Much of my practice involves assisting clients in settling the estate of a deceased loved one. I am sometimes hired to handle lawsuits involving estates, trusts, and claims of self-dealing by those in charge of a person=s estate assets. Even more of my time is spent advising clients in the planning of their estates and deciding who will receive their estate and equally as important, who they will choose to manage their affairs in their declining years. This is embodied in the decision by the elder granting someone, often an adult child, a power of attorney. As a holder of the elder=s power of attorney, that adult child of the elder becomes the elder’s agent (or, as I have referred to in this article, an agent-holder).
Powers of attorney are “durable” if the document states that it will not be affected by the future mental disability of the grantor. This means that the authority granted under the document a survives@ even if the grantor loses his or her mental faculties. Powers of attorney can take effect immediately, or can be a springing i.e. “spring” into effect upon the happening of a certain event. The “event” is often stated as the written opinion of one or more than one physician giving an opinion that the elder is no longer capable of handling their own financial affairs. Springing powers of attorney might seem more attractive in concept, since they lie dormant until needed, although there can be practical problems faced by an agent-holder when they seek to use such a document. This is because a bank or investment house might require varying degrees of additional documentation to prove that the “trigger” which allows the power of attorney to “spring” into effect, making the document useable.
Much has been written about the extent of the powers granted under a power of attorney. In a few states, holders of powers of attorney granted by elders are deemed automatically to grant certain “powers”, such as the authority of the agent to create a trust, make gifts and to pay themselves compensation. The general rule, however, in Massachusetts and most states is to the contrary. Unless specifically authorized in the document, the agent-holder of a power of attorney cannot assume they have implied authority or “power” to perform certain acts unless specifically stated in that document.
This was the case in Treat v. Executive Office of Health and Human Services, 76 Mass App 1121 (2010), where the Mass Appeals Court examined the use of a power of attorney to pay the agent-holder of a power of attorney for services claimed to be performed by the agent. The Court held that since the power of attorney document did not authorize compensation for the holder, then none could have been lawfully paid. The rule set out in Treat was consistent the long standing rule of law in Massachusetts that a power of attorney must be strictly construed and interpreted Wood v. Goodridge, 60 Mass. 117, 6 Cush. 117 (1850), Hoyt v. Jaques, 129 Mass. 286 (1880), and Williams v. Dugan, 217 Mass. 526 (1914). There is also a long-standing tax case ruling that a holder-agent of a power of attorney has no implied authority to make gifts of the grantor=s money to others (including himself) Estate of Casey v. Commissioner, 948 F.2d 895 (4th Cir. 1991). Similarly, in Goldstein v. Page, 78 Mass App 1113 (2010), the Appeals Court ruled that there was no language in the POA in that case expressly authorizing the making of gifts, and held the gifts made there were illegal transfers. Making gifts can often be a useful estate planning tool to reduce the size of an elder=s estate, which in turn reduces potential estate taxes when the elder dies. A properly drawn POA usually includes that power.
This long-standing legal principle puts the agent-holder of a power of attorney in a delicate and seemingly contradictory position. I have found that some clients over the years have the impression that the granting of a power of attorney to a relative, gives that relative expansive sometimes absolute rights and powers over the elder=s assets, while legally, the opposite may be the case.
The lesson, of course, is that it all depends upon how your power of attorney is worded. In most cases of course, the elder signing a power of attorney will want to give his/her holder-agent as much authority as possible in case the elder becomes seriously ill or loses their mental faculties.
Sadly, an inadvertent omission in a power of attorney document cannot be corrected if the elder becomes mentally incompetent. A legally incompetent person cannot create any legally binding documents, so from that point of view, it might be more prudent to make a power of attorney document as expansive as possible. Having said that, what about concerns that a power of attorney document may be too broad and the agent-holder may misuse their power?
The answer is that an agent holding an elder=s power of attorney has “fiduciary” responsibilities. Fiduciaries, for example, cannot legally perform any act in that role that would favor themselves at the expense of the elder. In fact, if a fiduciary is accused of undue influence or self-dealing, they have a heightened legal burden of proving the absence of wrongdoing. They must thus “prove a negative”, which is a difficult, even if not an impossible task. In the cases I have litigated, this legal principle has been a formidable legal weapon against a dishonest fiduciary.
In all cases, the best way to avoid inter-family conflict and litigation involving a power of attorney is, of course, full disclosure of information by the agent-holder and periodic consultation among all interested parties, even if this is technically not legally required. Thoughtful estate planning can also curtail potential disputes before they boil over into a formal dispute. Of course, if hostilities are open, raging, and beyond healing by simple discussion, then it is time to seek the shelter of competent legal advice.
My law practice continues to grow in the areas of estate administration & settlement, estate planning, tax planning, and estate and “fiduciary” litigation. I also represent clients in all types of real estate transactions and contract matters, as well as criminal, personal injury, and business litigation. My office at 5 Militia Drive in Lexington is a bright, attractive, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com/; you can also contact me electronically at email@example.com. You might also enjoy reading my Law Information Blog at http://www.georgefootepcblog.com/. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2013 and I wish you and yours good health, good times, and peace in 2014.
—— George E. Foote, J.D., L.L.M. in Taxation