Powers of Attorney and Fiduciary Duty
May 1, 2009
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A recent Faquier County, Virginia, Circuit Court case illustrates the need for specific provisions in durable powers of attorney.
In Mountjoy v. Smith (Case No. CL8-300, February 26, 2009), the matter came before the court upon cross-motions for summary judgment. Mr. Smith’s executrix alleged that his wife, Evelyn Smith (now deceased), breached the fiduciary duty owed Mr. Smith under a power of attorney executed by Mr. Smith. The court issued an opinion in which it addressed the threshold question of the validity of the durable power of attorney (DPOA).
Mr. & Mrs. Smith were married in 1946 and remained married until their deaths. In May, 2006, Mr. Smith executed a DPOA naming Mrs. Smith as his agent. The DPOA did not include specific authority for the agent to create a trust, although the DPOA did have several paragraphs granting other specific powers. The DPOA also included two paragraphs with general grants of authority. Mr. Smith never directed Mrs. Smith to make an estate plan for him; however, Mrs. Smith arranged for two separate trust documents to be prepared, one for her, and one for Mr. Smith. Mrs. Smith executed both trust documents without her husband’s knowledge. The trusts were not mirror images of each other; the estate plan included transferring real properties into the trusts, changing the ownership of the properties from tenants by the entireties into tenants in common. Mr. Smith was unaware of these actions until two months after Mrs. Smith’s death; he then executed a document revoking the trust in his name that Mrs. Smith had established. Mr. Smith, through counsel, made a demand for alleged entitlements existing through Mrs. Smith’s trust.
The court’s analysis focused on the lack of specific authority in the DPOA for Mrs. Smith to set up an estate plan for Mr. Smith. Mrs. Smith’s estate argued that the specific powers in the DPOA to negotiate sums of money and enter into contracts, along with the DPOA’s general grants of authority, were sufficient authority for Mrs. Smith’s actions. The court stated that “The law in Virginia is that a power of attorney will be strictly construed” (citingBank of Marion v. Spence, 155 Va. 51, 53 (1930) and Horchkiss v. Middlekauf, 96 Va. 649 (1899).) Mrs. Smith’s executrix suggested that the Commonwealth has softened its stance on this issue in Jones v. Brandt Executrix, 274 Va. 131 (2007). The court stated that Brandt differed from the case at hand because Mrs. Smith created a trust in which she named herself as beneficiary of the trust if Mr. Smith died first, then changed the form of ownership of properties transferred into the trust. Mr. Smith was not the beneficiary of the trust she created for herself, if Mrs. Smith died first. Further, Mrs. Smith concealed her actions from Mr. Smith. She could have sought her husband’s approval for her actions, but did not. The court also found that Mr. Smith did not ratify Mrs. Smith’s actions; on the contrary, he terminated the trust Mrs. Smith created for him as soon as he learned of the trust. The court also found that Mr. Smith’s attempt to protect his property rights by demanding alleged entitlements from Mrs. Smith’s trust did not serve as ratification of her actions. The court held that Mr. Smith’s trust was void; this also invalidated the conveyance of the real properties to both trusts.
The attorneys at Oast & Hook can help clients with their estate, investment, insurance, long-term care, veterans’ benefits and special needs planning.
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