Breach of Fiduciary Duty

It was my intention to write an article this month about Business Succession. However, I feel compelled to write another article on financial exploitation due to the recent number of cases that have come into my office lately.

Let’s start by identifying the responsibility that a person assumes when being appointed as a Power of Attorney or Trustee. Fiduciary duties include: to (1) act on behalf of and be subject to the control of the principal, (2) act within the scope of authority or power delegated by the principal, (3) discharge his or her duties with appropriate care and diligence, (4) avoid conflict between his or her personal interests and those of the principal, and (5) promptly hand over to the principal all monies collected on principal's behalf. Principal's duties include: to (1) compensate the agent as agreed, and (2) indemnify the agent against claims, liabilities and expenses incurred in discharging duties assigned by the principal.

In essence, a person who agrees to act on behalf of another in a fiduciary position MUST deny him or herself and their friends and family to serve the principal. It is truly a tough position. Opportunity to benefit loved ones is enticing especially if you think the principal who has entrusted you will not be negatively impacted.

The District of Columbia has enacted the Financial Exploitation of Vulnerable Adults Amendment Act of 2016. It states that “person is guilty of financial exploitation of a vulnerable adult or elderly person if the person intentionally and knowingly: (1) Uses deception, intimidation, or undue influence to obtain the property, including money, of a vulnerable adult or elderly person, with the intent to deprive the vulnerable adult or elderly person of the property or use it for the advantage of anyone other than the vulnerable adult or elderly person; (2) Uses deception, intimidation, or undue influence to cause the vulnerable adult or elderly person to assume a legal obligation on behalf of, or for the benefit of, anyone other than the vulnerable adult or elderly person; or (3) Violates any provision of law proscribing theft, extortion, forgery, fraud, or identity theft against the vulnerable adult or elderly person, so long as the offense was undertaken to obtain the property, including money, of a vulnerable adult or elderly person, or to cause the vulnerable adult or elderly person to assume a legal obligation on behalf of, or for the benefit of, anyone other than the vulnerable adult or elderly person.”

It is startling and distressing to see not only the number of career criminals who are committed to stealing from those who have worked so hard to build up resources no matter how great or small but it is heart breaking to see those trusted family members and loved ones take advantage of those who have become vulnerable to the agent and had their assets stolen as a result.

I encourage everyone to appoint a Power of Attorney with their estate plan. I share that giving a power of attorney is like giving someone a signed blank check. It is even more powerful than that! I encourage each client to think carefully about the person to whom they are giving this authority. We should be clear of the character of the person. Does this person have a history of integrity, not just a recent past of caring. 

In many cases it may be prudent to appoint two people that must act in concert to serve as a check and balance precaution. Surely having two people who must work in synch will be cumbersome in many respects but it offers a surety that unless they are in cahoots your interest will be preserved.

Another consideration in protecting assets is appointing a Trust Protector in a more comprehensive estate plan. While this could be a more expensive approach it can be established to assure that assets are protected for the best interest of the principal.

According to the True Link report on Elder Financial Abuse 2015, elder financial exploitation is considered to be the most common form of elder abuse, costing its victims an estimated $36.48 billion every year to senior fraud, exploitation and financial abuse. Many cases are not exposed. Let’s take steps to protect ourselves and our loved ones as we become elderly and more vulnerable.