Powers
Nature
A power is an authority given by one person (the donor) to another person (the donee) to undertake legally significant acts on the donee’s behalf, typically the transfer or vesting of property. A power may stand alone or may be associated with a particular property or asset right. The two most important types of powers are powers of attorney and powers of appointment.
A power of appointment is typically granted by a deed or a will. The donee of the power may make an appointment of an asset to persons within its certain scope, who are its objects (its potential beneficiaries).
A power is similar to trust. However, a power need not be exercised, whereas trust obligations are mandatory and carry fiduciary obligations.
General & Special
A general power of appointment authorises the donee to appoint the property or assets concerned to anybody, including himself. For some tax purposes, the donee is treated as the owner. This reflects the economic reality that he may either take the benefit or pass it to a third person.
A special power of appointment is limited as to the persons to whom the relevant property or assets may be appointed. The donee may or may not be a potential beneficiary.
Fiduciary Issues
In the case of a fiduciary power, the donee owes fiduciary duties to third parties in relation to its exercise. In the case of a bare power, the donee has complete discretion as to appointment.
Traditionally a power of appointment conferred no fiduciary obligations on the donee. He was free to exercise it or not exercise it.
Where the deed or other instrument which creates the power, shows an intent that the power should be exercised, fiduciary obligations may apply. The power is said to be a power in the nature of a trust.
Where on the proper interpretation of the relevant deed or will, the intention of the donor is that the object should have an interest in the asset, subject to it being divested in the event of actual appointment, fiduciary duties arise. In contrast, the making of express provision which is to apply in the event of failure to appoint is likely to create a bare power, not in the nature of a trust, without fiduciary obligations.
Trustee powers are generally fiduciary powers. They must consider the interest of the potential beneficiaries in good faith.
It is possible for a trustee to have a non-fiduciary bare power. A fiduciary power may be exercised by successors. A bare power is generally exercisable by the person on whom it is conferred only.
Creation
Powers are generally created by deed or will. Powers were traditionally subject to the rule against perpetuities.
There must be sufficient certainty in terms of objects (the potential beneficiaries). It was traditionally considered necessary for a trust that it should be possible to compile a list of beneficiaries at a given time so that they could be identified individually. The same principles were understood to apply to a trust.
Modern cases have allowed for a lesser degree of certainty in relation to objects. Provided that the potential beneficiaries are sufficiently identified as a class, then this suffices under modern case law.
The House of Lords reconsidered the matter in the early 1970s and appeared to have provided for wider criteria in the case of a discretionary trust. It is not clear to what extent this wider approach would be followed in Ireland.
Relieving Provisions
The instrument should set out the requirements for exercise of the power. Legislation has limited the requirements for formality and provided that execution as a deed (post-2009 with one witness and pre-2009 with two witnesses suffices), notwithstanding a provision to the contrary requiring further formality.
It may be possible to obtain equitable relief in the event of failures of formality in execution. This will assist purchasers for value, who come to equity with clean hands.
Legislation from the mid-19th century validates leases granted under powers, provided the lease was executed in good faith and lessee enters possession of the property. The legislation is intended to cover con-compliance with minor technicalities in the exercise of the power of leasing. Where substantial fundamental requirements have not been complied with, such as a required third-party’s consent, it does not apply.
Court Control
If a power is exercised in excess (breach) of the power, it may be set aside. Non-objects or third parties may not be given an interest in the assets concerned.
In the case of more minor defects, the courts may endeavour to save it to the extent that it is a valid exercise of the power. Accordingly, if valid objects and invalid objects are appointed, the appointment of the valid objects is likely to stand.
Where the intention is that the objects are to receive something, the courts did not permit the appointment of an illusory or token amount. Legislation was passed in 1830 which provided that the appointment of a nominal amount was not to invalidate the power unless the instrument which created the power otherwise provided. This was reaffirmed by legislation in 1874 which provided that where the donee had complete discretion, he could make such appointment as he wished, subject to any provisions of the contrary in the instrument.
Improper Exercise
Where a donee has a special power of appointment and acts in bad faith outside the proper purposes of the power, he may commit a fraud on the power. If all the objects of the power consent to or acquiesce in the transaction, this will waive fraud. They must do so voluntarily and without undue influence.
Where the donee acts in bad faith to benefit an inappropriate party or an improper intention, the appointment may be set aside. An agreement between the donee of the power and another by which some person other than an object is to benefit is fraudulent.
Accordingly, an agreement between the donee and another to appoint a party in consideration of a benefit to the donee or another is fraudulent Such an appointment may be would improper and may be set aside.
Release and Discharge
A power may be released by the donee under a deed. It may be possible for the donee to contract not to act, provided that this is not an abuse of the actual power itself. A fiduciary duty is unlikely to be capable of being released.
A donee of a power may disclaim it. This prevents him from exercising it. If there are other donees, they may continue to exercise it.
It is possible in principle for a donee to impliedly release a power in circumstances where this inference may be drawn by the court.
Execution of Power
The 2009 Act made provisions in relation to powers executed after the Act became effective. A power of appointment is valid provided it complies with the formalities in respect of a deed.
This does not prevent a donee of a power from making a valid appointment in a way that is expressly authorised by the instrument which created the power. It does not relieve the donee
- from compliance with any direction in the instrument creating the power;
- from getting the consent of any person that is necessary for a valid appointment;
- any requirement regarding the manner in which an act is to be performed having no relation to the mode of executing and attesting the deed of appointment in order to give validity to that appointment.
No appointment made in the exercise of any power to appoint property to or amongst two or more persons is invalid on the ground that no share or an insubstantial, illusory or nominal share only is appointed or otherwise passes to any one or more of those of persons. This does not apply to any provision in the instrument creating the power which specifies the amount of any share from which any such person is not to be excluded.
Disclaim & Release
A person in whom any power (whether coupled with an interest or not) is vested may release or contract not to exercise the power. This may not be done in relation to a power in the nature of a trust or to a fiduciary power.
A person to whom any power (whether coupled with an interest or not) is given may (by deed) disclaim the power. After disclaimer, the power is not exercisable by the person in whom it was vested. After the disclaimer, the power may be exercised by other persons or the survivor(s) of another person to whom the power was given, subject to the terms of the instrument creating the power.