An Important New Law by Phil Runyon

An Important New Law

This is the time of year when new laws take effect, and I want to tell you about one of them that may pertain to lots of families.  I'll preface this by saying that it's purely hypothetical information to advance your legal knowledge - and that I'm definitely not disparaging the reputation of any real person who may read this message.  Disclaimers are an important legal tool.

To boil it down, the new law makes it a criminal offense to breach a fiduciary duty to, or to otherwise exploit, an elderly, disabled or impaired adult.  The most likely way this might occur is for a guardian or the holder of a power of attorney to use the vulnerable person's resources for the guardian's or holder's personal advantage, So, the agent (that's what we'll call the fiduciary) might make a "loan" or "gift" to himself from the person's funds, or spend the person's funds on things that only benefit the agent - like a new bicycle or set of golf clubs that few people in wheelchairs could probably use.  Sure, some powers of attorney allow the agent to make gifts, even to the agent (we often include those provisions), but an agent who actually does so is treading on very thin ice and had better proceed with extreme caution.

First of all, full disclosure - in writing - is an absolute must, not only to the person whose funds are involved (if he or she is competent to understand), but also to any other family members or eventual beneficiaries whose interests might be adversely affected.  One common example is when an elderly person has established a history of making birthday or holiday gifts to family members, and the agent is perpetuating that practice.  Not only should the gifts be comparable to those the person made herself, but there should be no gifts at all made unless there are still plenty of resources left to provide for the disabled person's care and needs. 

In another message I wrote about entering into a care agreement with an elder, in order to help keep the person at home and perhaps to benefit a family member who may be providing the services.  I emphasized the need for a clear, written agreement there, but it's also critical that the compensation paid be reasonable for the services provided.  In other words, the agent may be running afoul of the new statute if he uses the elder's funds to pay his spouse or children way more than a third party would command to provide the same services.

And I can tell you from long and unpleasant experience that there's nothing that drives a nasty wedge between, say, the elder's agent and his or her siblings than to have the siblings decide that their inheritance is being depleted by the agent without their knowledge and for suspect or downright improper purposes.  That may be a mouthful, but it's one you don't want to try to swallow.  Plus, it's not only a scenario that might require the agent to disgorge all his ill-gotten gain - together with the attendant attorneys' fees of everyone else involved - but since January 1it might result in law enforcement consequences, as well.

One last point that might soften some of the intimidation I may have created:  The new statute really just codifies the state of the law as it's always existed for fiduciaries - albeit adding some sharp teeth.  It's not intended to punish agents doing the best they can for their elders, or to hold them personally responsible if decisions made carefully and in good faith simply don't pan out through no fault of the agent.  Here's my rule of thumb when you're an agent and on the fence in one of these situations: 
Is the decision you're about to make one that you'd want described on the front page of the local paper?  If not, then you probably know what not to do.


Posted 02/17/2015 Misc.