APRIL 26, 2010 VOLUME 17, NUMBER 14 A power of attorney is one of the most important, powerful and dangerous documents you will ever sign. Why is it important? Because your family has no inherent right or power to handle your finances in the event that you become incapacitated. Why is it dangerous? Because it is literally a license to steal.
Of course the agent named in your durable power of attorney is not supposed to steal from you. In fact, he or she can go to jail for doing so. But the whole point of the power of attorney is to make it easier for someone to handle your finances without court oversight, and without having to answer to banks or others. Too often agents abuse those powers of attorney.
So why is it important for you to sign a power of attorney? Because the alternative is, for most people, even more disturbing. Your family members and even your most trusted advisers are not able to handle your bank accounts, pay your bills, buy or sell property or protect against abuses by others — unless you have given them authority to do so in an appropriate document. That usually means a power of attorney.
There are alternatives, of course. You could create a living trust, name a successor trustee and transfer your assets into the trust. That may make it a little bit easier for your successor to handle your assets, but it does not provide any additional protection. You could simply add a trusted person to the title on each of your accounts — but that provides even fewer safeguards, and exposes your property to claims leveled against the now-joint owner of your assets.
Or you could simply hope never to need anyone to act on your behalf. Then when someone needs to act they will have to go through the process of securing a conservatorship over your estate (what some states call a guardianship of your estate). That provides better protection, but perhaps at a greater cost than you want to incur — and it means the court, rather than your family member or trusted adviser, having the ultimate authority.
That is why almost everyone we counsel ends up signing a durable power of attorney. That is also why it is so critical to make sure you have selected your agent carefully, warned them about the limitations on their authority, and provided them enough information so that they can act appropriately.
In addition to the danger inherent in powers of attorney (they can literally be licenses to steal) there can be another problem with the documents in practice. For at least some transactions (especially gifts) the use of a power of attorney is often viewed with suspicion, and even clear intentions can become murky.
Austin Stephens, a widower with two children, wanted to transfer his home into his daughter’s name. The evidence indicated that he understood what he was doing, that he wanted to make the gift and that he participated in the transfer. But after his death his son objected to the fact that the deed had actually been signed by Mr. Stephens’ daughter using a power of attorney, rather than by Mr. Stephens.
After Mr. Stephens’ wife died in 1988, his daughter Shirley Williams helped take care of him. His only other child, son Lawrence Stephens, moved out of town shortly after Mrs. Stephens’ death, and though he remained emotionally close to his father he was physically distant. After Lawrence Stephens moved out of town Austin Stephens signed a durable power of attorney, giving his daughter Shirley the power to handle his finances.
As Mr. Stephens’ glaucoma worsened his daughter began to take care of his affairs even more than before. Two years later, he decided he wanted to give the family home to her, and he instructed her to sign the deed for him—his advancing blindness made it too hard for him to do so himself.
After the deed was signed Mr. Stephens had several opportunities to confirm that it reflected his wish. He spoke with a neighbor and longtime friend, explaining that he had given the home to his daughter. He acknowledged the gift when someone from the County Recorder’s office called to ask if he really meant to make the transfer. Months later he visited his own brother and confirmed that he had taken the steps to “disinherit” his son.
Nonetheless, after Mr. Stephens’ death his son moved to bring the home back into his estate so that it would be divided between the two children. He argued that the fact that Shirley used her power of attorney to benefit herself was inherently suspect, and that she should be required to show that she actually had the power to make the transfer. The probate court refused to void the transfer, but the California Court of Appeals, though reluctantly, ordered the property returned.
The California Supreme Court has now ruled with Shirley in upholding Mr. Stephens’ transfer of the home. Although Shirley did not have the power to give herself the property using the power of attorney, ruled the state high court, Mr. Stephens’ repeated ratifications of her actions made the transfer valid. Estate of Stephens, July 25, 2002.
In Arizona the result likely would have been different. Arizona law is very clear about the use of powers of attorney to make a gift, and any such power must be clearly listed in the power of attorney itself. Furthermore, the power to make a gift (along with any other power that might be used to benefit someone other than the person signing the document) must be separately initialed by the person giving the power and witnesses. Unless Mr. Stephens’ power of attorney included those provisions, its use to make a gift of the home would probably have been invalid in Arizona.
Family members and caretakers are often confused by the difference between powers of attorney and guardianship. The difference is straightforward: powers of attorney can be signed by competent adults giving authority to someone else to act—including, but not necessarily limited, to those times when the signer may later become incapacitated. Guardianship and conservatorship, on the other hand, are court proceedings that may be initiated when a person no longer has capacity to sign documents such as a power of attorney.
