Revocable trusts are good disability management devises. Although the revised Maryland General and Limited Power of Attorney Act that became effective October 1, 2012 clarified and improved the effectiveness of powers of attorney, the relationship is still rooted in agency. E&T § 17-113. Nevertheless, the authority of an agent acting under a power of attorney does not have the same degree of authority of a trustee: “The most serious problem with durable powers is the uncertainty as to the agent’s power … [T]o determine the scope of the agent’s authority, one must look to the terms of the powers and to the law of agency.” William M. McGovern, “Trusts, Custodianships, and Durable Powers of Attorney,” 27 Real Property, Probate, and Trust Journal, 1, 32 (1992).
One power specifically authorized, however, to be spelled out as a permissible power for the agent is the power to create a trust. E&T § 17-203 (Grant of Specific Authority (optional)). As with any authority of an agent, the document creating the agency must so permit. King v. Bankerd, 303 Md. 98, 492 A.2d 608 (1985).
A person wishing to permit an agent to create a revocable trust to facilitate management of his or her affairs after disability should be careful, however, to limit that authority to creating a revocable trust that would not be a will substitute. The Maryland General and Limited Power of Attorney Act imposes a duty on the agent, except as otherwise provided in the power of attorney to attempt to preserve the principal’s estate plan. E&T § 17-113. Not explicitly stated is whether such an agent may create dispositive provisions. Generally, agents may not make wills for disabled persons, although this is not clear whether, or to what extent, the prohibition applies to will substitutes. Restatement (Third) of Trusts, § 11 cmt 5 (F). The takeaway is that if the principal wishes to empower an agent to create or modify a trust on his or her behalf, the principal should use care in establishing the parameters of such authority.
The Maryland Trust Act provides that a revocable trust may be created by someone other than the settlor “if that creation is otherwise authorized under state law.” E&T § 14.5-601(b).
In Maryland, a guardian has the power to “exercise any inter vivos power which the … disabled person could have exercised under an instrument.” E&T § 15-102 and § 13-213. Presumably, a guardian could take actions reserved to the settlor of a revocable trust. Under the Maryland Trust Act, a grantor can only exercise the powers of the settlor upon a court order. E&T § 14.5-602(F). Presumably a court could authorize a guardian to create a revocable trust.
