constitute the legacy bequeathed,” and thus, “the general rule of ademption applies and the legacy fails”]).

Given counsel’s advice to sell the apartment, and his contacting the decedent on the date of the closing, the court concluded that there had been no breach of fiduciary duty by the attorneys-in-fact, and thus, the foregoing general rules applied to this situation. Consequently, the specific devisees of the apartment were not entitled to the proceeds of the sale. The bequest had adeemed. Although this result might seem less than equitable on its face, it is in accordance with the laws of New York.

 Estate planning attorneys who prepare durable New York powers of attorney for their clients often counsel them to exercise care in allowing the use of such instruments because they grant the attorney-in-fact broad and sweeping authority. As a shorthand way of describing a power of attorney, an estate planner might tell a client that it allows the attorney-in-fact to do pretty much anything the client could do. The recent Appellate Division decision in Matter of Perosi v. LiGreci  illustrates the accuracy of this shorthand description. In that case, the court held that the authority granted to an attorney-in-fact under a New York statutory power of attorney includes the power to amend an irrevocable trust with the consent of the beneficiaries, pursuant to EPTL 7-1.9.

In 1991, Nicholas LiGreci created an irrevocable trust for the benefit of his three children, including his daughter Linda. Nicholas named his brother, John LiGreci, as the trustee. On April 20, 2010, Nicholas executed a durable New York statutory short-form power of attorney naming his daughter Linda as his attorney-in-fact. The power of attorney included authorization for “estate transactions,” as construed under GOL § 5-1502G and “all other matters,” as construed under GOL § 5-1502N. Nicholas also signed a major gifts rider. 

One month after the power of attorney was created, Linda, as attorney-in-fact for Nicholas LiGreci, executed an amendment to the irrevocable trust naming her son, Nicholas Perosi, as trustee instead of her uncle, John LiGreci. New York EPTL 7-1.9 allows the creator of a trust to “revoke or amend the whole or any part thereof” by an acknowledged instrument and with the written consent of all the trust beneficiaries. Pursuant to EPTL 7-1.9, each of the beneficiaries of the irrevocable trust consented to the amendment. John LiGreci did not consent to the amendment, nor was his consent required, as he was not a beneficiary.

Nicholas LiGreci passed away on June 3, 2010, never having personally signed the trust amendment. On July 28, 2010, Linda and her son, Nicholas Perosi, as the successor trustee, petitioned for an accounting from John LiGreci; for the removal of John LiGreci as trustee; and for turnover of the trust assets and records to Nicholas Perosi. John LiGreci moved to set aside the trust amendment, arguing that the trust was irrevocable and Linda did not have authority under the power of attorney to amend the trust. The Supreme Court agreed, holding that a power of attorney is a “forward looking” instrument and does not grant an attorney-in-fact authority to amend estate planning devices created prior to the execution of a power of attorney. The Supreme Court also found that the right to amend or revoke an irrevocable trust is a right that is personal to the creator and cannot be exercised by an agent unless the power of attorney expressly provides.

On appeal, the Appellate Division, Second Department, reversed (Matter of Perosi v. LiGreci, 2012 NY Slip Op 05533, decided July 11, 2012). Justice John Leventhal, in opinion joined by Justices Skelos, Balkin and Lott, explained that the irrevocable trust agreement did not specify any procedure by which the trust could be amended, and therefore EPTL 7-1.9 is applicable and allowed Nicholas LiGreci to amend the trust with the consent of the beneficiaries. Examining the power of attorney granted to Linda, the court quoted Zaubler v Picone, 100 AD2d 620, 621 (2d Dept 1984), in which it stated that “[a]n attorney in fact is essentially an alter ego of the principal and is authorized to act with respect to any and all matters on behalf of the principal with the exception of those acts which, by their nature, by public policy, or by contract require personal performance.” The court listed the “few exceptions” to the powers granted to an attorney-in-fact: the execution of a principal’s will, the execution of a principal’s affidavit upon personal knowledge, and the entrance into a principal’s marriage or divorce. Amending or revoking a trust with the consent of the beneficiaries, on the other hand, was not found to be an act which requires personal performance of a principal. The court, therefore, held that Linda, as attorney-in-fact and alter ego of Nicholas LiGreci, properly amended the irrevocable trust.

The court acknowledged that there may be policy considerations for prohibiting an attorney-in-fact from amending or revoking an irrevocable trust “based upon the premise that a creator knows what is best for his or her trust and overall estate plan.”  It concluded, however, that “such a policy is for the Legislature to enact, not the courts.”

 

Thanks in large part to the efforts of individuals and organizations advocating to curb the epidemic of financial abuse of the elderly, New York Governor, David Paterson, signed into law a broad transformation of Title 15 of the New York General Obligations Law pertaining to Powers of Attorney on January 27, 2009, apparently targeted directly at a reduction in “DPA” or “Durable Power of Attorney Abuse” in New York State.

This new legislation, which was unanimously approved on December 15, 2008 in the senate, is currently scheduled to take effect on March 1, 2009. However, in light of the drastic modifications which this new law portends, many in the legal community are clamoring for a six month reprieve in order to fully digest the implications of this sweeping change. In order to avoid the mass chaos that a retroactive repeal would bring, the new law mercifully provides that these changes do not affect the validity of any power of attorney executed prior to the effective date of this new law. Nevertheless, it is certainly advisable for estate planners and elder law attorneys to familiarize themselves with the new law and incorporate it in into their practice as soon as possible.  

 

 

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