Can a person who is an attorney-in-fact pursuant to a power of attorney gift the principal’s property to himself or herself absent express language permitting such gifts in the instrument creating a power? Or should a power, unless it contains very clear language on the subject, never be construed as having invested the attorney with authority to appropriate the principal’s assets?
In a recently settled case, a woman had obtained a power of attorney from her brother-in-law while he was on his deathbed in the hospital, Sikorski v. Sikorski (N.J. Super. Ct. Law Div., No. L-91-5174). Although the power made no mention of gifting, the woman used the power to withdraw the principal’s money from his bank accounts and cash in his certificates of deposit so that the funds could be deposited in her own and her husband’s own bank accounts before the principal’s death.
The principal died intestate. After the principal’s death, his estate and the other beneficiaries of the estate, who were the decedent’s other brother and two sisters, filed suit for return of the decedent’s assets.
The woman testified at deposition that the decedent had told her in private during his final hospitalization that he wanted all of his money to go to the woman’s husband and not to any of his other siblings. According to the woman, the decedent instructed her to obtain a power of attorney to do “what she had to do” to effect his plan. The issue arose as to whether the woman’s gifts to herself and her husband were invalid as a matter of law.
Courts in some states have held that attorney-in-fact may not make gifts to themselves unless there is clear intent in writing from the principals allowing the gifts. McCarter v. Willis, 383 S.E.2nd 252 (S.C. App. 1989); Fletcher v. Mathew, 448 N.W.2nd 576 (Neb. 1989). The rationale for this written requirement was set out by the court in Fender v. Fender, 329 S.E.2nd 430, 431 (S.C. 1985):
(W)e hold today any purported oral authorization was ineffective. The power to make any gift must be expressly granted in the instrument itself… It is for the common security of mankind…that gifts procured by agents…from their principals, should be scrutinized with a close and vigilant suspicion. Therefore, in order to avoid fraud and abuse, we adopt a rule barring a gift by an attorney-in-fact to himself or a third party absent clear intent to the contrary…
An attorney-in-fact must act in the utmost good faith and undivided loyalty toward the principal, and must act in accordance with the highest principals of morality, fidelity, loyalty and fair dealing. Semmler v. Naples, 563 N.Y.S.2d 116-17 (N.Y. App. Div. 1990). Pursuant to this duty of good faith and fidelity, some courts have held that an attorney-in-fact may not make a gift to himself or herself of the money or property that is the subject of the agency relationship because of the threat of self-dealing and impropriety. Id. This presumption can be overcome only with “the clearest showing of intent on the part of the principal to make the gift.” Id.: see also Fender v. Fender, 329 S.E.2nd at 431 (“(e)ffectively, absent express intention, an agent may not utilize his position for his…personal benefit in a substantially gratuitous transfer”).
New Jersey Law
The law in New Jersey does not appear to prohibit per se an attorney-in-fact from gifting to himself or herself the principal’s assets, although the only reported case in which the Appellate Division has ruled on this subject seems to hold otherwise.
In Manna v. Pirozzi, 44 N.J. Super. 227, 230 (App. Div. 1957), the court wrote: “No power, unless it contains very clear language on the subject, should be construed as having invested the attorney with authority to appropriate to himself his principal’s assets or to give them away.”
At issue in the Manna case were 197 shares of stock in a New Jersey corporation. Id. at 229. The claimants to the stock were the two plaintiff’s administratrices with the will annexed to Guiseppe Pirozzi, who resided in Italy from 1928 until his death in 1950 (except for some time during 1932-1934); and, on the other hand, the four sons of Guiseppe’s brother Giovanni, in whose names the stock stood at the time, who based their claim to the stock on a power of attorney signed by Guiseppe in Italy in 1939. Id. The plaintiffs contended that the decedent Guiseppe had owned the shares at his death, and that the shares passed by his will to them. Id. at 230.
Defendants claimed that the stock had been transferred to them as repayment for the proceeds of shipments of merchandise allegedly appropriated by Guiseppe. The trial judge had rejected this claim, and the Appellate Division say “no reason to review” the defendants’ factual bases for their claim. Id. at 231.