A previously executed power of attorney should ordinarily avoid the need for instituting guardianship proceedings. For several reasons, avoiding court action will usually be desirable.
The high cost of guardianship and conservatorship actions makes the relatively inexpensive power of attorney look like an attractive alternative. When an individual signs a power of attorney, he or she also selects the individual who will act as agent; a guardianship proceeding leaves that choice up to the court. Once court proceedings are invoked, it will usually be necessary to file accounting and personal information with the court (and make it a public record) every year thereafter.
Despite the existence of a validly executed power of attorney, however, court proceedings sometimes are initiated. In a recent Florida case, for example, distant relatives of an elderly woman filed a guardianship petition; her husband and step-daughter already held a power of attorney. When the court denied their petition for guardianship, the relatives appealed.
The Florida Court of Appeals upheld denial of the guardianship petition. The court noted that Florida law strongly favors imposition of the least restrictive form of control over the lives of incapacitated adults, and decided that recognizing the validity of the power of attorney satisfied that requirement.
The Florida couple had been married eighteen years, their assets were modest and there was no indication that the agents under her power of attorney had misbehaved in any way. Given those facts, said the court, the guardianship petition should be dismissed, giving effect to the woman’s choice of agent and mechanism for managing her personal and financial decisions. Smith v. Lynch, July 24, 2002.
The result would probably be the same in Arizona. Though our statutes lack the strong language preferring the least restrictive alternative, courts almost universally apply the same principle. If there had been any indication of wrongdoing by the agents under the power of attorney, of course, the result likely would have been different. Court supervision, though expensive, at least gives some assurance that proper decisions will be made.
One way to help assure that you will not receive unwanted medical care is to sign an advance medical directive. Every U.S. state now recognizes health care powers of attorney (sometimes called health care proxies) or living wills. Nearly all states recognize both types of documents. Often, however, the decision whether to initiate or continue life-sustaining medical treatment must be made for patients who have signed no documents at all.
Most states now permit family members to make some—or even all—health care decisions for patients who have not signed advance directives. Sometimes those powers are limited; in Arizona, for instance, family members do not have the inherent power to refuse or remove feeding tubes.
When patients have not signed any kind of advance directive, however, the likelihood increases that an unhappy result will occur. Take the case of Engracia Torregosa Garcia as an example.
Ms. Garcia experienced cardiac arrest in July of last year. Although she was resuscitated she had suffered irreversible brain damage, and she fell into a chronic vegetative state. Doctors agreed that there was no hope of recovery, but Ms. Garcia could be kept alive for months or years on a feeding tube.
Because there was no prospect for improvement Ms. Garcia was transferred to hospice. Her mother, brothers and sisters immediately objected to her care in hospice, though, because the feeding tube was removed. The case ended up in court in Tennessee, where Ms. Garcia was being treated.
Nearly four months after her accident the trial court ruled that Ms. Garcia’s feeding tube could not be removed. State law permits anyone to sign an advance directive authorizing withdrawal or withholding of a feeding tube. The judge reasoned, however, that the same law prohibits removal of a feeding tube from a patient who never got around to signing any directive.
In the course of the proceedings the court had appointed an attorney to represent Ms. Garcia, and her attorney and the hospice program both appealed. The Tennessee Court of Appeals reversed the trial judge’s holding, and authorized the removal of her feeding tube. The evidence was clear, ruled the Court of Appeals, that Ms. Garcia would not have wanted to be kept alive in her current condition; the Tennessee legislature did not have the power to compel her to accept treatment just because she had not signed a particular form in advance. Juan-Torregosa v. Garcia, May 7, 2002.
The result in Ms. Garcia’s case would probably strike most people as correct. As is often the case with stories reported in Elder Law Issues, however, that result was not reached without considerable expense and delay—which could have been avoided with proper planning.
Alaskan Lillie M. Rahm was in her early nineties when she first met handyman Robert Riddell, then in his mid-sixties. Their friendship grew quickly, and Mr. Riddell moved in with Ms. Rahm within a few months. Two years later friends and relatives instituted legal proceedings that lasted well past Ms. Rahm’s death.
When Ms. Rahm revoked a power of attorney naming her daughter as agent and transferred some of her money into a joint bank account with Mr. Riddell, her daughter began to ask questions about her mother’s finances. Ms. Rahm seemed to be confused and Mr. Riddell refused to allow her access to any information, so Ms. Rahm’s daughter filed a conservatorship petition. Four days later Mr. Riddell and Ms. Rahm were married.
