Agent Transfers Assets To Self Despite Lack Of Gifting Power

MAY 5, 1997 VOLUME 4, NUMBER 44

When Martha and George Fairfield married, she was almost 50 years old. Still, they had another 30 good years together, living on Martha’s farm in rural Washington state, before a stroke incapacitated her in 1986.

George Fairfield consulted an elder law attorney in Washington, who told him that if he could get a court to approve transferring Martha’s assets to George, she should qualify for Medicaid assistance with her long term care (the rules have since changed, and the advice given then would not be the same today). The attorney drafted the documents necessary to start the court proceeding, but George later called and informed him that the proceeding would not be necessary.

Instead, George secured Martha’s signature on a power of attorney. A short time later, he signed documents changing the title on Martha’s farm in Washington, some land in North Dakota and telephone company stock (all of which had been in her name alone and owned by her when the Fairfields married) into his name.

The Fairfields’ neighbors, Isabel and Alton Priddis, and the Priddis’ four children proved to be very helpful to Mr. Fairfield over the next five years. They ran errands, helped him out on the farm, and regularly took him to town to visit Mrs. Fairfield in the nursing home. Recognizing their assistance, he either gave them all his assets outright or left them to one or more of the Priddis family in his will. Included in those transfers were all the property which had formerly belonged to Mrs. Fairfield.

George Fairfield died in 1991, while his wife was still being cared for in the nursing home and still receiving Medicaid assistance. Martha died about six months later, without ever having made out a will. Martha’s closest relative, a cousin named Ruth Heathcote, learned about Martha’s death over a year later, when the nursing home returned a Christmas card she had sent to Martha.

Ms. Heathcote filed a probate petition, and asked the Washington courts to invalidate the transfers of assets George had accomplished using the power of attorney. She alleged both that Martha Fairfield was incompetent at the time she signed the power of attorney and that George had no authority under the power of attorney to make gifts to himself.

The Washington Court of Appeals, in an unpublished opinion, has now ruled that the transfers to George (and George’s bequest of Martha’s property to the Priddis’) were valid. The Court ruled that Martha would be deemed competent to sign the power of attorney if she could “comprehend the nature, terms and effect of the contract in issue.” Noting that it must presume Martha was competent, the Court added that most of the evidence supported that conclusion in any event. The principal evidence suggesting that Martha was not competent, the guardianship petition prepared by a lawyer who had never met her and signed by George, was easily discounted because, the Court pointed out, George soon realized that a guardianship was not necessary if Martha signed the power of attorney.

Although the general rule is that powers of attorney do not empower the agent to make gifts of the principal’s property, the Court permitted the gifts in this case. First, the Court referred to a specific Washington law permitting such transfers. More importantly, however, the Court was persuaded by the fact that “the donative transfers at issue here actually benefited the principal by qualifying her for Medicaid.” Thus, it was easy to distinguish this case from another Washington case, in which the gifts by the agent had worked to the disadvantage of the principal.

The result: Martha’s power of attorney authorized George to transfer her assets to himself, and his later transfers to the Priddis family were valid. Martha’s cousin received nothing from her estate.Heathcote v. Priddis, January 3, 1997.

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