A terminally ill parent wants to ensure their children are provided for after death. They sign a power of attorney document that includes instructions about placing lawsuit proceeds “in trust” for their children’s benefit. The parent dies that same day. The question then becomes whether those handwritten instructions actually created a trust—or merely gave someone the power to create one later.
This distinction matters in probate administration. If a trust was created, the lawsuit proceeds bypass probate entirely and go directly to the named beneficiaries under the trust terms. If no trust exists, those proceeds remain part of the decedent’s estate and must follow normal probate procedures. The answer hinges on understanding how Texas law treats statutory durable powers of attorney and what it takes to actually create a trust.
The court addressed this scenario in Hardy v. Robinson, 170 S.W.3d 777 (Tex. App.—Waco 2005). The case provides an opportunity to examine how courts interpret the intersection of powers of attorney and trust creation—and why careful drafting matters so much when time is short and stakes are high.
Facts & Procedural History
Anthony contracted Hepatitis A from contaminated food at a Jack-in-the-Box restaurant. His health deteriorated rapidly after he filed a personal injury lawsuit against the restaurant chain. As Anthony considered entering hospice care and was considering his estate plan, a nurse provided him with a statutory durable power of attorney form to facilitate the transfer.
Anthony signed the power of attorney on the day he died. He designated his sister, Robinson, as his agent. The document contained standard statutory language granting broad powers over property and financial matters. However, Anthony also included special instructions in a section of the form designated for that purpose.
The special instructions stated that Anthony wanted to continue with the Jack-in-the-Box lawsuit. The instructions further provided that proceeds from any settlement or payment should be placed in trust for the benefit of his two sons, Clinton and Anthony Jr. Finally, the instructions expressed Anthony’s desire that Robinson be appointed trustee of this trust.
Robinson handwrote these special instructions based on Anthony’s dictation. Anthony died later that same day without creating any separate trust document. The question then arose: did these special instructions actually create a trust, or did they merely authorize Robinson to create one using her powers as agent?
The trial court in Ellis County determined that the power of attorney created a trust. The court named Anthony’s two sons as beneficiaries and Robinson as trustee. The court further held that the trust property consisted of the personal injury lawsuit pending in Henderson County. Anthony’s adult son Clinton and his ex-wife Karen (acting as next friend for their minor son) appealed this determination. They raised several issues challenging whether any trust had actually been created.
Understanding their challenge requires examining what Texas law requires for both powers of attorney and trust creation.
Statutory Durable Powers of Attorney Under Texas Law
The Texas Estates Code establishes specific requirements for a durable power of attorney. The statute defines these instruments precisely to ensure clarity about when an agent’s authority survives the principal’s incapacity. A durable power of attorney must designate another person as attorney-in-fact or agent. It must be signed by an adult principal. The document must contain specific language showing the principal’s intent that the authority shall continue despite subsequent disability or incapacity. Finally, the principal must acknowledge the document before an officer authorized to take acknowledgments.
The Texas Legislature has promulgated a statutory form that satisfies these requirements. This form includes a prominent notice warning that the powers granted are “broad and sweeping” and advising principals to obtain competent legal advice if they have questions. The statutory form lists various categories of powers that can be granted. It also includes a section for special instructions where the principal can limit or extend the agent’s powers.
When a principal uses the statutory form, the document has the meaning and effect prescribed by the statute. The validity of the power of attorney is not affected simply because the principal struck certain optional powers or added specific limitations or additions to the agent’s authority. This flexibility allows principals to tailor the statutory form to their specific needs.
However, this flexibility does not mean the document becomes something other than a power of attorney. The instrument remains subject to the rules governing construction of powers of attorney. These rules exist to protect principals and third parties from overreaching by agents.
How Texas Courts Interpret Powers of Attorney
The Texas Supreme Court established foundational principles for interpreting powers of attorney over a century ago. These principles remain controlling today. The court held that general words in a power of attorney must be restricted by context and construed accordingly. More importantly, the authority granted must be construed strictly to exclude any power not warranted by the actual terms used or as necessary to execute the authority effectively.
