Suppose a daughter is her mother’s caregiver, all around business and medical manager and is her “power of attorney” and trustee of her living trust. Suppose Mom says “Honey, you are so helpful. I want to show you how much I appreciate it. Write a check for a thousand dollars to yourself.” What should the daughter do? The answer may surprise you.
I wrote in an earlier blog post, A Tale of Two Daughters, how a daughter ran afoul of the law when acting as her Mom’s power of attorney Agent and her Trust as Trustee. The post was based on a case decided in January by the Michigan Court of Appeals, LaForest vs. Swiss. Her siblings took her to court and got judgment of $134,152 against her. What part of the law did she fail?
I’m sure like most children the daughter thought she was “merely taking care of Mom’s business.” She might have said something like “Call me power of attorney, call me trustee. What difference does it make? I’m just helping my Mom.” Indeed most children of aging parents that I work with only see themselves as children doing what a parent wants or needs to be done. But in this context, titles do make a difference.
First comes a “fiduciary” relationship
Whether one is an agent under a power of attorney or trustee of a trust, the power given creates a legal “fiduciary relationship.” When that arises “the fiduciary has a duty to act for the benefit of the principal regarding matters within the scope of the relationship.” Prentis Family Foundation, Inc. v. Barbara Ann Karmanos Cancer Inst., 698 NW 2d 900, 266 Mich. App. 39 (2005). Part of the meaning is that an agent may not personally profit by handling the principal’s business. One might think that all that means is that the “fiduciary” need only do “what Mom wants.” We saw that was insufficient in the LaForest case.
In the elder law context a fiduciary relationship implies control over the elder that can sway the elder’s mind. Take a look at items one and two of the following definition of “fiduciary relationship”. It comes from a case by the Michigan Supreme Court:
“[a] relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships—such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client-require the highest duty of care. Fiduciary relationships [usually] arise in one of four situations: (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer.”
In re Estate of Karmey, 468 Mich 68, 73 (2003).
Then comes “undue influence”
Once the finding of a fiduciary relationship in the elder context is found, the next step of the presumption of undue influence comes easily
“A presumption of undue influence arises upon the introduction of evidence that would establish (1) the existence of a confidential or fiduciary relationship between the grantor and a fiduciary, (2) the fiduciary, or an interest represented by the fiduciary, benefits from a transaction, and (3) the fiduciary had an opportunity to influence the grantor’s decision in that transaction.”
In re Erickson Estate, 202 Mich. App. 329, 331 (1993).
Putting it together, if a child is a fiduciary, an agent or a trustee, of an aging parent and if a parent tells the child to do something with the parent’s property that benefits that child only, then it is presumed that the child caused the parent to make that decision. If other parties object, they can take the fiduciary to court, reverse the transaction and make the fiduciary pay for it.
What is the daughter/agent/trustee to do when a parent says to her “You are the only one who helps me and visits me. I want you to have . . . “
LaForest provides clear guidance in cases where the child is a trustee-beneficiary. Let’s hit a couple points. The creation of a trust creates interests in the “beneficiaries” and in the case of a family trust not only is Mom a beneficiary but the children are as well. That means that their approval may be needed for a transaction that is not detailed in the trust document.
A long quote from LaForest vs. Swiss, emphasizes the importance of following procedures when one is acting as trustee:
“As a co-trustee, appellant owed the beneficiaries [] a duty of loyalty provided for in MCL 700.7802(1) and (2), which state:
(1) A trustee shall administer the trust solely in the interests of the trust
beneficiaries.
(2) Subject to the rights of a person dealing with or assisting the trustee as
provided in section 7912, a sale, encumbrance, or other transaction involving the
investment or management of trust property entered into by the trustee for the
trustee’s own personal account or which is otherwise affected by a substantial
conflict between the trustee’s fiduciary and personal interests is voidable by a
trust beneficiary affected by the transaction unless 1 or more of the following
apply
(a) The transaction was authorized by the terms of the trust.
(b) The transaction was approved by the court after notice to the interested
persons.
(c) The trust beneficiary did not commence a judicial proceeding within
the time allowed by section 7905.
(d) The trust beneficiary consented to the trustee’s conduct,”
In summary, if a transaction may benefit a trustee there are three ways it may be approved: 1) if it is in the trust, 2) if the trust beneficiaries agree or 3) if a court approves.
While there is no such explicit requirement in the law for agents acting a power of attorney, the three options may be simply prudent in these cases as well.
I know that many elders would be outraged to learn that they have to ask permission of their children to make a gift. This problem is easily avoided by drafting a trust stating that the children are not vested beneficiaries and having the parent retain a “power of appointment.” The problem can be avoided in a power of attorney by granting the child-agent authority to “self deal.” However these fixes do open up the possibility of unreviewable actions by the agent/trustee who may be committing financial elder abuse, only to be caught when all the money is gone.
It is possible for a parent to reward the contributions of helpful child and not cause legal problems for the entire family.
What might an elder do who wants to give a significant benefit to a child “fiduciary”? First I must say that the elder should hire an attorney. What will the attorney do? He or she will make sure the elder is not being unduly influenced or coerced. A suitable legal document will be drafted recording elder’s reasons and consent to the action. Notice will be given to other children, if the elder consents, so that they may “speak now or forever hold their peace.”
Depending on the trust is written, consent may be needed from the other sibling-beneficiaries or approval sought from the probate court.
In the last analysis while an elder may retain the absolute right do what she wants with her property. How that is legally and safely done will depend on the individual circumstances and drafting the legal documents accordingly.
Once again we see that a “trust” or a “power of attorney” is not just a piece of paper but a legal document that creates legal relationships. If they are not drafted according to a client’s individual circumstances they can cause more harm than an elder would ever have contemplated.