January 31, 2021
No, not a super hero story.
We have discussed what a trust is, and compared it to various other relationships in earlier articles.
A trustee always is given certain powers, whether by will, other document creating the trust, or under the Trustee Act. Common powers include the powers to invest, to use agents, to sell property, or to hold property in the form in which it is received.
But powers may be granted without necessarily creating a trust. A power is simply the authority to do something on behalf of another person, called the “grantor”. Another way to put it is that a power gives another person the authority to deal lawfully with property of the grantor.
A power of attorney is the most familiar example. A less well known type of power is a “power of appointment”. These frequently are included in a will, though they can be created separately. They are very similar to a discretionary trust. However, the differences are important.
The obligations of a trustee are very different than those under a power of appointment. Unlike a trustee, the holder of the power is not obligated to do anything. While a trustee under a discretionary trust MUST decide who receives the property, a holder of a power to appointment may not give the property to anybody at all. They do not even have to actively make a decision not to give the property to anybody.
That means that a beneficiary of a power has quite different rights than a beneficiary under a trust. Potential beneficiaries may take a trustee to court if they fail to act, but not so with the holder of a power. Only if the holder of the power acts contrary to the terms of the power may they be taken to court.
A power of appointment may be general (“I give my daughter the power to give my watch to anyone in world” is Justice Gillese’s example) or “special”, which is another term used to mean “limited” or “specific” (“My daughter may give my watch to such of my children as she wishes”).
The holder of a power of appointment must:
- act honestly
- decide, if at all, only between the objects of the grant of the power
- do so in the manner provided by the power (for example, some powers may only be exercised in the holder’s will)
However, if the holder of a power is also a trustee, then their obligations as a trustee may also apply to the exercise of the power. If so, they are additionally required to:
- consider whether or not to exercise the power
- consider any request by a beneficiary
- ensure the appropriateness of any particular exercise of the power under the terms of their grant.
Unlike other holders of a power, a trustee cannot just ignore the power and walk away.
In any grant of a power of appointment, the description of who may be the beneficiaries must have adequate certainty or clarity to allow a court to determine who is in or out of the class of permitted beneficiaries. It must also be possible for the holder of the power to determine whether they have acted in accordance with the terms of their power.
Powers may also be confused with a gift. When in doubt whether it is a trust, a power, or an outright gift, it is the intent of the grantor that governs. Sometimes, however, it is difficult to determine that intention, which is another reason why, when dealing with significant assets, having a lawyer draft the document is better than doing it yourself.
Lawyers might not have super powers (Daredevil being the exception, and he’s fictional), but they do have the power to assist with creating valid trusts or powers which ensure that your intentions are carried out.
 See Gillese, The Law of Trusts, third edition, Irwin Law 2014, p. 22. I rely on Justice Gillese’s text extensively for reference in preparing this article.