In the case that inspired this article, we represented the personal representative of the estate of “Mr. Smith” (a pseudonym) in connection with a large transaction that occurred shortly before Mr. Smith’s death.
Mr. Smith had granted to “Ms. Miller” (another pseudonym) a general power of attorney (POA), which gave Miller broad authority to act on Smith’s behalf. The POA also imposed on Miller the fiduciary duty to use the POA for Smith’s benefit and best interests.
See also: Doing the Job Right: Eight Key Duties of a Successor Trustee
(In this article, we will use certain terms for the parties to a POA: principal, which refers to the person who granted the POA, and agent, or “attorney in fact,” which describes the person to whom the POA was granted.)
On the day before Smith passed way, Miller, acting as Smith’s agent under the POA, wrote a $300,000 check on Smith’s bank account, endorsed the check, and deposited the check into her account. (Had she waited until Smith died, the POA would have automatically expired, along with her authority to act on Smith’s behalf.)
As Smith’s agent under the POA, Miller was in a position of trust and confidence and owed him fiduciary duties – including the duty of loyalty – that barred her from exercising that authority for her personal gain. In this instance, Miller committed a gross breach of fiduciary duty by endorsing to herself and depositing the $300,000 check.
Further, Smith’s reliance on Miller made Smith a “vulnerable adult,” which means Miller’s act of self-dealing qualified as “financial exploitation” under Arizona law. That statute, A.R.S. § 46-456, allowed Smith’s estate to seek treble (a lawyerly word for “triple”) damages, plus reasonable court costs and attorney fees.
"Presumed Illicit"
When a fiduciary agent uses their authority to enrich themselves at the expense of the principal, the transaction is presumed illicit – unless the agent can prove by clear and convincing evidence that they were carrying out the principal’s wishes as expressed under a sound mind.
In Miller’s case, no such evidence existed to exonerate her. As a consequence, it was not a question of whether she would have to make restitution to Smith’s estate, but how much she would have to repay. Under A.R.S. § 46-456, she could have been personally liable to Smith’s estate for over $1 million. She could also have faced criminal charges for her conduct and been added to the Elder Abuse Registry.
Facing those devastating consequences, Miller promptly repaid the amount she withdrew from Smith’s bank account, and the personal representative of Smith’s estate accepted the repayment as full satisfaction of Miller’s obligation.
We hope that the preceding account will provide a refresher for fiduciaries on how to live up to the responsibilities imposed them. If you have any questions about your fiduciary duties, or if you question whether a fiduciary is living up to the legal standards, please contact us at 480-345-8845.