That did not stop the legal proceedings, however. After a hearing the public guardian was appointed as Ms. Rahm-Riddell’s conservator. Shortly after that a domestic violence complaint was filed, alleging that Mr. Riddell physically attacked and verbally abused his wife. The public guardian moved her to an assisted living home in Washington; Mr. Riddell found her, removed her from the facility and took her to Oregon to live with him. He refused to reveal her whereabouts despite court orders; Ms. Rahm-Riddell died in Oregon in 1997.
It turned out that Ms. Rahm-Riddell had signed two wills after meeting Mr. Riddell. The first, signed shortly after their meeting, left her home, its contents and one-fourth of the rest of her estate to Mr. Riddell. The second, signed in Oregon just a few months before her death, left her entire estate to Mr. Riddell.
Ms. Rahm-Riddell’s family asked the Alaska courts to admit an earlier will to probate and Mr. Riddell objected. He insisted that the last will she signed was valid, and he demanded a jury trial as to her competence to make the will. Her daughter and brother argued that she was not competent at the time, that Mr. Riddell had unduly influenced her, and that the matter should be tried without a jury.
The Alaska court refused to grant a jury trial and ultimately ruled that only the will signed before Mr. Riddell’s appearance on the scene was valid. Mr. Riddell appealed to the Alaska Supreme Court.
The general rule in Alaska (as it is in Arizona) is that civil matters are decided by the judge unless there is a specific statute or the common law (the rules predating statehood) authorizes a jury. Since will contests were unknown to the common law and no statute permits it, Mr. Riddell’s demand for a jury trial was properly denied. Furthermore, said the Court, the evidence was clear that Ms. Rahm-Riddell could not correctly identify the individual involved in her life at the time the will was executed. Mr. Riddell’s wills were struck down. Riddell v. Edwards, October 5, 2001.
Like many seniors, Robert Anderson signed a financial power of attorney, giving his daughter and son-in-law power to manage his financial affairs. He may have understood that the power of attorney would avoid the necessity of court proceedings to appoint a conservator if he became incapacitated. Having a power of attorney, as it turned out, was not an effective way to avoid court involvement.
At first Mr. Anderson appointed his son Sam as his agent. Mr. Anderson’s estate was large, and so for two years Sam used the power of attorney to make gifts of his father’s property to himself, his sister Barbara, and both his and his sister’s children.
When Sam died unexpectedly, Mr. Anderson signed a new power of attorney. This time he named his daughter Barbara Lasen and her husband Paul as agents. Barbara and Paul continued to make gifts from Mr. Anderson’s property for the next two years—but now Sam’s children were excluded. In addition Barbara and Paul used Mr. Anderson’s residence and vacation home without paying any rent. Nothing in Mr. Anderson’s power of attorney permitted gifts, but Barbara and Paul insisted that they had discussed the gifts with Mr. Anderson and he had agreed.
Sam’s two daughters finally decided that enough was enough, and they filed a conservatorship petition. They asked the court to appoint a local bank to act as Mr. Anderson’s conservator. Barbara and Paul objected, arguing that no conservator was necessary because Mr. Anderson had given them the power of attorney. They also argued that they had priority to act as conservator if the court decided appointment of a conservator was appropriate.
The trial judge decided that Barbara and Paul had overstepped their authority as agents, and appointed a local bank as conservator. Barbara and Paul appealed.
The Nebraska Supreme Court agreed with the lower court. Barbara and Paul did not have the authority to make gifts because there was no specific language in the power of attorney. Once they violated their duties as agents under the power of attorney it was entirely appropriate to appoint an independent conservator to consider what steps to take—including possible action against Barbara and Paul for return of the money they had wrongfully taken from Mr. Anderson. Besides, Barbara and Paul had already shown that they were not trustworthy protectors of Mr. Anderson’s assets. Conservatorship of Anderson, June 22, 2001.
The result would likely have been the same under Arizona law. As in Nebraska, an Arizona agent may not make gifts using a power of attorney unless the authority to do so is clearly spelled out in the document (and, in fact, separately initialed by the principal). Mr. Anderson would almost certainly have had a conservator appointed if he lived in Arizona.
Fae Powell had given her nephew Jackie Powell a power of attorney so that he could handle her financial affairs. Mr. Powell used that power of attorney to change over $600,000 worth of bank CDs into “payable on death” status, naming himself and other nephews and nieces as beneficiaries. Ms. Powell’s will, however, left her estate to her sister and others. Did Mr. Powell have the authority to make those changes in his aunt’s estate plan?
