In Texas, power of attorney litigation often arises from the situation in which authority to take legal action is given to a person who is lacking in any formal training in the legal field or who will succumb to temptation when he or she does not think they are accountable for their actions. Such a person may invite a power of attorney dispute as they are unable to handle the responsibilities of the task according to Texas law. Should you find yourself in the circumstance of seeing a loved one’s estate being mismanaged, the following article will serve as a primer on ways to resolve power of attorney disputes under Texas law.
Many people in Texas are serving, or will serve, as attorney-in-fact for a friend or family member at some point. The fiduciary relationship created by a Durable Power of Attorney or Medical Power of Attorney is one of the most common fiduciary relationships that we encounter, yet it is the one that is the most often abused. A Durable Power of Attorney is a written instrument that authorizes a third party to manage someone else’s financial affairs. This instrument remains effective even if the person signing the instrument becomes disabled or incompetent after signing it, thus making it “durable.”
There are two main parties to the durable power of attorney:
- The Principal–the person who delegates the management of his or her financial affairs to the Attorney-in-fact.
- The Agent or Attorney-in-fact–the person who has the power to act on behalf of the Principal. The Attorney-in-fact owes the Principal fiduciary duties.
Durable Powers of Attorney present numerous potential disputes that play out in the probate courts. In the most common factual scenario, a parent has given one child a power of attorney to manage the parent’s financial affairs. The child may become secretive about his or her actions, or engage in suspicious transactions without the parent’s consent or authority. Many cases like this will involve other friends or family members expressing concerns about the Attorney-in-fact acting improperly. Common suspicious transactions include, but are certainly not limited to:
- Obtaining financial benefit from the parent through an alleged agreement between the Attorney-in-fact and the parent;
- Obtaining financial benefit from the parent through an alleged gift from the parent to the Attorney-in-fact;
- The Attorney-in-fact changing the beneficiary designations, or “payable on death” provisions on bank accounts;
- The Attorney-in-fact attempting to change the parent’s estate plan, re-write a will or alter a trust;
- Negligently managing or wasting the parent’s property;
- Paying the parents debts and expenses in such a way so as to intentionally deplete specific assets to frustrate the parent’s estate plan or get “even” with another sibling.
Many different kinds of evidence may need to be gathered in cases dealing with disputes involving Durable Powers of Attorney.
The Power of Attorney
First and foremost, it will be necessary to obtain the instrument that grants authority to the Attorney-in-fact. One of the most simplest methods to attack an Attorney-in-fact’s suspicious transactions is to examine whether the Attorney-in-fact is authorized to perform the particular transaction in the first place. Transactions that exceed the scope of authority given to the Attorney-in-fact are voidable, and can be undone.
Suspicious transactions may also be voided if the Principal was mentally incompetent when the transaction or gift occurred. This strategy is applicable any time an Attorney-in-fact may not have directly participated in the transaction or otherwise used the power of attorney to act on the Principal’s behalf. In this case, it is often necessary to obtain and review the parent’s medical records. Unless the Principal has given a HIPPA release or Medical Power of Attorney to the person questioning the Attorney-in-fact’s actions, obtaining the Principal’s medical records can typically require a Subpoena, meaning that a formal lawsuit is sometimes unavoidable.
Documents and Witnesses
Finally, suspicious transactions may also be voided if the Attorney-in-fact cannot prove the fairness of the transaction. Whenever an Attorney-in-fact engages in self-dealing transactions with a Principal, a presumption of unfairness arises, that shifts the burden of persuasion to the Attorney-in-fact to show that the transaction was fair and equitable to their Principal. Many times, a simple budget showing the Principal’s limited resources and current financial needs will show that a transaction benefiting the Attorney-in-fact was unfair to the Principal.
The main advantage of rescinding or avoiding a specific transaction is that it allows the Principal to recover any consideration paid or expenses incurred. Voiding the transaction may also help restore the Principal’s estate and preserve the Principal’s original estate plan. Recovering the property is especially important where the typical attorney-in-fact is “judgment proof,” or unable to pay for the damage that they have cause.
One of the major problems in dealing with a rogue Attorney-in-fact is the fact that many people lack the requisite legal standing to challenge the Attorney-in-fact’s actions. This bewilders many people. Usually, only the Principal has the authority to demand an accounting or otherwise file suit to recover property. If the principle is still alive, then as a prerequisite to taking legal action against the Attorney-in-fact, it will usually be necessary to establish a guardianship on behalf of the Principal.
Once established, the legal guardian will have the power to pursue claims on the Principal’s behalf against the Attorney-in-fact. The appointment of a permanent guardian automatically terminates the Attorney-in-fact’s power to act under the power of attorney. An emergency proceeding, called a temporary guardianship, may also have the same effect.
Usually the claims against the Attorney-in-fact are resolved through the guardianship proceeding, either by settlement or court order. If the Principal is deceased, the legal representative of the Principal’s estate will have the requisite legal standing to pursue claims against the Attorney-in-fact for their prior acts. There are exceptions to this rule that would allow other persons to file suit against the Attorney-in-fact if the Attorney-in-fact is also the legal representative of the estate.
Obtain Effective Legal Counsel
If you, or someone you know, is serving as an Attorney-in-fact, there are many preventative measures that you can take to avoid potential disputes. First, if you have questions regarding your legal duties or your scope of authority, you should retain a lawyer immediately. In our experience, many legal battles involving Durable Powers of Attorney could have been avoided if the Attorney-in-fact had retained legal counsel at the outset.
Document, and Keep Assets Separate
Second, the Attorney-in-fact, upon first acting for the Principal, should consider preparing a formal inventory of all assets belonging to the Principal, their values, and for each financial account, whether the account is held in a right of survivorship, POD, or in a trust account. In addition, the Attorney-in-fact should keep excellent records, such as receipts, cancelled checks, and any other back up documentation for ALL expenditures. A formal accounting from this information should be prepared annually. The Attorney-in-fact should NEVER commingle the Principal’s property (especially the Principal’s cash) with his or anyone else’s property.
This article covers a lot of territory, but gives you the basics you need to understand the intricacies of power of attorney litigation under Texas law. While it serves well as a beginning for your education on the topic, it cannot take the place of the advice of a lawyer who is experienced in Texas power of attorney litigation. If you need to investigate the subject of power of attorney disputes under Texas law further, please use the supplied contact information on this page to reach one of Texas estate, probate, or trust dispute attorneys for a no charge initial phone consultation. We are Dallas-based, but serve clients throughout North Texas and from Waco to Abilene to Amarillo to Wichita Falls to East Texas, and everywhere in between.