Power of Attorney, Gifts and Self-Dealing

Power of Attorney, Gifts and Self-Dealing

A recent Mississippi court case examined the legality of an attempted transfer of jointly-owned bank CDs by use of a power of attorney and how transactions done through the use of such powers of attorney may be overturned where the law finds them to be improper.
Dorothy Johnson gave her daughter, Sheila West, a durable power of attorney. Sheila used the POA to remove her brother’s, niece’s, and nephew’s names from certificates of deposit originally created by Dorothy Johnson, and replaced them with her own name and the names of her two daughters.  Sheila’s brother, Ron Johnson, sued to set aside these amendments as an improper transfer of an inter vivos (that is, during Dorothy’s lifetime) gift. The chancellor ruled in Ron’s favor and required ownership of the CDs be returned to their original form. Sheila appealed.

Inter vivos gifts

To show that a valid inter vivos gift was given, a party must prove five elements by clear and convincing evidence: that the donor (giver) was competent to make a gift; that the donation was a voluntary act and the donor had the intent to make a gift; that the gift must be complete and not conditional; that delivery was made; and that the gift was irrevocable.  Delivery, either actual or constructive, is an essential element to an inter vivos gift’s validity.  There must be delivery of the property and the donor must surrender all dominion over it.  While Dorothy listed herself along with two additional names on the CDs in 2005, and Sheila then changed those CDs to include Dorothy and two different names in 2010, at no point did Dorothy relinquish her control or dominion over the CDs to the other two owners.  Rather, each party became a co-owner of the respective CDs.  Whenever a CD is titled in the names of two or more persons, payable to any of the persons named, it is presumed that those persons are owners of the account.  Each “depositor” is then able to treat the joint property as if it were entirely his own.  As a result, any individual owner, including Dorothy, had the authority to withdraw funds, liquidate, or reinvest any of their respective CDs at any time.  Mississippi Code Section 81-5-63 allows for deposits in the name of two or more persons to be withdrawn by just one of the named parties without the bank incurring liability.  Here, the 2005 and 2010 CDs at issue were owned jointly by Dorothy and a combination of her children and grandchildren.  This joint ownership allowed any named owner to withdraw the funds at any time.  Because Dorothy maintained her status as a CD owner, Sheila’s transfer did not create an inter vivos gift.  Therefore, Ron’s argument that Sheila made an inter vivos gift to herself and her daughters is unsupported by the applicable law.

Durable power of attorney

A durable power of attorney is a written document through which an individual gives another person the authority to act for the principal in accordance with the terms and conditions specified in the document.  As with other principal-agent relationships, the party trusted with the responsibility in the power of attorney owes certain duties to the principal.  The principal must perform all duties designated in the contract consistently with her role as a fiduciary.  Where the power of attorney authorizes the attorney-in-fact to sign financial instruments, contracts, or documents relating to personal property and to perform any act that ought to be done, changing the beneficiary on a CD is implicitly covered as a type of financial instrument.  However, this broad authority does not permit the attorney-in-fact to engage in undisclosed, self-dealing activities.  In 2005, when of sound mind and physical ability, Dorothy created the power of attorney and drafted her will.  Dorothy’s choice to appoint Sheila as her attorney-in-fact was a natural choice: at the time, Sheila already had assumed the role of caretaker in the family and was heavily involved in the care and support of her parents.  Through the witness testimony and other evidence, the record shows that at the time the changes in the CDs were made, Sheila was both Dorothy’s caregiver and her attorney-in-fact.
Sheila was properly tasked with managing Dorothy’s business and legal affairs, which she dutifully executed.  However, she managed her responsibilities to Dorothy without using the authority provided by the power of attorney until August 2010, when she employed the power to changed ownership of the CDs.  Dorothy’s power of attorney did not include a provision for gifts.  Nor did the document include a self-dealing clause, prohibiting or providing for the receipt of property or funds by the attorney-in-fact.  Because the document is silent on both, the CD revisions are reviewed under section 81-5-63, which provides that the creation of a certificate of deposit creates an automatic presumption of intent to give ownership to the persons named on the CD, whether living or as survivors.  Such presumptive title may be defeated upon proof of forgery, fraud, duress, or the unrebutted presumption of undue influence.  Although the tight bond a daughter and mother inherently share is not enough to make such a relationship confidential, the care and attention Sheila provided Dorothy engendered a specific sort of reliance and trust which can only be considered to be influential.  The parties described the relationship between Dorothy, Sheila, and her daughters in detail.  Prior to her final months, Dorothy frequently looked after Sheila by giving her moderate to large sums of money.  Because Sheila had gone through a divorce and then lost her second husband to a devastating brain hemorrhage, Dorothy was concerned for Sheila’s financial well-being.  Through the testimony provided, the chancellor recognized that Sheila had established a close bond with her mother that neither her brother Ron nor the other grandchildren had developed with Dorothy.  Dorothy relied upon, depended on, and trusted Sheila, creating a confidential, fiduciary relationship between Sheila and Dorothy, thereby raising a presumption of undue influence.  The record indicates the use and possible abuse of said confidential relationship/power of attorney to procure and execute transfers of certificates of deposit for the benefit of the attorney-in-fact and her daughters, suggesting that Sheila substituted her intent for Dorothy’s.  Sheila failed to show that her use of the power of attorney to amend the certificates of deposit met the elements of good faith.  The only individuals providing any evidence of Dorothy’s intent appear to be those who benefit directly from it.  Ample testimony and evidence was provided indicating that Dorothy remained in full control of her finances through her final days.  She undoubtedly was fully aware of her total assets and their general value at the time Sheila effected the transfers.  No testimony was provided regarding Dorothy’s knowledge that removing Ron and his children from the CDs would exclude them from a substantial portion of their inheritance.  Sheila failed to present clear and convincing evidence that Dorothy conferred with an advisor prior to instructing Sheila on the transfers.
Thus, the evidence showed that Sheila and Dorothy maintained a confidential relationship, that Sheila failed to rebut the presumption of undue influence by clear and convincing evidence, and she abused her authority under the durable power of attorney.  The Supreme Court upheld the Chancery Court’s ruling and required the CDs be returned to the original ownership.
WEST v. JOHNSON, NO. 2016-CA-00338-SCT https://courts.ms.gov/Images/Opinions/CO125549.pdf
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