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 a trust. However, a power need not be exercised, whereas trust obligations are mandatory and carry fiduciary obligations.
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.
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.
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.
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.
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 particularly in Ireland.
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 validate 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 fundamental substantial requirements have not been complied with, such as a required third-party’s consent, it does not apply.
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.
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 An such appointment may be would improper and may 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 done 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.
Powers of Attorney
A power of attorney is a grant of a power by one person (the donor) on another (the donee) to undertake legally significant acts on behalf of the donor. A power of attorney must be in writing and must be executed as a deed.
The person granted power under the power of attorney, the donee, can, if given authority, may do any act and execute and deliver any instrument as a deed in his own name, which the donor could himself have done. Every such instrument obtained is valid as if done by the donor himself.
The 1996 Act provides for a statutory general power of attorney. This is in a simple, short form of power of attorney which gives the donor the power to do everything which the donor could himself have done.
It is possible to lodge a power of authority with the Central Office of the High Court, verifying its execution by affidavit, statutory declaration or other evidence. The advantage of this procedure, which is little used in practice, is that it obviates the necessity of producing the original copy.
Where an instrument is delivered and executed as a deed (formerly under seal), the deed will provide in the so-called “testimonium”” or execution clause, that the person enters the deed under power of attorney.
The Powers of Attorney Act removes the requirement that the grant of the power be under seal. In the case of a company or other corporation, it must comply its own constitutional requirements, for execution of a document as a deed.
A power of attorney did not need to be witnessed, although it was very desirable that it was witnessed, from an evidential perspective. Witnessing was not strictly necessary, provided the document was signed, sealed, and delivered.
Since the 2009 Land and Conveyancing reforms, deeds need not be sealed but must be witnessed and delivered. Where the attorney is not executed by the donor but at his direction, it must be signed in another person’s presence.
The 1996 Act makes special provision in the case of powers of attorney granted by companies to convey property. They may be signed and executed by the attorney/donee in his own name as such or may be executed by him as acting in the name of and on behalf of the company in the presence of one witness.
A company may grant a power to convey real property and a person so appointed by it may transfer the property in the name of the donor.
The Powers of Attorney Act now provides a certified copy, certified by a solicitor or a regulated stockbroker to be a true copy of the original, is sufficient evidence thereof.
A power of attorney is, as with any other agency, is revoked by the death, insanity and bankruptcy of the donor. It may be irrevocable if it is coupled with an interest on the part of the donee.
There are protections for third parties who act in reliance on a power of attorney, where they have no knowledge of it being revoked. The donee of a power who does not know of a revocation is not liable by reason of revocation.
If he knows of an event which legally causes revocation (e.g. death of the donor), he is deemed to be aware of it, irrespective of whether he knows the legal consequence of the event.
There are provisions protecting third persons dealing with parties who act under powers. Where a power of attorney is stated to be irrevocable and is granted to secure a proprietary interest of the donee or protect a performance of an obligation owed to the donee, then it is irrevocable as long as the interest or obligation remains undischarged. It is not automatically revoked on death, incapacity, or bankruptcy or winding up. These provisions apply retrospectively prior to the 1996 Act, which replaced the existing weaker protections provided for under the Conveyancing Act 1882.
It is presumed in favour of a purchaser that the third-party did not know of the revocation, provided a transaction between the donee and third-party was completed within a year of the date of the power or if it is outside of that period, that the third party makes a statutory declaration within three months of the purchase, that he did not know of revocation.