In Barbetti v. Stempniewicz, 490 Mass. 98 (2022), the Supreme Judicial Court faced the question of whether an attorney-in-fact acting under the authority granted by a durable power of attorney may use that authority to establish a trust in the name of their principal. In a case of first impression, the court ruled that, at least where the power to create a trust is not expressly delegated in a power of attorney, an attorney-in-fact has no authority to create a trust on the principal’s behalf. The related question of whether an explicit delegation of trust-creation power is permissible was left open for a future case, and the court invited the Legislature to weigh in so that the court would not have to provide its own answer.
As is far too often the case, Barbetti arose out of a dispute between various members of a family as to the appropriate disposition of assets left by a dead relative. Lubov Stempniewicz was the grandmother of the plaintiffs, and was the mother and grandmother of the defendants, who thus were the uncle and cousins of the plaintiffs.
When Lubov was 91 years old, she executed a durable power of attorney (the “POA”) appointing her son Edward as her attorney-in-fact. At the same time, Lubov executed a new will, replacing a different will from a number of years before. Lubov was not represented by an attorney regarding the drafting or execution of the POA or will.
Four years later, Edward created and signed the Lubov Trust (the “Trust”) on behalf of Lubov and on his own behalf. Edward signed under the POA for Lubov as she was the named grantor, under the POA for Lubov as she was the first co-trustee, and in his own name as the second co-trustee. By its own terms, the Trust was intended to benefit Lubov during her life and, upon her death, to benefit Edward and his own children, with small distributions to be made to the children’s cousins.
Acting under the POA, Edward transferred two pieces of real estate into the Trust and established six bank accounts for the Trust, which he funded mostly, or perhaps entirely, with Lubov’s money. After Lubov died, the plaintiffs attempted to probate the old will, and Edward objected. While that litigation was ongoing, the plaintiffs brought a separate, 14-count Superior Court action challenging the validity of the Trust and Edward’s actions.
A Superior Court judge granted the plaintiffs summary judgment on the counts of the complaint seeking a declaration that the Trust was invalid and that Edward held Trust assets in constructive trust for the benefit of the plaintiffs. After a separate and final judgment was entered as to those counts, Edward filed an appeal. Due to the unresolved legal issue at the heart of the case, the Supreme Judicial Court transferred the case from the Appeals Court on its own initiative.
A large portion of the Supreme Judicial Court’s opinion is taken up with a discussion around the technical question of whether the entry of a separate and final judgment on the two counts of the complaint on which summary judgment was granted was appropriate. Ultimately, the court resolved that preliminary issue in a manner allowing it to reach the merits of the case.
It is an open question whether a settlor may delegate the power to create a trust at common law or under the Massachusetts Uniform Trust Code (MUTC) enacted in 2012 and codified at Chapter 203E of the General Laws. Section 401 sets forth three methods for trust creation, none of which involves delegation to an agent under a power of attorney. The list of methods in Section 401, however, is not exhaustive. Section 402 provides that a trust can only be created if the purported settlor has capacity and intends to create a trust.
Section 602 of the MUTC allows an attorney-in-fact to exercise a settlor’s authority relating to revocation, amendment or distribution of trust property when either the power of attorney or the trust document itself expressly so provides. The MUTC is silent, though, on whether the power to create a trust may be delegated.
In its review of the law of other states, the court perceived a common “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.”
After scrutinizing the specific power of attorney at issue, the court ruled that it did not empower Edward to establish a trust with Lubov as settlor. Accordingly, the Trust was void ab initio, and summary judgment on that point was properly granted. The court left for another day the question of “whether, as a matter of law, a settlor may ever delegate the authority to create a trust pursuant to a power of attorney.” Based on dicta immediately following the preceding quote, there are reasons to doubt that the court would answer that question in the affirmative. Rather than squarely addressing that question, though, the court “conclude[d] that, at this time, the more prudent path is to allow the Legislature the opportunity to decide whether and how to allow delegation of the power to create a trust.”
Whether the Legislature will seize that opportunity still remains to be seen.
Mark J. Esposito, a shareholder of Shatz, Schwartz and Fentin PC, has a wide-ranging, litigation-focused practice. He represents clients before state and federal courts and administrative agencies in the areas of general, commercial and probate litigation; labor and employment; and administrative law. He has counseled various public sector labor unions and employees in collective bargaining, arbitration and litigation. A summa cum laude graduate of Boston University School of Law, Esposito was a member and note editor of the Boston University Law Review. Prior to law school, he graduated magna cum laude from Williams College, where he was inducted into the Phi Beta Kappa society.