A Strong Offense
A Stronger Defense
We’ve previously noted that, as the population ages, power of attorney litigation has become a ‘hot’ area of fiduciary litigation. Transfers of property from a principal to her agent get looked at closely and often – and sometimes justifiably – with suspicion. And, if the holder of a power of attorney transfers property to herself using the power of attorney, if anyone catches it, then litigation is all but assured. But, this doesn’t mean that a principal is forever barred from ever giving money or property to her agent. The principal’s agent is, for example, often the principal’s child. Certainly, absent incapacity, undue influence, fraud or other similar issues, a parent should be able to freely give property to her child without the oversight of a court.
In Shaffer v. Kaplan, a Vermont federal court applied New York law to draw a line between those transactions that warrant scrutiny and those which are acceptable. Under New York law, a presumption of invalidity exists in self-dealing transactions by one holding a power of attorney, but not all gifts. Where an agent uses a power of attorney to make transfers to herself or where the agent exerts undue influence over the principal to make a transfer to the agent, those transactions are presumptively invalid and require evidence of a conflict waiver. Therefore, as long as the principal isn’t unduly influenced (or perhaps also isn’t lacking in the requisite capacity or fraudulently induced), she should be able to freely transfer money or property to one holding a power of attorney without fear of someone later challenging the gift.