As more baby boomers are taking care of aging parents and are aging themselves and many families have children with special needs, a variety of planning strategies have come into use from power of attorney documents, to special needs trusts and joint accounts.

A recent and notable decision by the Virginia Supreme Court in Ayers v. Shaffer, 286 Va. 212 (2013) has thrown up caution flags for all those in a position of trust who are responsible for the assets of someone who relies upon them. While the decision to overturn the granting of a demurrer and remand the case for further proceedings may be correct given the circumstances, the statements published by the Court in making its rulings creates troubling ramifications for those who find themselves in positions of fiduciary responsibility.

In this case, the estranged great grandchildren and beneficiaries under a will of an elderly woman, Elsie R. Smith, accused her care givers, who were friends and neighbors and a sister of the decedent, of fraud and undue influence. The great grandchildren had not lived with their great grandmother for years and lived in a different state. As Elsie aged, she needed assistance and turned to her friends Toni and Bruce Shaffer. Elsie was 80 when her husband died and her health declined rapidly. She suffered from diabetes, dementia and other medical problems. The Shaffers provided continuous care for her. Just before her death, the Shaffers and Elsie’s sister took her to an attorney to execute a power of attorney which named Toni Shaffer as her agent and later took her to the same attorney to execute a last will and testament which referenced a contract which was also signed on that day. Under the terms of the contract, the Shaffer’s would provide care for Elsie and be paid $500 per week and would receive $8,000.00 for the prior four months. The agreement provided that the Shaffers would receive these funds from Elsie’s estate rather than during her life time. Additionally, Elsie’s sister and the Shaffers accompanied her to a number of banks where she engaged in various transactions such as making the Shaffers joint account holders and signing “pay on death” form. The overall result was that Elsie’s estate was depleted in excess of $400,000 to the financial benefit of the Shaffers.

The Shaffers filed a demurrer to have the lawsuit against them dismissed because they claimed that Elsie had capacity; knew to whom she wanted to give her estate and that she was competent and personally participated in the banking transactions in question. Moreover, the Shaffers did not use there role as agent and attorney-in-fact under the durable financial power of attorney to prompt any of the banking transactions.

In overturning the trial court’s granting of the Shaffer’s motion, the Supreme Court bypassed the technical argument that the power of attorney was not used to transfer the assets from Elsie’s accounts to the Shaffers. The Court stated that “A confidential relationship springs from any fiduciary relationship, and when such a relationship is found to exist, any transaction to the benefit of the dominant party and the detriment of the other is presumptively fraudulent”. The Court went on to say that a finding of undue influence can be supported by finding that either one party had great weakness of mind while the other obtained a bargain for grossly inadequate consideration or under some other circumstance of suspicion or that a confidential relationship existed at the time of the transaction which benefitted the dominant party.

By using phrases like “some other circumstance or suspicion”, the Court has created more uncertainty and burden on fiduciaries. In sum, whenever assets belonging to a person who relies upon another, such as a trustee, an agent in a power of attorney or generally someone in a fiduciary role, are transferred to the fiduciary, a presumption of fraud exists. This creates an even greater need for clear documentation and evidence of justifying each transaction which may even appear to benefit the trustee, caretaker or other fiduciary.  For more information Email our Office.