Estate Planning Tools for Changing Circumstances
Changing circumstances may make it necessary or desirable to alter the provisions of a client’s testamentary plan. Of course, a person who is competent ordinarily is free to change his or her will or revocable trust, but a person who lacks testamentary capacity cannot execute a new will or amend an old one.
Surprisingly, however, if certain conditions are met, it may be possible for an agent acting under a power of attorney to amend a trust even though the grantor of the trust is incapacitated.
This is illustrated by the recent decision of the Appellate Division, Second Judicial Department, of the Supreme Court of the State of New York in Perosi v. LiGreci, 2012 NY Slip Op. 05533 (July 11, 2012).
In Perosi, the court held that an amendment to a trust was effective even though it had been executed by the grantor’s attorney-in-fact and not by the grantor himself.
Shortly before his death, the grantor had executed a durable statutory short form power of attorney appointing his daughter, Linda Perosi, as his attorney-in-fact. She then executed the trust amendment and obtained the consent of the three beneficiaries. The amendment designated the grantor’s grandson (Nicholas Perosi – the son of Linda Perosi) as the new trustee.
The grantor’s brother – who had been designated as the trustee in the original trust instrument – challenged the authority of the attorney-in-fact to amend the trust on behalf of the grantor.
The Appellate Division rejected that argument, finding that the power of attorney granted the attorney-in-fact authority over “estate transactions” and “all other matters” and held that the amendment of the trust instrument was not, by its nature or pursuant to public policy, an action which required personal performance by the grantor himself.
The court cited a few examples of matters which do require personal performance such as the execution of a will, the execution of an affidavit upon personal knowledge, or getting married or divorced.
There is, however, no statutory requirement that amendment of a trust be by personal performance and, since the trust instrument in this case did not prohibit the grantor from amending the trust by way of his attorney-in-fact, the court concluded that the amendment was valid.
The court noted that there was no evidence that the grantor was incapacitated at the time of the amendment even though it was made shortly prior to his death, but then observed that the grantor’s condition – as long as he remained alive – was not relevant in any event inasmuch as the power of attorney was durable and would have remained in force during any period of incapacity.
Interestingly, the trust in Perosi was created by an “Irrevocable Trust Agreement” which contained a proviso stating that it “shall be irrevocable and shall not be subject to any alteration or amendment.”
Notwithstanding that language, the court held that Section 7-1.9 of the Estates, Powers and Trusts Law (“EPTL”) allowed for the amendment of the trust with the written consent of all persons beneficially interested in the trust. The trust’s beneficiaries were the three adult children of the grantor and all three consented to the amendment.
Accordingly, notwithstanding the language in the trust stating that it was irrevocable and not subject to alteration or amendment, the amendment was found to be valid and effective.
If the beneficiaries had not all been adults, it might not have been possible to amend the trust. The courts have held that a trust beneficiary who is a minor cannot, without leave of court, consent to an amendment of a trust, and the courts have approved trust amendments where there are minor beneficiaries only where the amendments are of obvious benefit to the minors. See, e.g., Rosner v. Caplow, 90 A.D.2d 44, 456 N.Y.S.2d 50 (1st Dep’t 1982), aff’d, 60 N.Y.2d 880, 470 N.Y.S.2d 367 (1983) (minor cannot consent to trust amendments); Matter of Cord, 58 N.Y.2d 539, 462 N.Y.S.2d 622 (1983) (consent not required where amendment could only add to the benefits available to the beneficiaries).
As noted above, in Perosi, the amendment consisted of the removal of the trustee designated in the trust instrument (the brother of the grantor) and the replacement of that trustee with a new trustee – the grandson of the grantor. No change was made in the beneficiaries’ shares. The trust corpus consisted of a $1,000,000.00 life insurance policy and the trust provided that, upon the death of the grantor, the proceeds of the policy would be divided among his three adult children.
The amendment affected only the identity of the trustee and changed that person from the grantor’s brother to his grandson. The dispositive provision of the trust – calling for the proceeds of the life insurance policy to be divided among the three adult children – was not changed. Moreover, the role of trustee was not particularly lucrative.
There would of course be commissions payable, but they were not likely to exceed $10,000.00 based on the amount involved. Nevertheless, the brother resisted the proposed amendment and sought to remain in office as the trustee. His efforts were successful at the trial court level, but the Appellate Division rejected his arguments and found the amendment to be effective.
The Perosi ruling illustrates the broad reach of powers of attorney and how they can sometimes be used to alter an individual’s estate plan. It also shows how a seemingly irrevocable and unalterable trust may in fact be subject to amendment if certain conditions are fulfilled.
Paul T. Shoemaker
August 10, 2012