The question posed to the Nebraska courts was actually more complicated than that. In most states it is clear that a power of attorney does not give the agent (sometimes also referred to as the “attorney-in-fact”) authority to make gifts unless there is a specific provision in the document. But is changing accounts so that they pass automatically on death to someone else really a gift? After all, no transfer would occur until after Ms. Powell’s death, so it could be argued that her agent had made no gifts.
Ms. Powell’s situation was further complicated by her nephew’s insistence that she had specifically instructed him to make each change, and that he was simply signing her name to actions she was really directing herself. Of course, it would be difficult for him to prove that she gave him such instructions, unless she did so in the presence of neutral observers.
Ms. Powell’s sister Eleine Hampshire did not believe that Mr. Powell was carrying out the decedent’s instructions. She pointed out that if the changes had not been made she would have inherited nearly $80,000 from Ms. Powell’s estate, and so she sued Mr. Powell for fraud.
The Nebraska Court of Appeals threw Ms. Hampshire’s case out of court. The justices decided that the action should have been brought by Ms. Powell’s estate against her attorney-in-fact, and that Ms. Hampshire could not sue directly for the loss to the estate. Never mind that Mr. Powell was named as personal representative of the estate—that problem would have to be solved by someone seeking to disqualify him from serving in the probate court. Ms. Hampshire had simply filed her lawsuit improperly. Hampshire v. Powell, May 8, 2001.
The Nebraska court’s decision, based as it is on procedural grounds, fails to answer the underlying question: does an agent under a power of attorney have the authority to change beneficiary designations on accounts, life insurance and the like? Other cases have decided the question differently, depending on the individual facts in each instance. It would certainly be better to have the change in beneficiary designations signed by the individual herself, rather than by the agent. In Arizona the law is a little clearer: unless the power of attorney gives express authority to make such changes (and the authority is separately initialed on the form), they are probably invalid.
Maria Isabel Duran was a devout Jehovah’s Witness. The 34-year-old New York woman believed, along with most members of her faith, that the Bible prohibits transfusions of blood or blood products, even when life is threatened.
Ms. Duran also needed a liver transplant operation. Her faith does not teach that organ transplants are prohibited, and so Ms. Duran searched for a medical facility that would recognize her medical and spiritual needs. She learned that the University of Pittsburgh Medical Center had performed transplants on Jehovah’s Witnesses without transfusions.
Knowing that her husband did not share her religious convictions, Ms. Duran took precautions to ensure that she would not receive blood transfusions. She named a friend as her agent for health care decisions, and her health care power of attorney included strong language making her refusal clear. “I absolutely, unequivocally and resolutely refuse homologous blood (another person’s blood) and stored autologous blood (my own stored blood) under any and all circumstances, no matter what my medical condition,” wrote Ms. Duran (the provisions in bold print here were in bold in her original power of attorney).
Immediately after the 1999 transplant Ms. Duran’s body began to reject her new liver, and her condition declined precipitously. She lapsed into a coma, and her health care agent was called upon to consent to a second transplant operation. Before that operation Ms. Duran’s physicians decided that she needed an immediate transfusion.
Presumably realizing that Ms. Duran’s health care agent would refuse permission for a blood transfusion, her husband instead filed an emergency guardianship proceeding with the Pennsylvania courts. An attorney was appointed to represent Ms. Duran, and her physician, husband and sister all testified to the need for a blood transfusion. Her health care agent was not notified about the legal proceeding. After a brief hearing the judge approved transfusions. Ms. Duran’s health care agent objected, but transfusions continued during the ensuing legal maneuvers. Ms. Duran died three weeks later.
Despite the death of Ms. Duran her health care agent pursued an appeal of the order permitting transfusions. Recognizing that the situation could arise again, and that it was important to have some legal resolution of the dispute, the Pennsylvania Superior Court accepted jurisdiction of the case.
That court ruled that the crystal-clear language of Ms. Duran’s health care power of attorney should have been enforced. Furthermore, Ms. Duran’s health care agent was entitled to be notified of the proceedings and defend her wishes in court. Although Ms. Duran did not survive the operation or the legal proceedings, her case reinforces the right of patients to control their own treatment. In Re Duran, February 21, 2001.
Suzanne C. Pruitt died in 1994 from complications related to her Alzheimer’s disease. At the time of her death her estate was worth over $1.4 million. The IRS argued that it should have been $120,000 more than that, and that the estate should pay just under $50,000 more in taxes.
