One of the useful documents in the estate planner’s tool kit is the power of attorney. Briefly, a power of attorney allows a person (the “principal”) to name another individual (the “agent” or the “attorney-in-fact”) to act on the principal’s behalf, typically in financial and health matters. A power of attorney may be “general” or “limited,” meaning it can authorize the attorney-in-fact to act broadly on the principal’s behalf, or it may restrict the attorney-in-fact’s authority to certain enumerated types of conduct (i.e., a limited power of attorney may apply solely to acts involved in the sale of a principal’s real estate). In addition to being “general” or “limited,” a power of attorney may also be “durable,” meaning the power of attorney remains effective in the event of a future disability or incapacity of the principal. For purposes of this article, the power of attorney is to be considered a durable general power of attorney, meaning the power of attorney is effective immediately upon execution, it authorizes the attorney-in-fact to act broadly on the principal’s behalf, and it remains effective in the event of any subsequent disability or incapacity of the principal.
New Jersey’s Revised Durable Power of Attorney Act, as codified in N.J.S. 46:2B-8.1 et seq. (the “Act”), grants broad authority to an attorney-in-fact to act on a principal’s behalf. The Act provides: “All acts done by an attorney-in-fact pursuant to a durable power of attorney during any period when the power of attorney is effective in accordance with its terms, including any period when the principal is under a disability, have the same effect and inure to the benefit of and bind the principal and the principal’s successors in interest as if the principal were competent and not disabled.” N.J.S. 46:2B-8.3. This section purports to state that the acts of the attorney-in-fact are binding upon the principal and the principal’s successors in interest, suggesting that the acts of the attorney-in-fact have the same effect as if the principal had acted himself or herself. While this is true, the law in New Jersey requires more.
New Jersey law imposes a higher duty upon an attorney-in-fact acting on behalf of a principal under a power of attorney. An attorney-in-fact in New Jersey has a fiduciary obligation to the principal and must act “within the powers delegated by the power of attorney and solely for the benefit of the principal.” N.J.S. 46:2B-8.13.a [emphasis added]. A common situation in which a power of attorney may expressly authorize an attorney-in-fact to act, but where the act will be prohibited, involves lifetime gifts. While an individual generally has broad power to make lifetime gifts of his or her own property, unfettered by any restrictions or constraints, an attorney-in-fact operating under a power of attorney does not have that same authority. An attorney-in-fact may not use the principal’s resources unilaterally to favor himself or herself in ways that are contrary to the principal’s wishes.
A case decided in New Jersey earlier this year touched upon this issue. See In the Matter of the Estate of Irene Halpecka, No. A-5400-15T1 (App. Div. January 10, 2018) (slip op.) (“Halpecka”). In Halpecka, the decedent executed a power of attorney during her lifetime appointing a neighbor as attorney-in-fact to act on her behalf. The decedent named the attorney-in-fact as executor of her will as well and included the attorney-in-fact among the beneficiaries of her will. Immediately after the power of attorney was executed, the attorney-in-fact began transferring Halpecka’s assets to herself, which effectively depleted the estate to be shared by the beneficiaries under the will (thus enriching the attorney-in-fact at the expense of the other beneficiaries). When the lifetime transfers were challenged in court, the judge ruled that the attorney-in-fact had violated her fiduciary duties, concluding that she “used the trust reposed in her by Halpecka to substantially deplete [the] probate estate for the effect of defeating [the] testamentary intent.” Id. at 3. The court entered judgment in the case requiring the attorney-in-fact to reimburse the estate for all amounts she improperly transferred to herself using the power of attorney in violation of her fiduciary duties to Halpecka and the beneficiaries under the will. To compound the situation, the court ordered the neighbor to pay over $100,000 to reimburse the beneficiaries for the legal fees incurred to protect their interests in Halpecka’s estate.
The Halpecka case stands as a clear example of the established principle prohibiting self-dealing by an attorney-in-fact in violation of fiduciary duties. The fiduciary status of an attorney-in-fact is expressly set forth in the Act and it will be consistently enforced in the courts of this state. Any person serving as an attorney-in-fact is well-advised to be cognizant of the responsibilities of the position and the limitations imposed by the Act.