The trial court found other evidence to be more compelling and the Appellate Division agreed:
In the Will made by Guiseppe in 1945 (which has been sustained by the Tribunal of Naples, Italy, and on which ancillary letters were issued to plaintiffs by the Somerset County Surrogate’s Court), he solemnly declares that he is possessed of the 197 shares, which he bequeaths: 100 shares to the four sons of Giovanni, 36 shares to each of the plaintiffs, Guiseppe’s two surviving daughters, and 25 shares to Guiseppe’s second wife whom he had married in Italy between 1940 and 1945. Three months after the Will was made, Guiseppe wrote one of the plaintiffs, telling her that he still owned the 197 shares, never having “ceded” or sold them to anyone, including Giovanni; and that she was not to heed any gossip to the contrary. This letter was written four years after the stock was allegedly transferred out of his name, pursuant to the power given by him. One circumstance, which impairs the defendant’s case in every aspect of it, is that they do not asset that they or any of them ever advised Guiseppe (except perhaps in 1950 just before he died) of the transfer of the stock out of his name.
Id. at 231-32.
The Manna opinion cites Von Wedel v. McGrath, 180 F.2d 716 (3rd Cir. 1950), cert. Denied, 340 U.S. 816 (1950). In Von Wedel, the plaintiff, a U.S. citizen, sought to recover property from the attorney general which had been vested in him pursuant to the Trading with the Enemy Act. Plaintiff’s husband was a German national. In 1939 plaintiff and her husband left this country for a visit to Europe. Before leaving, fearful that war might break out and prevent his return to the United States, the husband executed a power of attorney appointing his friend and lawyer as principal. In 1940, pursuant to the power of attorney, the attorney-in-fact transferred property of Mr. Von Wedel to the plaintiff. This property became vested in the attorney general as successor to the Alien Property Custodian. Plaintiff filed a notice of claim for the property’s return. Id. at 717.
The power of attorney at issue in Von Wedel contained general language as well as more specific powers. Although it hardly could be debated that Mr. Von Wedel would have preferred to have his property go to his wife than be confiscated, the court ignored the general language of the power and ruled against the plaintiff:
In the absence of ambiguity or incompleteness, we must deal with the intent as actually expressed in the document itself. The power of attorney expressed in the document itself. The power of attorney before us is neither ambiguous or incomplete. Under the settled law, the specific language governs. That language refers solely to Von Wedel’s ordinary business affairs. It contains nothing that can be reasonably construed as authority for the attorney in fact to make gifts to Von Wedel’s property, and the command of the specific language must be pursued with legal strictness.
Id. at 718-19.
The Third Circuit affirmed the dismissal of the plaintiff’s complaint on its face. Id. at 719. In so doing, the Court of Appeals upheld the trial court’s rejection of the plaintiff’s attempt to rely on parol evidence to show that a primary object of the giving of the power was to authorize a gift to her. 84 F. Supp. 299, 300 (D.N.J. 1949). Such evidence, wrote the trial court, “would avail the plaintiff nothing since the authorization must be found within the terms of the instrument itself…where as here no reference to a gift is made, no power to make a gift can be inferred in spite of the donor’s intention…” Id.
As support for the conclusion that an agent has no power to make a gift unless that power is expressly conferred, the Von Wedel court relied on two other decisions under the Trading with the Enemy Act. In Kaname Fujino v. Clerk, Attorney General, 71 F. Supp. 1, 2 (D.C. Haw. 1947), aff’d 172 F.2d 384 (9th Cir. 1949), cert. Denied. 337 U.S. 937 (1949), a Japanese national had admittedly intended to make a gift of certain real property to his son. He executed a general power of attorney. The attorneys-in-fact executed a deed for the real property by which they purported to convey it to the son as a gift. The District Court held that the power of attorney did not authorize the gift, noting that, “(a) gift is not a business transaction.” Id. at 4. See also Miyuki Okihara v. Clark, 71 F. Supp. 319, 332 (D.C. Haw. 1947).
Based on these cases, it seems abundantly clear that an attorney-in-fact cannot gift the principal’s property to himself or herself absent express language permitting such gifts in the power. But should a court rule on this issue, as a matter of law, when it is presented in the factual context of a litigation, or is a complete, factual hearing required?
In Manna, despite the black-letter language used by the Appellate Division, the court below had a trial on the factual issues and on appeal the Appellate Division affirmed the case based on its facts. Von Wedel, Fujino and Okihara arguably may be distinguished as historical anomalies.