For years before her death Ms. Pruitt had made regular gifts to her children and grandchildren. In 1992, for example, she had given $185,000 to her three children and another $70,000 to grandchildren. The reasons for her generosity were clear: she wanted her offspring to enjoy the money immediately, and she wanted to reduce the size of her estate to limit the amount of tax due at the time of her death.
In 1987, and again in 1992, Ms. Pruitt had given her daughter Sandra Thompson a durable power of attorney to handle her financial matters. As it turned out it was good she had done so, since Ms. Pruitt lost the ability to manage her own affairs by 1993. In that year, Ms. Thompson had to decide whether to continue her mother’s pattern of making gifts of her property.
Using the power of attorney Ms. Thompson did give away some of her mother’s property in 1993, but she only transferred $10,000 each to Ms. Pruitt’s three daughters and their husbands. The next year she did the same thing, and Ms. Pruitt died a month after the last transfers of property.
When the estate tax return was filed, the IRS had no problems with gifts made by Ms. Pruitt herself before 1993. The tax authority did object to gifts made using he power of attorney, however. The agency argued that the powers of attorney did not include express language authorizing Ms. Thompson to give away her mother’s property, and so the gifts were incomplete. Since Ms. Pruitt could theoretically have filed a lawsuit to set aside the gifts and secure a return of the property, they should be included in her estate for tax purposes, insisted the IRS.
Ms. Pruitt’s children disagreed, and appealed to the United States Tax Court. They argued that Oregon law does not require any special language in a power of attorney to authorize gift giving, and that the transfers were effective to reduce Ms. Pruitt’s estate.
The Tax Court was particularly impressed by the history of gifts made by Ms. Pruitt while she was still competent, and the testimony of her attorney that he had advised her to continue to make gifts. The Court ruled that Ms. Pruitt’s estate did not owe the additional tax. Estate of Pruitt v. Commissioner, September 12, 2000.
The Pruitt decision would provide no comfort to an Arizona taxpayer in a similar situation, however. Arizona law is clear: a power of attorney does not authorize gifts unless the power is clearly spelled out and separately initialed by the principal and witnesses.
Lucille Lucareli had three sons: Les Lee, Leigh and Robert. She owned her home in Racine, Wisconsin, and not much else. In 1996 she gave her son Les Lee a durable financial power of attorney, and she also took some steps to plan for the possibility that she might have to move to a nursing home at some point.
The problem facing Ms. Lucareli is a common one. Although she could qualify for Medicaid assistance with her long-term care if she did move to the nursing home, the state would begin to accumulate a claim against her estate. After her death, the state’s claim could prevent her sons from receiving the family home, or at the least could mean that they had to pay off her nursing home costs before the home could be transferred to them.
Ms. Lucareli could qualify for Medicaid assistance while still owning the home, since federal law requires that the state not count the value of the home in determining eligibility. On the other hand, if she gave the home outright she would be ineligible for Medicaid help for up to three years.
Ms. Lucareli decided to take advantage of a popular planning technique: she transferred her home to her sons immediately, but retained the power to change her mind later and exclude one or more sons. She did this by retaining a “power of appointment” over the home, exercisable by a written instrument any time before her death. This approach, she thought, would get the home out of her estate (so Medicaid would not have any claim against it), but not affect her Medicaid eligibility. In Arizona, many practitioners use another similar technique, preparing a deed which retains both a life estate (that is, the power to reside on and use the property for the life of the original owner) and a power of appointment. A similar approach is sometimes referred to as a “Lady Bird” Deed in some states.
There were at least two problems with Ms. Lucareli’s approach. First: she didn’t actually complete the transaction herself; her son Les Lee signed the deed on her behalf using his power of attorney. Second: according to the court decision rendered this week, Wisconsin law does not recognize this type of power of appointment.
A month after the transfer of Ms. Lucareli’s home, she apparently became unhappy with her other two sons. In September, 1997, she signed a document exercising the power of appointment and removing sons Leigh and Robert from the home title, and leaving the home to Les Lee alone. Upon her death Les Lee sued his brothers, asking for a ruling that the property was his alone. The trial court disagreed, holding that the transfer was invalid and the power of appointment meaningless. The Wisconsin Court of Appeals ordered that the property be divided into three equal shares. Lucareli v. Lucareli, May 17, 2000.
The significance of the Lucareli case is broader than the family squabble between brothers. This decision casts doubt on one of the most popular and effective mechanisms for protecting the family home against future nursing home costs. It is not yet known whether the same result will be reached in Arizona or other states.
