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Power of Attorney Agent Pitfalls
Power of Attorney Agent
Power of Attorney Agent Pitfalls
Traps Await Unwary Agents
By John B. Spitzer
The duties of an agent are set forth in 20 Pa.C.S. Section 5601. Among the agent duties set forth in that section are the agent’s obligations to: 1) keep a record of all receipts, disbursements and transactions made on behalf of the principal; 2) act so as not to create a conflict of interest that impairs the agent’s ability to act impartially in the principal’s best interest and 3) attempt 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 all relevant factors.
This article discusses a few significant cases, including a 2021 case, that show how courts have applied these statutory principles in specific circumstances. The cases illustrate the traps that await unwary agents and provide lessons for agents and their attorneys to consider in their efforts to reduce agent exposure to liability.
Standing to Request Agent Accounting
Under 20 Pa.C.S. Section 5610, courts have discretion to order agents subject to the provisions of 20 Pa.C.S. Chapter 56 to file accounts of their administration: An agent shall file an account of his administration whenever directed to do so by the court and may file an account at any other time. All accounts shall be filed in the office of the clerk in the county where the principal resides. The court may assess the costs of the accounting proceeding as it deems appropriate, including the costs of preparing and filing the account. (emphasis added). 20 Pa.C.S. § 5610 (2022).
Case law makes clear that a court may order an agent under a power of attorney to file an accounting even if a petitioner lacks standing to do so. In re Dardarian, 2013 Pa. Dist. & Cnty. Dec. LEXIS 292, *4, 29 Pa. D. & C. 5th 316, 320 (2013).
In Dardarian, an 82-year-old mother residing in a nursing home made a friend her power of attorney. According to the court, before executing the power of attorney, Dardarian executed a will in which she excluded her daughter and a later will in which she left her estate equally to her agent under the power of attorney (POA) and three other friends.
Almost two years after Dardarian named her friend as an agent under her power of attorney, her daughter petitioned the Chester County Orphans’ Court to order the agent to file an account of her administration of Dardarian’s finances. The court noted that the daughter did not disclose to the court when she filed her petition that she had fallen out of favor with her mother.
According to the court, Dardarian had executed a will in which she specified that her daughter was excluded. In a later will, Dardarian specifically excluded her daughter and grandsons from her estate.
Dardarian’s daughter filed a petition in the Chester County Orphans’ Court seeking an order requiring the agent under the power of attorney to file an accounting. The court noted that the parties had agreed that the agent would file an accounting and ordered that the agent file the accounting in compliance with local county rules.
The court said that there was no allegation in this case that Dardarian was not in possession of her faculties or that her mind had been imprisoned by the machinations of another. To the contrary, Dardarian made no accusations against her agent, filed a sworn affidavit affirming that she gave the daughter a significant gift, acknowledged an awareness that her agent was being paid $800 per week for services rendered to her under the power of attorney and expressed her overall satisfaction with the agent’s services, according to the court.
Discussing the issue of standing, the court concluded that any inquiry into the alleged misuse of a power of attorney is properly made by the principal, who granted the power, or by the personal representative of his or her estate after the principal’s death. The court further noted that for persons who have been adjudicated as incapacitated, their guardians succeed to the necessary standing to compel accountings.
Discussing precedents, the court stated that a beneficiary whose interest was allegedly damaged by the exercise of a power
of attorney has no standing to demand an accounting. Moreover, the court cited Rosewater Estate, 25 Fid. Rep. 2d. 83 (O.C. Mont. Co. 2005), which involved a challenge to an agent’s withdrawal of funds from a decedent’s trust, for the proposition that a close blood relative or an intestate heir of the principal does not necessarily have standing to demand an accounting from the principal’s agent.
In Rosewater Estate, stepsons of the decedent, Mrs. Rosewater, were remaindermen of a marital trust created in her will. The marital trust gave Mr. Rosewater “the unlimited right, fully exercisable at any time following my death, whenever and as often has he may wish, to withdraw as much of the principal as he may request in writing.”
Pursuant to a power of attorney, Mr. Rosewater’s agents, who were two of his children, withdrew all of the assets in the trust, which were valued at over $5 million, leaving nothing for his stepsons to inherit upon his death. The court said that had the withdrawal not been made, the stepsons would have received two-thirds of the assets.
Rejecting the stepsons’ petition on the basis of their lack of standing, the Rosewater court noted that any court-imposed surcharge would benefit the decedent’s estate, not the decedent’s late wife’s marital trust nor his stepsons. The Orphans’ Court held that the stepsons had no substantial, direct and immediate interest in any dispute over whether the decedent’s power of attorney agents acted appropriately by directing the withdrawal of funds from the marital trust.
Citing precedents, the court stated that the stepsons’ lack of a substantial, direct and immediate interest required that their petition be rejected on standing grounds. Accordingly, the Rosewater court held that the stepsons lacked standing to raise a breach of fiduciary duty claim and sustained the estate’s preliminary objections.
Relying on Rosewater, the Dardarian court rejected Dardarian’s daughter’s petition. But although the court rejected the daughter’s petition for an accounting, the court nevertheless ordered Dardarian’s friend and agent to file an accounting in the proper format for the court’s review.