This strict construction rule differs markedly from how courts interpret wills or deeds. While wills receive liberal construction to effectuate the testator’s intent, powers of attorney receive strict construction to protect against unauthorized exercises of authority. The rationale stems from the principal-agent relationship. An agent acts on behalf of the principal during the principal’s lifetime. The principal retains ultimate control and can revoke the authority at any time. Courts therefore construe ambiguities against finding that the principal granted expansive powers.
The nature and extent of authority granted must be determined from the instrument itself. Courts cannot rely on extrinsic evidence of what the principal supposedly intended if that intent is not clearly expressed in the document. This rule protects both principals and third parties who must rely on the four corners of the document when dealing with agents.
These principles apply with full force to statutory durable powers of attorney. The fact that the Legislature has provided a form does not diminish the need for strict construction. If anything, the prominent notice in the statutory form warning about broad powers reinforces the need to construe the document carefully.
What Powers Does the Statutory Form Actually Grant?
The Durable Power of Attorney Act contains numerous sections describing specific powers that can be granted to an agent. Two provisions proved particularly relevant in this case. Section 500 of the Texas Estates Code confers general authority with respect to claims and litigation. This provision allows an agent to pursue legal claims on behalf of the principal. It enables the agent to hire attorneys, negotiate settlements, and take other actions necessary to prosecute or defend lawsuits.
Section 499 addresses trusts differently. It empowers the attorney-in-fact to act for the principal “in all matters that affect an already existing trust.” The key word is “existing.” The statute contemplates that the principal has already created a trust through some other mechanism. The agent can then deal with that trust as the principal could have done—making distributions, dealing with trustees, or handling trust property. However, the statute does not appear to authorize the agent to create a new trust on behalf of the principal.
This limitation makes sense when considering the principal-agent relationship. Creating a trust requires the settlor to manifest an intent to create a trust and to actually transfer property to fund it. These are intensely personal decisions that go beyond mere property management. Allowing an agent to create trusts on behalf of a principal would effectively permit the agent to redirect the principal’s estate plan. Such a significant power should require crystal-clear language.
The statutory form’s section for special instructions allows principals to expand or limit the agent’s powers beyond the standard categories. A principal could theoretically grant an agent the power to create a trust through carefully drafted special instructions. However, such instructions would need to clearly and unambiguously convey that intent.
Did Anthony’s Special Instructions Create a Trust?
The Court of Appeals began its analysis by determining what type of document Anthony had signed. The court examined the four statutory requirements for a durable power of attorney. The document designated Robinson as Anthony’s agent. Anthony was an adult when he signed it. The document stated it was not affected by subsequent disability or incapacity. A notary properly acknowledged Anthony’s signature. Therefore, the document was unquestionably a statutory durable power of attorney subject to strict construction.
The court then examined Anthony’s special instructions using the strict construction principles. The first sentence stated Anthony’s desire to continue with the Jack-in-the-Box lawsuit. The court interpreted this language as identifying a specific lawsuit that Robinson would have power to pursue as Anthony’s agent. This fell squarely within Section 500’s grant of authority over claims and litigation.
The second sentence proved more problematic. It stated that proceeds from settlement or payment “should be placed in trust” for Anthony’s sons’ benefit. The third sentence expressed Anthony’s desire that Robinson “be appointed trustee” of this trust. The trial court read these sentences as actually creating a trust. The Court of Appeals disagreed.
Applying strict construction, the appellate court found that the language demonstrated an intent to give Robinson the power to create a trust. The words “should be placed” and “be appointed” were future-oriented. They described what should happen with lawsuit proceeds if and when Robinson recovered them as Anthony’s agent. They did not purport to immediately create a trust or transfer any property.
