Insights

Often is the case that real property or other assets are transferred our of a resident’s name, in what appears to be an attempt to evade creditors, by a power of attorney . Unfortunately, when these transfers are handled by virtue of the  power of attorney, to the power of attorney himself, it is very rare that a creditor would have a cause of action against the power of attorney.  However a recent ruling in the Fourth District Court of Appeals raises a new avenue to potentially recover the assets from the estate, even after the resident’s death. 

The Fourth District Court of Appeals in Tewksbury v. Tewksbury, 104 Ohio App.3d 603, 2011-Ohio-3358, ruled that transfers of an asset by a power of attorney to himself are voidable as self-dealing.  In the Tewksbury case, the decedent held an interest in several properties.  Properties 1 and 2 were held jointly with Son A and Son B in a life estate, with the remainder to the survivor of them.  Property 3 was held only by the Decedent.  The Court upheld the trial court’s decision that the decedent was competent¹ to give the power of attorney he executed in favor of Son B.  Son B used the Power of Attorney, to transfer all of the decedent’s interests in the three pieces of property to himself.  Upon the decedent’s death, an estate was opened, however the bulk of the decedent’s assets had already been transferred to Son B. 

Family members, as heirs in the estate filed suit to void the transfers made with use of the Power of Attorney held by Son B.  However Son A did not join in that suit.  The Appellate Court found that the family did not have standing to pursue any action as to the transfer of Property 1 and 2 which had been held jointly with Son A, to be transferred upon death to Son A.  Even if the actions of the power of attorney were reversed, the property would still transfer to Son A and not to the estate, due to the nature of the title held as “joint with right of survivorship.” 

However, as to Property 3, the Appellate Court declared the power of attorney’s transfer of that property to himself as void for self-dealing.  The Court relied on its prior ruling in Montgomery v. Mosley (Aug. 24, 1009), Pike App. No. 448, finding that,

A power of attorney is a form of agency….An agent is always in a fiduciary relationship to his principal….A fiduciary may not engage in self dealing with the subject matter of the estate….and any transaction which constitutes self dealing is voidable. A transfer by a fiduciary agent to himself…violates the rule against self dealing.  The question of bad faith never enters into it.  Because of the potential for mischief, these kinds of transactions are simply barred as a matter of law.

The transfer was reversed and the property was placed into the estate to be distributed according to the set statute for probate distribution.

What is important to note, is that as a creditor just like an heir, who stands to receive assets or proceeds of an estate,, very rarely standing exist to challenge a transfer by a power of attorney while the decedent is alive. 

Absent a signed agreement as the responsible party to turn over the assets of a resident to you, the power of attorney owes no duty to creditors to pay the mounting bill for the services the resident is receiving, over and above other creditors or claims against those assets.  When a resident has passed, creditors providing health services, even expenses of the last illness are guaranteed certain treatment as a creditor of the estate by statute.  This provides standing to challenge self-dealing transfers of a power of attorney, where the reversal of those transfers would place the asset back into the estate. 

Weltman, Weinberg & Reis Co, LPA, is uniquely able to assess transfers among family members and powers of attorney to determine whether any assets are recoverable before or after the Resident’s death.  Contact us to discuss your most challenging accounts. 

¹  2 days of testimony was introduced to challenge the validity of the Power of Attorney, based on the deplorable living conditions of the decedent at the time of execution, as well as his poor mental state.