Key Point: The court ordered the agent to file an accounting with the court despite the daughter’s lack of standing. This case illustrates that the Orphans’ Court has wide discretion to order an accounting even when a petitioner lacks standing.
Limits of Agent Power to Change Beneficiaries
In Estate of Newcomer, 121 A.3d 1127, Pa. Super. Unpub. LEXIS 881 (Pa. Super. Ct. Apr. 10, 2015) (unpublished), the Pennsylvania Superior Court affirmed an Orphans’ Court finding that the agent under a power of attorney attempted to deprive his father’s paramour of 28 years of an annuity specifically set aside for her through a purported beneficiary change.
Less than one year after Newcomer named his girlfriend as the sole beneficiary of an annuity, he executed a power of attorney that named his son his attorney in fact and agent. Soon thereafter, his son/agent executed a beneficiary change request form that removed the girlfriend as beneficiary of annuity proceeds and named himself and his brother as the beneficiaries of the annuity.
About five months later, Newcomer died testate. Later that year, his last will and testament was filed in the Fayette County Orphans’ Court.
That same year, Newcomer’s girlfriend petitioned the Orphans’ Court to issue a rule to show cause in an effort to recover approximately $40,000 in annuity proceeds that were payable on his death. According to the court, the annuity had originally named the girlfriend as the sole beneficiary.
The Orphans’ Court issued a rule directing the sons to show cause why the $40,000 annuity should not be paid to the girlfriend. According to the Superior Court, the Orphans’ Court had concluded that, despite the authority granted to the agent/son, pursuant to the power of attorney to make beneficiary changes, the son had engaged in deception and attempted to commit a fraud by improperly signing his father’s name on a beneficiary change request form.
fact pursuant to a power of attorney when he signed the form, but instead signed his father’s name with no indication that he had done so. The Orphans’ Court concluded that the son’s failure to sign the form properly made the beneficiary change request form a nullity.
Citing this agent misconduct, the Orphans’ Court ordered the annuity be paid to the girlfriend. The sons then appealed to the Superior Court, alleging, in part, that the beneficiary change form signed by the agent of the deceased was valid to change the beneficiary of the annuity.
Rejecting the son’s appeal, the court affirmed the Fayette County Orphans’ Court’s decision that the son/agent had engaged in deception. The Superior Court upheld the Orphans’ Court’s finding that, by signing his father’s name on the beneficiary change form without acknowledging he was signing pursuant to a power of attorney that had named the son as his father’s agent, the son had attempted fraud.
The Superior Court acknowledged that the power of attorney explicitly authorized the son/agent to change beneficiary designations. The court noted, however, that the son did not sign his name as an agent pursuant to the power of attorney, but instead simply signed his father’s name.
The court found that by signing his name, without designating himself as “Jr.” — as set forth in the power of attorney that gave him the authority to act for his father — and by failing to refer to the power of attorney — the son/agent disavowed the power of attorney as a source of authority.
Finding that the son tried to pass off his signature as his father’s, the Superior Court held that the son/agent had attempted to convert the annuity to an asset of his and his brother’s and failed to keep accurate records as to who actually signed the beneficiary change request concerning that asset. Based on that holding, the court concluded that the beneficiary change form signed by the agent of the deceased was invalid to change the annuity beneficiary. The court also concluded that the son/agent violated his fiduciary duty as an agent to carry out the wishes of his father.
Key Point: The Superior Court focused on whether the agent of the power of attorney signed his name as POA. The Superior Court’s opinion suggests that if the agent had inserted those three letters — POA — after his signature on the beneficiary change form, the agent’s actions would perhaps have been insulated from legal challenge.
Agent Surcharged for Conflict of Interest and for Actions Inconsistent with Estate Plan
The Pennsylvania Superior Court recently surcharged an agent for taking actions that were inconsistent with the principal’s estate plan. The court found that the principal had not authorized the agent’s actions with full knowledge of the relevant facts. In re Estate of Waite, 260 A.3d 143 (Pa. Super. Ct. 2021).
The Superior Court concluded that the record supported the trial court’s finding that the agent’s actions created a conflict of interest under 20 Pa.C.S. § 5601.3(b)(2). The Superior Court upheld the trial court’s decision to surcharge the agent for her conflict of interest.
Summarizing the case record, the court noted that the decedent, Eric Waite, had lived on a working farm with his wife. He and his wife, who had died earlier, had one daughter and two sons. One of the sons, James, married and later divorced the appellant in this case, who was Eric’s agent.
The court record indicated that Eric’s daughter-in-law called him to ask for help after she and James had a domestic dispute. After Eric picked her up, she lived with him and his wife at his farm for an undisclosed period.
According to the court, a few weeks after executing a will, Eric was admitted to the hospital. He was suffering from acute delirium resulting from severe dehydration.
A hospital social worker advised Eric that he could no longer live by himself, although the court said that he had apparently regained
Traps await unwary agents.
his mental faculties after the hospitalization. Eric moved in with his daughter-in-law and James while they searched for a long-term care facility, according to the court.