The court noted that Anthony already had the power under Section 500 to pursue the lawsuit. The special instructions confirmed this power with respect to the specific Jack-in-the-Box case. The instructions then went further by authorizing Robinson to do something she could not otherwise do under Section 499—create a new trust with lawsuit proceeds. This was an expansion of the agent’s standard powers, which the statutory form explicitly permitted.
However, an expansion of the agent’s powers differs fundamentally from the principal’s exercise of those powers. The special instructions gave Robinson authority to create a trust. They did not constitute Anthony’s creation of a trust himself. This distinction proved dispositive.
What Does Texas Law Require to Create a Trust?
The Texas Property Code establishes requirements for creating enforceable trusts. As a general rule, a trust in either real or personal property must be evidenced by written terms bearing the settlor’s signature or the signature of the settlor’s authorized agent. This writing requirement protects against fraudulent claims that someone created a trust when they did not.
However, the statute contains an important exception for trusts of personal property. Such trusts can be created without a writing if the trust is created “by a transfer of the trust property to a trustee who is neither settlor nor beneficiary if the transferor expresses simultaneously with or prior to the transfer the intention to create a trust.” This exception allows for creation of oral trusts through actual delivery of personal property coupled with contemporaneous expression of trust intent.
Three elements must be satisfied for this exception to apply. First, the settlor must actually transfer the trust property to someone who will serve as trustee. Second, that trustee cannot be the settlor or a beneficiary. Third, the transferor must express the intention to create a trust either simultaneously with or before the transfer occurs.
The Property Code defines “property” broadly to include choses in action, claims, and contract rights. A personal injury lawsuit therefore qualifies as personal property that could theoretically be held in trust. However, the statute also provides that a cause of action can only be sold through a writing. This requirement affects whether and how a lawsuit can be transferred to fund a trust.
Did Anthony Orally Create a Trust by Transferring the Lawsuit?
The trial court made specific findings that Anthony verbally transferred all rights in the lawsuit to Robinson to be held in trust for his sons’ benefit. The court also found that Robinson accepted title to those rights to hold in trust. These findings would satisfy the elements for an oral trust if supported by legally sufficient evidence.
The appellants challenged these findings through a no-evidence point. Under Texas law, such a challenge can be sustained only in limited circumstances. The record must show a complete absence of evidence of a vital fact. Alternatively, rules of law or evidence must bar consideration of the only evidence offered. The evidence might be no more than a mere scintilla. Or the evidence might conclusively establish the opposite of what the trial court found.
When reviewing no-evidence challenges, appellate courts must credit favorable evidence if reasonable fact finders could do so. Courts must disregard contrary evidence unless reasonable fact finders could not accept it. If the appellate court sustains a no-evidence point, it must render judgment for the appellant rather than remanding for a new trial.
Robinson’s testimony provided the sole evidence supporting the trial court’s findings. She testified that she understood the power of attorney to convey the lawsuit to her to hold in trust for Anthony’s sons. However, the Court of Appeals found this testimony insufficient to establish an actual transfer. Robinson’s understanding of what the document meant differed from evidence that Anthony actually transferred the lawsuit to her.
The court noted that nothing in the record showed Anthony saying anything beyond what appeared in the special instructions. Those instructions expressed what should happen with lawsuit proceeds. They did not constitute a present declaration that Anthony was transferring the lawsuit itself. The distinction matters because a power of attorney operates differently than a transfer of property.
When someone executes a power of attorney, they authorize an agent to act on their behalf. The principal retains ownership of their property. The agent merely has authority to deal with that property as the principal’s representative. By contrast, when someone transfers property to a trustee, legal title actually passes to the trustee. The settlor no longer owns the property. The trustee holds it for the beneficiaries’ benefit.
Anthony’s execution of the power of attorney did not transfer the lawsuit to Robinson. It gave her authority to pursue the lawsuit as his agent. This authority terminated upon Anthony’s death, as the statute expressly provides. Therefore, no transfer occurred that could satisfy the requirements for an oral trust.
