May 25, 2018
A general durable Power of Attorney granted by a person (“Principal”) to a designated attorney-in-fact (“Agent”) provides full power, authority and discretion to do all things required or permitted to be done in carrying out the purposes for which the Power of Attorney is granted as fully as the Principal could do if personally present (unless it is a Limited Power of Attorney granting specific limited powers to the Agent).
It is very important for the Principal to appoint an Agent that is trustworthy and who the Principal believes will fulfill his or her fiduciary obligations to the Principal. No matter how selective a Principal may be in appointing the Agent, there is always the possibility of the Agent abusing his or her fiduciary obligations.
Theft and Improper Asset Transfers.
There is no question that an Agent acting under a durable Power of Attorney has a fiduciary obligation to the Principal, which includes both the duty to act in the Principal’s best interest, and the duty not to use the relationship improperly for the Agent’s advantage. If an Agent transfers the Principal’s funds in a way that the Principal would not have wanted, the transfer seems abusive. Such a transaction may even rise to the level of theft. Many times there are cases where Agents use durable Powers of Attorney to extract money or assets from their Principals. If the Agent is not a family member or a close friend, it seems clear that transfers of assets to the Agent are abusive.
Most people name family members as their Agents. Determining whether a transfer is abusive becomes much more difficult in a family context. A family member Agent who transfers funds or other assets to himself or herself may believe that the Principal would have wanted the Agent to make the transfer.
Therefore, it is important for the Principal to discuss his or her wishes with the Agent regarding transfers, and to make sure that the Power of Attorney authorizes the Agent to make any desired transfers. If the Principal wishes the Agent to have the power to make only gifts that would qualify for the Federal gift tax annual exclusion, this limitation should be included as a provision in the Power of Attorney and also discuss it with the Agent.
Further, if a Principal does not want to grant the Agent authority to transfer assets, it is imperative that a provision be included in the general durable Power of Attorney restricting the Agent from making such transfers.
Interference With Principal’s Estate Plan.
An Agent may be faced with dealing with property that has been specifically disposed of in the Principal’s estate plan. This type of interference ranges from an act by an Agent performed with the specific intent to deprive a specific beneficiary named in the Principal’s estate plan to receive a gift, to a transfer made without thought of the Principal’s estate plan.
Remedies for Abuse.
Attorneys are often asked what remedies are available for abusive acts by Agents appointed in a durable Power of Attorney. In most cases, courts seem to agree that an Agent under a durable Power of Attorney is governed by some fiduciary standard.
It is possible that an improper transfer could be prosecuted as theft, and a court could order restitution to the Principal. Also, improperly transferred funds could be recovered through a civil lawsuit for breach of fiduciary duty. The funds may not be recoverable because the abuse cannot be proven, or because the Agent has dissipated the funds.