Moreover, Manna specifically reminds us “that when a person undertakes to act as an agent, he assumes the obligations of a fiduciary.” 44 N.J. Super. At 231. Where a principal-agent relationship exists, it follows that the agent as a fiduciary is required to exercise good faith in her relationship with her principal. Hirsch v. Schwartz, 87 N.J. Super. 383, 389 (App. Div. 1965).
In situations where a confidential relationship exists, the party in whom the confidence was reposed has the burden of showing affirmatively that no deception was practiced, no undue influence was used, and that everything that transpired was fair, open, voluntary and well-understood. In re Dodge, 50 N.J. 192, 227 (1967). Applying these standards, the issue as to whether or not an attorney-in-fact acted properly in gifting her principal’s property would always entail questions of fact and would not be resolvable as a matter of law.
What happens if a power of attorney is used to effect a gift causa mortis? Is the gift valid in the absence of express language in the power authorizing the gift?
Gifts causa mortis were defined by the state Supreme Court in Foster v. Reiss, 18 N.J. 41 (955) as:
A. gift of personal property made by a party in expectation of death, the imminent, and upon the essential condition that the property belong fully to the donee in case the donor dies as anticipated, leaving the donee surviving him, and the gift is not in the meantime revoked, but not otherwise. To constitute a valid gift causa mortis, it must be made in view of the donor’s impending death; the donor must die of the disorder or peril; and there must be delivery of the thing given. The donor must be competent to make the gift; there must be an intent upon his part to do so; and an acceptance by the donee…The delivery must be such as is actual, unequivocal, and complete during the lifetime of the donor, wholly divesting him of the possession, dominion and control thereof.
Id. At 45-46.
Gifts causa mortis are disfavored by the law. Such gifts are essentially testamentary in nature and, as such, they are an invasion into the province of the Statute of Wills. As stated by the court in Buecker v. Carr, 60 N.J. Eq. 300, 305 (N.J. Ch. 1990), “this mode of disposition permits property without limit of value to be transferred by mere delivery, and the proof thereof to be made when death has closed the lips of the claimed donor.”
Because of the disfavored status of gifts causa mortis, most courts strictly construe the requirements for such a gift. Specifically, establishment of such a gift has routinely called for proof of delivery. Schere v. Hyland, 75 N.J. 127, 131 (1977). The major purpose of this strict delivery requirement is evidentiary as it “reduces the possibility that the evidence of intent has been fabricated or that a mere donative impulse, not consummated by action, has been mistaken for a completed gift.” Id. at 131-32.
Thus, in New Jersey, actual delivery of the property is required except where “there can be an actual delivery” or where “the situation is incompatible with the performance of such ceremony.” Foster, 18 N.J. at 50. This delivery requirement can only be satisfied by an affirmative act of delivery by the donor, not by the mere taking of possession by the donee. Id. at 51.
In Foster, the decedent, while waiting to undergo an operation, wrote a letter directing the defendant husband to take, for himself, certain hidden bank books and cash. The defendant took possession of these items while the decedent was unconscious. Subsequently, the decedent died without regaining consciousness. Although the letter evidenced the decedent’s donative intent, it did not operate as a delivery. Id. The bank books remained at the decedent’s home and were not retrieved until the decedent lost consciousness for the final time. This timing prevented the decedent from ratifying the delivery and possession by the donee. Id. at 53.
In Scherer, the decedent endorsed a check, placed it on a table in an apartment she shared with the donee, wrote a letter evidencing her donative intent, and then committed suicide by jumping from the building’s roof. 75 N.J. at 131. The Court, based largely upon the circumstances of the case, found that the actions of the donor amounted to a constructive delivery. Id. At 134. Crucial to the holding was the Court’s finding that there was no danger of fraud in this case, as the decedent, without warning to others, took her own life. In contrast, where a decedent is dying of natural causes, the danger of fraud exists when third parties can take advantage of the decedent’s condition in order to effect a fraudulent transaction. Id. at 131-32.
The Supreme Court examined the issue of constructive delivery in gifts causa mortis in Scherer, 75 N.J. at 133. In that case, the Court first held that the delivery requirement is an evidentiary one designed to safeguard against fraud. Id. at 131. Next, the Court held that it would find a constructive delivery adequate when the evidence of donative intent is concrete and undisputed, where there is every indication that the donor intended to make a present transfer of the subject matter of the gift, and when the steps taken by the donor must have been deemed by the donor as sufficient to pass the donor’s interest to the donee. Id. at 133.
