Should you incorporate a personal power into your client's trust?

• Author: Tiernan, Peter B.

A settlor does not normally choose someone to be a trustee unless the settlor has a high degree of confidence in the person chosen. (1) Having stated the obvious, a "personal power," sometimes also referred to as a "confidential power" or a "mere power," (2) is a discretionary power granted based upon the confidence that the settlor has in a particular individual. (3) The distinction between appointing someone as trustee and giving that person a personal power has to do with the settlor's degree of confidence. With a personal power, the settlor's confidence is more than the degree of confidence that the settlor would normally have in the typical trustee. By conferring a personal power, the settlor is implicitly stating that there is no one, not even a court, who can exercise the discretion granted as well as the individual chosen. If your client wants to give someone the last word over one or more decisions relating to a trust, a personal power might be just what he or she is looking for.

A personal power pertains to the person holding the power; it does not relate to the office to which the power holder has been appointed. According to one secondary source, the power cannot be exercised by a court. (4) This aspect will be discussed in more detail later in this article.

A personal power has been described as both "discretionary with" and "personal to" the power holder. (5) Because it is "personal to" the power holder, the holder should not be obligated to act reasonably, as he or she would under Florida law, for instance, if he or she were the trustee and possessed either simple or absolute discretion. (6) It is probably inaccurate to compare the level of discretion that the holder of a personal power has to absolute discretion. The best description, based on the authority granted, would be "sole and uncontrolled" discretion.

Although one court has stated that personal powers are held in a fiduciary capacity, (7) there is some disagreement on this point. (8) Regardless of whether a personal power is a fiduciary power, the power holder is presumably bound by the duties imposed by the new Florida Trust Code, such as the duties of good faith (9) and the duty of loyalty. (10) However, as explained below, the power holder may not be bound by a duty to act impartially. (11)

Requirements for Creating a Personal Power

There is only one requirement necessary for creating a personal power: the settlor must clearly and unmistakenly manifest his or her intention to create such a power in a particular trustee. (12) Absent such a clear statement of intent, there is a legal presumption that any powers granted to trustees are impersonal powers and not personal powers. (13)

If the trust is not clear as to whether a specific power is personal, a court will seek to ascertain the settlor's intent. As with most trust construction issues, in order to determine if a personal power is present, a court must examine the trust instrument as a whole and, when necessary, must examine the circumstances surrounding the execution of the instrument. (14) Therefore, to avoid any confusion, the most prudent way to guarantee that a power will be treated as personal is to clearly and unmistakenly say so in the trust instrument.

Limits of a Court's Control Over Personal Powers

* The Jurisdiction of a Florida Court--F.S. [section] 736.0201 provides Florida courts the authority to determine if a trustee actually possesses a personal power. However, assuming the court finds that a personal power exists, what authority does it have to determine if the power holder is acting properly? There is apparently no Florida case law on point; thus, the answer must come from the common law in other states. In this respect, the Supreme Court of North Carolina, citing Lewin on Trusts has stated: "In the case of mere powers, that is, powers of which the exercise is arbitrary and discretionary, the court has no jurisdiction to interfere." (15)

Concluding that a Florida court has no jurisdiction over a personal power might be somewhat of an overstatement, particularly considering the widely-accepted rule that a settlor cannot place a fiduciary discretion entirely beyond the control of a court. (16) It is suggested that there are certain acts, as explained hereinafter, in which a court would always retain jurisdiction.

* Limits of a Court's Control--As mentioned previously, some commentators have stated that a court cannot exercise a personal power. (17) More accurately, since a court never actually exercises a trustee's power (that is, it either directs the trustee to act, enjoins him from acting, or sets aside an improper act),18 presumably what is meant in this respect is that a court cannot direct the trustee in the exercise of the trustee's discretion (that is, substitute its judgment for the trustee's) over whether to exercise a personal power.

Compare this result to the principles that apply when a trustee possesses either simple or absolute discretion. In such a case, Florida Jurisprudence Second states: "Provided a trustee acts in good faith and within the limits of the sound discretion of the trust placed in him or her, equity will not substitute its judgment for that of the trustee, or interfere with that discretion without cause." (19) So, the distinction appears to be one in which a court "cannot" intervene versus one in which a court "will not" intervene (i.e., unless the trustee has clearly acted improperly).

But, what is the actual extent of a court's control when a personal power is involved, and why will a court not involve itself in the exercise of the trustee's discretion? Florida Jurisprudence, Second, cites American Jurisprudence, Second, in support of the notion that a court cannot exercise a personal power. The case upon which American Jurisprudence, Second, relies in this regard is Welch v. Wachovia Bank & Trust Company, 38 S.E. 2d 197 (N.C. 1946). In that case, the court concluded that it should not interfere because, by including a personal power, the settlor manifested an intention that under no circumstances should the power be exercised by anyone but the named individual. (20) By designating a power as personal, the settlor is clearly and...