Breach of Fiduciary Duties under a Power of Attorney
Many agents may be unaware of their duties and limitations under a power of attorney. This is causing an increased amount of family disputes related to mismanagement of the principal’s funds, and a claim for breach of fiduciary duties.
The Commonwealth of Virginia has adopted the Uniform Power of Attorney Act. With the adopting came the codification of inherent duties, termed fiduciary duties, of an agent acting under a power of attorney. In general, these duties include, but are not limited to:
- Acting in accordance with the principal’s reasonable expectations, to the extent actually known, and, otherwise, in the absence of such knowledge, then in principal’s best interest.
- Acting in good faith and so as not to create a conflict of interest that would interfere with the agent’s impartiality.
- Acting within the scope of authority granted in the power of attorney.
- Act loyally for the principal’s benefit;
- Acting with the care, competence, and diligence ordinarily exercised by agents in similar circumstances, and, if selected as a result of special skills or expertise, acting with such care, competence, and diligence under the circumstances.
- Keeping a record of all receipts, disbursements, and transactions made on behalf of the principal.
- Attempting to preserve the principal’s estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal’s best interest. Based on things such as the value and nature of the property, foreseeable obligations and need for maintenance, minimization of taxes, and eligibility for a benefit or other program.
- Disclosing, upon request, receipts, disbursements, or transactions conducted on behalf of the principal.
The single-most common cause for complaint I see when disputes arise over a power of attorney is the lack of transparency for actions taken. In many circumstances, the agent has not maintained sufficient records and cannot properly disclose the actions taken by them upon request. This lack of transparency and failure to produce the disclosure as required often leads to the belief that the agent has not acted appropriately. While some cases may result in a finding that the actions taken were appropriate, a large number of cases reveal that there have been wrongdoings by the agent. These wrongdoings, intentional or not, are often are the result of not understanding what authority the agent has under a power of attorney.
Despite the provision in most powers of attorney that grants an agent authority to do all acts that a principal would otherwise be able to do, the Commonwealth has detailed a number of powers that, absent express authority, may not exercise. These powers include:
- Creating, amending, revoking, or terminating a trust.
- Making gifts.
- Creating or changing rights of survivorship or beneficiary designations.
- Delegating authority granted under the power of attorney.
- Waiving the principal’s right to be a beneficiary of a joint and survivor annuity.
- Exercising fiduciary powers that the principal has authority to delegate.
Even when a power of attorney provides for these special powers, there are additional limitations such as vesting interests in property to non-family member agents and gifting limits.
A failure to understand your duties as an agent and the specific provisions of your power of attorney can lead to lawsuit, which would essentially hold you personally accountable. Professionally-drafted documents will be tailored to the individual, and will often come with specific information to be provided to agents, so that they understand the scope of their authority. This advice and the ability to seek continued legal advice when treating business on behalf of your principal becomes paramount in your success as an agent and the ability to avoid costly litigation.
Ask Kit Kat – Laughing Gulls
Hook Law Center: Kit Kat, what in the world are laughing gulls?
Kit Kat: Well, this is not a made-up name at all. Their scientific name is Leucophaeus atricilla, which literally means “laughing gull.” Now to the casual observer, all gulls may look alike, but not so, especially in the warmer months and breeding season, when their colors change. The laughing gull is distinguished by its black head with light grey back and wings. The beak and inside of the mouth is bright orange. Quite a handsome specimen! It is considered a medium-sized gull, having a wingspan of a tad more than a yard. However, it is the sound it makes for which it is named. The writer of the newspaper article from which this information was taken, Dave Taft, says, “ Its rollicking call is as evocative of the summer beach season as the smell of Coppertone and salt air.” The laughing gull is mostly found along the coast from Nova Scotia to Venezuela. It has a particular fondness for the New York City area. Managers at Kennedy International Airport have to keep constant watch to keep runways clear of them. One of their largest colonies borders its runways.
The laughing gull is just not a pretty fixture along the coast. It actually helps to keep unwanted pests at a tolerable level. They love to consume ants, termites, beetles, and grasshoppers. So, they actually are quite useful! In this aspect, they contrast with their cousins—the herring gull and ring-billed gull—who like to scavenge from garbage or eat fish and eggs. Who knew the laughing gull could be so useful and entertaining, all at the same time! (Dave Taft, “Laughing Gulls, New York’s Handsome Scavengers,” The New York Times (NY Region/NYC Nature), May 25, 2017)
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