While living with his daughter-in-law, Eric signed a power of attorney naming her as his agent. According to the court, the drafter of the power of attorney was an experienced estate attorney who had prepared hundreds of powers of attorney, had spoken with Eric at some length before preparing the power of attorney naming his daughter-in-law as his agent and had determined that Eric had the capacity to execute the document.
The court noted that after drafting the power of attorney, at Eric’s direction, his daughterin-law took him to his credit union, where he asked the teller to remove his daughter and add his daughter-in-law as the power of attorney and designated beneficiary of his checking and savings accounts. The court said that the daughter-in-law did not join the discussion until after the account change card was completed.
After becoming a resident at a care facility, Eric sold his farm and equipment. At his direction, his daughter-in-law deposited the proceeds of that sale into his savings account, the court said. Soon thereafter, Eric executed a codicil to the will naming his daughter-in-law the executor of his will, with her husband James’ agreement.
The Superior Court noted that Eric’s daughter-in-law later divorced James, but never informed her father-in-law of the divorce, according to the trial court. The Superior Court focused on one key finding: Eric apparently never had the opportunity after that divorce to make a fully informed decision regarding whether he wanted to remove his former daughter-in-law as his power of attorney or as a one-third beneficiary of his estate.
After his father’s death, James learned that his former wife was the sole beneficiary of his father’s credit union accounts. During the Orphans’ Court litigation that ensued after Eric’s death, his daughter-in-law claimed that, pursuant to the Multiple-Party Accounts Act (MPAA), 20 Pa.C.S. §§ 63016306, she was legally entitled to all of the proceeds of her father-in-law’s credit union accounts.
The court noted that even though the daughter-in-law was a one-third beneficiary of the estate, the credit union accounts contained a significant amount of the estate. The court said that James had apparently testified credibly that had he known sooner that his former wife was his father’s designated beneficiary, he would have challenged the power of attorney and made sure that his father’s credit union accounts became part of his father’s estate.
Challenging the daughter-in-law’s actions as agent, the other two beneficiaries of the will, Eric’s daughter and James, filed a petition in the Orphans’ Court seeking, among other things, rescission of agent actions taken under the power of attorney. They claimed that the daughter-in-law, in designating herself as the beneficiary of the credit union accounts, engaged in unfair dealing, exerted undue influence over her father-in-law and violated her duties under the power of attorney.
The Superior Court noted that at the trial court hearing on the petition, counsel for the other beneficiaries examined the daughterin-law regarding the deposit of her father-inlaw’s funds into the credit union accounts and her failure to create a separate account. Rejecting the daughter-in-law’s procedural arguments, the Superior Court concluded that even if the other beneficiaries failed
to plead that the daughter-in-law breached the power of attorney based on a conflict of interest or commingling assets, the trial court was entitled to consider that evidence.
The Superior Court upheld the Orphans’ Court’s findings that the daughter-in-law understood that her being her fatherin-law’s sole beneficiary for a significant portion of his assets, namely the proceeds of the credit union accounts, was inconsistent with the three-part distribution plan of his will. According to the Orphans’ Court, the daughter-in-law knew that Eric planned to leave her a third of the assets and wanted to divide the other two-thirds of his estate between his son James and James’ sister.
The Superior Court also upheld the Orphans’ Court’s findings that the daughterin-law 1) failed to keep her assets separate from her father-in-law’s; 2) kept her status as the sole credit union beneficiary designation a secret from her then-husband James and his sister; 3) knew that, contrary to her father-in-law’s estate plan, her divorce from James would ensure that James would have no right to the proceeds of the credit union accounts and 4) favored her own interest in the credit union proceeds ahead of her father-in-law’s interests as expressed in his will.
Concluding that the record supported the Orphans’ Court’s finding that the daughterin-law had a conflict of interest, the court said there was no abuse of discretion or legal error in the trial court’s determination that she placed her own self-interest ahead of the interests of her father-in-law. The Superior Court therefore affirmed the Orphans’ Court’s decision to direct the daughter-in-law to restore the credit union accounts to her father-in-law’s estate for distribution as a surcharge for her conflict of interest.
Key Point: Agents may be subject to surcharge if they take actions: 1) without the full and informed consent and authorization of the principal, 2) that are inconsistent with the principal’s estate plan and 3) wherein the agent appears to have a conflict of interest with respect to those actions. Prudent agents should also take care to disclose all relevant facts that might reasonably affect decisions of the principal and explain and document any actions of the principal or agent that are inconsistent with the principal’s stated wishes and estate plan.
Conclusion
The case law concerning agent obligations illustrates at least three important points: 1) the Orphans’ Court has wide discretion to order an accounting even if no petitioner with standing requests an accounting; 2) power of attorney agents must determine the extent of their authority and comply with the statutory formalities when acting as agents; and 3) agents who are found to have received a financial benefit by having placed their interests above those of their principals may be surcharged. ⚖
John B. Spitzer, a Pennsylvania attorney based in Merion Station, works for Scribe Inc., which offers editorial and production services to a wide range of legal, religious and association publishers. The views expressed in the article are personal.
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