02 Apr I AM NOT MY SISTER’S KEEPER – JUDGE PERMITS AGENTS UNDER THE POWER OF ATTORNEY TO MAKE OFF WITH $5.576 MILLION TO THEMSELVES
A Massachusetts court of appeals has recently ruled that a gift of $5.576 million dollars by agents to themselves under a power of attorney was made in good faith.
Frances Fern had a roller coaster relationship with her 4 children – Frank, Tony, Chris and Tracey. Her daughter, Tracey, was estranged from her mother for many years – especially after 1987 when Frances verbally and physically abused Tracey. Frances was saddened that Tracey limited access to Tracey’s children – which were the only grandchildren of Frances. Although Tony and Chris also had some periods of estrangement from their mother, they became crucial for her support in year 2001. In 2002, Frances executed a will whereby the vast majority of her estate passed to Tony and Chris and made them her agents under her power of attorney.
In 2012 after she fell and became hospitalized, she started talking more with Tracey and wanted Tracey to take care of her. After Tracey bad-mouthed her brothers, Frances retained a new attorney and revoked her current will, health-care proxy and power of attorney and executed a new will in which Tracey was the primary beneficiary of the estate which exceeded the estate tax limit for Massachusetts. Frances also signed a new durable power of attorney (which included gifting authority) naming Tracey as the agent and Tracey’s husband as the alternate. At the time, she was upset with Tony and Chris as she claimed that they tried to declare her incompetent. However, later that year her relationship with Tony and Chris was restored.
In 2013, Frances executed a new will whereby Tony, Chris and Tracey got equal shares of her estate (she did not maintain a relationship with Frank). Tracey did not contest that will after her mother died in 2018. Frances also executed a new financial power of attorney in 2013 that named Tony and Chris as her agents. The power of attorney permitted the agents “to make outright gifts of my property to or for the benefit of such persons, who in the opinion of my attorney (the agents) would be the donees I may choose.”
Later in 2013, Frances’ relationship with Tracey had again soured. Frances discussed gifting with Tony and she realized there could be a “large tax savings” by making a gift. She advised Tony she was more concerned with who would take care of her when she was older and didn’t need the money rather than gifting. Tracey only visited her mom once in 2014 and never visited her again due to their toxic relationship and Frances’ dementia.
Tony and Chris started making large gifts in 2016 prior to the Presidential election over concern that if Hillary Clinton was elected that the amount that could be gifted and the Federal estate tax limit without estate taxation could be reduced. They also consulted with a tax professional who advised that gifting would result in substantial savings on the Massachusetts estate tax. At the time of the gifts, Frances no longer had mental capacity.
Tracey sued her brothers after her mom died with the claim that the power of attorney did not give them the authority to make gifts to themselves (self-dealing). As an alternative, she claimed that even if there was authority to self-deal, that Tony and Chris breached their fiduciary duty contrary to Frances’s donative intent. Tracey argued that without language that specifically permitted self-dealing, it would be a breach of fiduciary duty of the agents.
Frances’ power of attorney permitted gifts to “persons who, in the opinion of my said attorney (agent), who would be donees I may choose.” At the time of the gifts, Tony and Chris were taking care of their mother while Tracey hadn’t seen her due to their strained relationship.
The court looked at the Uniform Power of Attorney Act which permits a gift to an ancestor, spouse, or descendant of the principal (Frances). The Act has a requirement that if the agent makes a gift to himself, then the agent has a burden of proving the transaction was advantageous for the person for whom he was acting. The court determined that Frances believed gifting could be advantageous to her (estate tax savings) and made in accordance with that standard. The court determined that “Frances’s clear intent, expressed in unambiguous language, was to authorize Tony and Chris to make gifts of her property, to those persons who, in their opinion, would be the donees [she] may choose.” The judge determined that Tony and Chris discussed gifting with Frances and her accountant in 2013 and the tax savings resulting therefrom. Frances didn’t say when the gifts should be made, but she did state that gifts could be made when she was older and didn’t need the money (she died with an estate that exceeded the estate tax limit). She entrusted Tony and Chris to make that decision if she couldn’t act. Her only concern was who was with her in her old age and Tracey should not be rewarded as she was no longer a part of her life. At the time of the gifts, Tony testified that Frances had “sufficient assets to last the rest of her life without touching the principal.” Frances was 94 years old at the time of the gifts. The court also noted Frances did not like paying taxes and the possible change in the amount to be given during life and at death legitimized the transfers that resulted in the reduction of taxes to be paid under Massachusetts estate tax laws. The judge concluded that if Frances was competent at the time of the gifts, she would have done the same thing that Tony and Chris did. As a result, there was a determination the gifts were made in good faith.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.