A recent case examined the issue of when the fiduciary duty begins for an agent who has been given Power of Attorney, as reported by the Chicago Daily Law Bulletin in the article “Presumed power of attorney fraud is main factor in joint-account fight.”

Soon after moving to Illinois from Florida to live with his eldest son, a man and that son opened multiple bank accounts, purchased certificates of deposit (CDs) from a bank where the son’s wife worked and transferred more than $60,000 from two of the man’s Florida bank accounts to Illinois banks. Soon after the man moved, his eldest son deposited more than $300,000 from the sale of his father’s Florida condominium into one of the father’s Illinois bank accounts.

The eldest son then withdrew money from the father’s accounts to pay for home improvement costs and other personal expenses. After the father died, the eldest son’s two brothers sued their older brother, accusing him of initiating numerous transfers of money that were not in their father’s or their best interests, and of exerting undue influence on their father, by convincing him to change his will after he moved in with the oldest brother.

The trial court ordered the older brother to repay more than $900,000 back to the estate, including almost $300,000 in prejudgment interest, and voided the revised estate planning documents that the older brother had his father sign. That included a revised will, trust and power of attorney that favored the older brother.

Once you are appointed as a power of attorney, you become a fiduciary—that is how most state laws work. That means you must act first in the interest of the person who has appointed you. The law states that an agent owes a fiduciary duty to the principal. Period. Any transactions that favor the agent over the principal (or their estate) are deemed fraudulent, unless the agent is able to disprove the fraud with clear and convincing evidence that his or her actions were undertaken in good faith and did not betray the confidence and trust placed in the agent. If the agent can meet this burden, the challenged transaction may be upheld. But if it does not, then the transaction is not valid.

Some of the facts the court look at when making this determination are: did the fiduciary make a full disclosure to the principal of key information, did the fiduciary pay the fair market value for the transfer and did the principal have competent and independent advice.

In this case, the trial judge found that the multiple transfers into the Illinois banks and the gift of $130,000 from the principal to the oldest brother occurred during the existence of the POA relationship. The oldest brother clearly benefitted from these transfers, which activated the presumption of fraud.

The trial court’s decision was appealed by the older brother, who along with his two younger brothers brought motions for summary judgment, that is, for the appeals court to disregard the decision of the trial court. However, the appeals court agreed with the trial judge that the older brother failed to prove that the transfers were in good faith.

The appeals court makes it clear: the power of attorney fiduciary relationship begins when the power of attorney agent signs the document and the agent has a legal responsibility to put the interests of the principal first.

Reference: Chicago Daily Law Bulletin (April 23, 2020) “Presumed power of attorney fraud is main factor in joint-account fight”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys