Financial powers of attorney give the named agent broad control over the principal’s assets and thus are a key component of estate planning. Such powers allow the agent to help if and when the principal becomes incapacitated. A corrupt agent, however, may use powers of attorney as a “license to steal.”
Agents who favor themselves may end up in hot water, accused of breach of fiduciary duty. That’s the lesson of Pool-O’Connor v. Guadarrama (2023) ___ Cal.App.5th ___, a case involving an agent who wrongfully used a joint account to handle his uncle’s money.
Albert Pool Turns to His Nephew for Help
She was the primary operator of their mini-mart and did the banking for the two of them. He could not read well. They had four children.
Mabeleen died in 2002. Albert’s nephew, Christopher Guadarrama, began helping Albert to manage his finances and pay bills.
In 2013, Christopher’s name was added as co-owner to an account to which only Albert’s money was deposited. Albert apparently had limited trust in banks – his daughter described him as a “miser” and he hid a large sum of cash and coins in various locations.
Albert restated the trust that he had created with Mabeleen. He named Christopher as his successor trustee. Albert also signed a financial power of attorney naming Christopher as his “attorney-in-fact,” the technical if clunky term for an agent who acts under a power of attorney.
Albert named his surviving children as equal beneficiaries of his trust as to an 83 percent share, with the remaining 17 percent divided amongst several others, including nephew Christopher.
In 2017, when Albert’s health was failing, Christopher made two large deposits of Albert’s funds into the joint account as to which Christopher had a right of survivorship.
Before Albert died in 2018, Christopher took some $42,000 out of the account via ATM withdrawals in California and Nevada and transfers of funds to his girlfriend. Shortly after Albert died, Christopher took $250,000 from the joint account.
Albert’s daughter, Kathy Pool-O’Connor, challenged Christopher’s handling of the funds in the joint account. A commissioner in Kern County Superior Court heard the case and ruled in favor of Kathy.
Appellate Court Faults Nephew for Breach of Fiduciary Duty
The Court of Appeal confirmed the commissioner’s ruling that Christopher had to return the money he deposited into and later took from the joint account, focusing the fiduciary obligations of Christopher as Albert’s agent.
California has a “Power of Attorney Law,” codified as Division 4.5 of the Probate Code. The appellate court walked readers through the pertinent provisions of that law.
Probate Code section 4232 requires agents to act solely in the interest of the principal and to avoid conflicts of interest. Per section 4233, the agent must keep the principal’s property segregated from other property – for example, by keeping the principal’s property in the name of the principal or in the name of the agent specifying the agency relationship.
Christopher, however, deposited Albert’s funds into an account that the two of them co-owned jointly. “He did not avoid the conflict-of-interest that presented itself in depositing funds into a joint account to which Christopher had unfettered access in his personal (as opposed to fiduciary) capacity. He did not keep a record of the transactions involving the subject funds which were the two largest deposits ever made to the joint account . . . .”
What should Christopher have done? “A prudent person acting as attorney-in-fact would have put the subject funds in an account that only Albert or his attorney-in-fact, acting in such capacity, could have accessed.”
Under Probate Code section 4264, the power of attorney Albert signed did not authorize Christopher to create a survivorship interest in the funds by depositing them into the joint account. The deposit of the funds amounted to an attempted change of the beneficiary designations under Albert’s will and trust, to the detriment of his children as the 83 percent beneficiaries.
Even if Albert had orally authorized Christopher’s deposit and eventual receipt of the funds, Probate Code section 4264 requires that powers of attorney expressly authorize such gifts. Thus, Christopher was properly liable for the return of the deposited funds, plus interest.
The Court of Appeal also upheld the commissioner’s ruling that Christopher could not claim his $42,000 in withdrawals during Albert’s lifetime as a gift because Christopher lacked supporting proof and his authority to make gifts to himself was limited to the annual gift tax exclusion amount ($14,000 in 2017).
Agents Should Avoid Joint Accounts
Joint accounts frequently spark California trust and estate disputes.
Christopher might have stayed out of hot water had he kept Albert’s money in an account in Albert’s name alone. He could have used the power of attorney to set himself up as an authorized signer on that account without becoming a joint owner. Then, if Christopher had used the funds solely for his uncle’s benefit, and kept good records of the expenditures, he would have remained on the compliant side of the fiduciary line.
Family members often make the mistake of creating joint accounts between parents and children so that son or daughter can help parent pay bills. Instead, the child who assists under a power of attorney should more narrowly be identified as an authorized agent to transact business on the account.