Applying the constructive delivery standards enunciated in Scherer, the court in the Sikorski case found that the defendant submitted proof that they received a symbolic indicia of ownership when the decedent instructed them to retrieve his bank books and financial papers from his house. Following these instructions, the decedent expressed his desire for his brother to receive his money and told his brother’s wife to get a power of attorney and do “what she had to do” to ensure that his wishes were carried out. Because the facts as outlined for purposes of the summary judgment motion had not been disputed by contrary evidence, it was the opinion of the court that the Scherer standards has been met and a trial was necessary.
Was this a correct decision? The power of attorney at issue contained no language authorizing the making of gifts. The court could do no better than rely on general language in the power authorizing the attorney-in-fact, “generally to do any act, deed or thing whatsoever and to execute and perform any other deed, matter or thing whatsoever that ought to be done, executed and performed or that in the opinion of my said attorney-in-fact ought to be done, executed or performed and which I may lawfully do through or by an attorney-in-fact as fully and effectually as I could do, if personally present…”
In this case, the decedent’s alleged instructions to his sister-in-law to make the gift causa mortis of his property to his brother (at the exclusion of his other siblings) were given only to the sister-in-law. No one else was present at the time and no one else knew that the purpose of the power-of-attorney was for her “to do what she had to do” to make the gifts. Despite the lack of corroborating evidence, the judge felt constrained to deny summary judgment and require a trial.
Is that the way the motion should have been decided? Is it not “for the common security of mankind” that there be some black-letter rules of law on which people can rely to provide some certainty in their affairs? Must every case go to the finder of fact for determination?
On the other hand, the case discussed above is but one example with a harsh set of facts. What if the same factual situation presented itself except that 10 disinterested doctors all were present and able to testify to the decedent’s sound state of mind and clear intent to make a gift when the gift causa mortis was discussed and the power of attorney was executed? Should the gift causa mortis be ineffective and invalid as a matter of law simply because the power of attorney used to effect the gift did not expressly authorize it?
Other factors also may be involved. For example, an attorney-in-fact’s gifting all of the principal’s assets to herself may be differentiated from annual gifting to the principal’s family members for estate planning purposes. The gifting of up to $600,000 as part of an estate plan to ensure full advantage is taken of the principal’s lifetime exclusion from gift and estate taxes may be wise and prudent. In the absence of express language in the power of attorney authorizing such gifts, should they per se, as a matter of law, be ineffective and voidable?
Thus, as is usually the case in the law, what appears at initial glance to be a simple issue is not. Perhaps the lack of a black and white rule is the only fair rule. There are more possibilities in the real world that can be crammed into neat categories without risking unjust results. As Circuit Judge Goodrich wrote in his concurring opinion in Von Wedel:
A man has said, in effect, that he gives another the power to do everything for him. Then he enumerates certain specific things which the other may do, carefully saying, however, that he does not mean to alter the general power by stating specific powers. Then he ends up by saying that he means his language to be as broad as he stated it. Yet the rule seems to be that he is held to mean something much less than indicated by the language he used. Perhaps the law cannot quite say that white is black. But in this instance it certainly can make white look a pretty dark grey.
180 F.2d at 718-19.
In the Sikorski case, the plaintiffs filed a pretrial motion in limine pursuant to Evidence Rule 804(b) to exclude the defendant’s testimony about her alleged conversations with the decedent’s testimony about her alleged conversations with the decedent as unreliable and untrustworthy. While this motion was pending, on the eve of trial, the defendant conceded her position and agreed that the decedent’s assets would be shared equally by his four siblings as if the transfers made by her using the power of attorney had never occurred.
Following publication of this article in 1997, the New Jersey Legislature in 2003 enacted N.J.S.A. 46:2B-8.13a. This statute provides that a power of attorney must specifically provide for the making of gifts by the agent or else they are not allowed:
A power of attorney shall not be construed to authorize the attorney-in-fact to gratuitously transfer property of the principal to the attorney-in-fact or to others except to the extent that the power of attorney expressly and specifically so authorizes. An authorization in a power of attorney to generally perform all acts which the principal could perform if personally present and capable of acting, or words of like effect or meaning, is not an express or specific authorization to make gifts.
This statute was intended to clear up confusion in the case law. It creates a “bright line” rule for practitioners.
For example, a power of attorney can empower the agent to make gifts to “any children of mine or their descendants.” Unless the power of attorney expressly allows the agent to make gifts to himself, the agent is not empowered to do so.