Authored by: Paul J. Sowell, Esq.
The recent case of Smith v. Mountjoy 694 S.E.2d 598 VA, 2010 sets forth the typical fact pattern encountered when agents abuse their position as power of attorney. In 2006, Mr. Smith executed a durable power of attorney naming his wife, Mrs. Smith, as his agent. Acting as power of attorney, Mrs. Smith created two revocable trusts, one for herself and one for her husband, each with different trust terms. Under Mrs. Smith’s Trust, upon her death the trust principal was to remain in further trust for her husband’s benefit. Under Mr. Smith’s trust, upon his death the trust principal was to pass outright to Mrs. Smith. On the day the trusts were created, Mrs. Smith, individually and as agent under the power of attorney, executed two deeds of gift conveying to each trust jointly held property of the couple. This was done without any explicit gift giving authority delegated under the power of attorney.
Mrs. Smith died unexpectedly in 2007. At that time, Mr. Smith became aware of what had transpired. Basically, Mrs. Smith had taken assets which Mr. Smith has owned outright and converted them to trust property which severely limited Mr. Smith’s control over the assets. Litigation ensued over the transfers and continued after Mr. Smith passed away in 2008. Ultimately, the Virginia Supreme Court found that the deeds transferring the properties to the trusts were invalid and void based on the fact that Mrs. Smith did not have authority under the power of attorney to make the gifts.
One could see in this case how potent a power of attorney may be. It is a very important document that clients and practitioners many times characterize as “ancillary” to the client’s core estate planning documents. In 2009, New York revamped the statutory power of attorney form which addresses many of the issues raised in the Smith case. For example, the new New York power of attorney requires that both the principal and the agent sign in front of a notary public. This forces the agent to acknowledge their fiduciary duties. The form also introduces a Statutory Major Gifts Rider (SMGR) which clarifies the gift giving authority, if any, delegated to the agent. We recommend that all clients review their current power of attorneys to ensure that they carry out there intentions and are up to date.