Friday, June 17, 2011

Splitting Heirs

By Michael Tarrant

In re Estate of Phillip Lovell, 2011 VT 61

Ah yes, the classic tale of father makes will, father gives son power of attorney, son executes self-serving transfer of property, and family cries foul. 

Make the son creepy and add one Mystery Machine and a talking dog with a speech impediment and you basically have an episode of Scooby Doo.

Here is the story minus the Hanna–Barbara elements.  In 1997, Father executed a will appointing his Son and Stepson as co-executors of his estate.  He also executed a power of attorney, naming Son as his attorney-in-fact.  The difference is important.  Until a person dies, there is no estate and there are no executors.  It is a future power that is only triggered by death.  A power of attorney, though as in this case, is immediate, and depending on its scope, it can give the holder the right to do any number of things in place of the creator.

In 2003, Mother quitclaimed her interest in the farm to Father.  The next day, flexing his attorney-in-fact muscles, Son executed a quitclaim deed conveying the farm to himself and his brother (not the Stepson) for no consideration.  In doing so, he got a signed consent statement from Father’s other children and stepchildren (including the Stepson) approving the conveyance.  The consent statement explained that the children were “consenting to the exercise of” Son’s Power of Attorney to quitclaim the farm to himself and his brother because the parties agreed that this was “in the best interest” of the parents, but that as soon as “reasonably possible after the transfer [wa]s completed,” the siblings would “enter into a family discussion to make provisions for the ultimate distribution of the farm.”  Trust in one’s fellow family members is beautiful.

Father died the following week.  In 2008, following the Mother’s death, Stepson, acting as co-executor of Father’s estate, filed a declaratory judgment action in probate court claiming the transfer of the farm to Son and Brother was invalid as a matter of law and sought to establish the estate of Father as the farm’s rightful owner.  I believe it was either Martin Luther King, Jr. or Benito Mussolini who said it best—“it’s good to trust others but, not to do so is much better.”

The probate court issued a declaratory judgment in favor of Son and Brother.  The superior court, where all good probate cases go, reversed, finding that the power of attorney statute as amended in 2002 prohibited an attorney-in-fact from making such self-serving gifts unless the power of attorney “explicitly” granted such authority.  Son and Brother appealed to the SCOV.

Amended in 2002, Vermont’s power of attorney statute mandates that “[n]o agent may make a gift or a loan to a third party unless the terms of the power of attorney explicitly provide for the authority to make gifts or loans.”  It also states that “[n]o agent may make a gift or a loan to him or herself . . . unless the terms of the power of attorney explicitly provide for the authority . . . .”  Period, no exceptions. 

According to Son and Brother, the language of the POA was broad enough to encompass the conveyance of the farm to themselves, notwithstanding the fact that such gift giving is not “explicitly” authorized in it.  For this “implicitly explicit” argument, Son and Brother cite to a 2006 case where the SCOV upheld a transfer of real estate made by two attorneys-in-fact into a trust they had created naming themselves trustees and one beneficiary, despite the fact that no such “explicit” authority to do so was included in the power of attorney. 

According to the SCOV, however, the distinction between the two cases has nothing to do with the language of the POAs or the powers given but everything to do with the effective date of the 2002 statute.  This amendment incorporated the new standards and duties into all POAs regardless of when they were drafted.  This would include the obligation to not give your father’s farm to oneself and one’s brother unless you were explicitly authorized to do so.  Without such authority, the 2002 statute renders such actions “void and unenforceable.” 

In the earlier case, both the execution of the power of attorney and the transfer of property occurred before 2002.  Here, much to Son’s chagrin and despite the fact that his power of attorney was created in 1997, the conveyance of the farm took place in 2003—one year too late.  Son was required to have “explicit” authority.  And because the POA does not give such explicit authority, Son is up ye olde proverbial creek without the requisite paddle. 

But Son and Brother were not yet vanquished and made a second argument appealing to the principles of equity.  Arguing equity is a tough climb.  You are basically saying to the court: “Look, I know what the law says, but that’s not fair!”  In such cases, you need a really compelling set of facts before a court is going to buy what you are selling when the law says otherwise.

Son and Brother argued the equitable theories of laches (French for “you took too long”) and estoppel (French for “don’t let them do it”).  They noted that Stepson and the others signed a consent statement approving the farm’s transfer and then waited five years before bringing a claim.  Son claimed that Stepson’s delay prejudiced Son because he had paid taxes and made improvements to the farm without contribution from Stepson or other family members.  The SCOV finds them “unpersuasive.”

Basically, laches only occurs and only bars relief when a party fails to assert a right “for an unreasonable and unexplained period of time” and when that delay has been “prejudicial” to the other side making it unfair to enforce the rights.  Delay by itself is not enough.  It must be “delay that works disadvantage to another.”  Son and Brother’s arguments are flawed because, as the SCOV notes, the clock for delay began not with the farm’s conveyance but with Mother’s death.  Apparently, the consent statement made it clear that the children and stepchildren were consenting to the transfer of property only during the parents’ lifetimes.  As Stepson filed his petition to reopen the estate of Father a mere five months after Mother’s death, the SCOV could not conclude that the delay was unreasonable.  The trial court’s decision is affirmed.

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