Could the Property Code’s Writing Requirements Be Avoided?
The appellants also argued that a writing was required to transfer the lawsuit even if Anthony had intended to create an oral trust. The Property Code requires a writing for sale of a cause of action. The question became whether transferring a lawsuit to fund a trust constituted a “sale” requiring written documentation.
The Court of Appeals did not need to resolve this question definitively. The court had already determined that no transfer occurred. However, the opinion raised the issue to highlight potential obstacles to creating trusts of lawsuits through oral declarations. The writing requirement for selling causes of action might preclude oral creation of trusts funded with lawsuits even when oral trusts would otherwise be permissible.
The court also noted another problem with treating the lawsuit as trust property. Nothing in the record established whether the personal injury claims could even be assigned or transferred. Texas law does not permit all types of lawsuits to be assigned. Courts must examine several factors to determine assignability. These include the words of any relevant statute, the statute’s purpose, common law principles, and whether assignment might increase or distort litigation.
For example, the Texas Supreme Court has held that claims under the Deceptive Trade Practices Act cannot be assigned from the aggrieved consumer to someone else. The personal and punitive nature of such claims makes them non-assignable. The record contained no evidence of what claims Anthony asserted against Jack-in-the-Box or whether Texas law permitted those claims to be assigned. Robinson therefore failed to establish that the lawsuit could serve as trust property even if Anthony had attempted to create a trust.
Why Intent to Create Must Be Distinguished from Intent to Authorize Creation
The Court of Appeals emphasized the fundamental distinction between creating a trust and authorizing someone else to create a trust. When a principal grants an agent power to create a trust, the principal is not manifesting present intent to create that trust. The principal is instead planning for possible future trust creation by the agent using property that might be acquired.
This distinction aligns with basic trust law principles. A trust requires present intent by the settlor to create the trust relationship. Future or conditional intent does not suffice. Saying “I want property placed in trust” differs from saying “I hereby place property in trust.” The former expresses a desire for future action. The latter accomplishes the present creation of a trust.
Anthony’s special instructions clearly fell into the first category. He expressed his desire that lawsuit proceeds “should be placed” in trust and that Robinson “be appointed” as trustee. These phrases are precatory and future-oriented. They describe Anthony’s wishes about what should happen, not what he was presently accomplishing through the power of attorney.
Moreover, the context supports this interpretation. Anthony was executing a power of attorney—a document designed to authorize an agent to act on his behalf. The natural reading of instructions in such a document is that they describe what powers the agent has and how the agent should exercise those powers. Reading the special instructions as actually creating a trust would require ignoring this context.
The Court of Appeals cited a recent case from the Houston Court of Appeals for additional support. In Ritter v. Till, that court stated that an agent acting under a power of attorney cannot have the requisite intent to create a trust. The power under Section 499 to deal with existing trusts does not appear to allow the agent to create new trusts and transfer property to them. This principle reinforces that trust creation is a personal act by the settlor, not something typically delegated to an agent.
The Takeaway
The Hardy decision underscores that creating a trust requires more than expressing a desire that property be held in trust. Texas law demands clear evidence that the settlor manifested present intent to create the trust relationship and either transferred property to fund it or declared themselves trustee. Precatory language about what “should” happen with property does not accomplish trust creation—even when that language appears in a legal document executed shortly before death.
The case particularly matters for those involved in probate administration and estate planning. Clients facing serious illness often want to make last-minute arrangements for loved ones. Powers of attorney can be useful tools for ensuring someone can manage assets during incapacity. However, they are not substitutes for comprehensive estate planning that includes properly drafted trusts or wills. When a principal wants to create a trust, they must do so through documentation that clearly manifests present intent and satisfies statutory formalities. Authorizing an agent to create a trust later is not the same as creating one now—and that distinction can determine whether property passes according to the decedent’s wishes or must be administered through probate litigation.
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