The previous article discussed the many duties of a fiduciary. So how do
you prove that the fiduciary breached a duty? One place to start is to
look at the document in question to see if it modifies any of the duties.
A Last Will and Testament, a trust, and even a general power of attorney
will have sections that state the powers of the Personal Representative,
trustee, or agent.
For instance, a Last Will and Testament may say that the Personal Representative
has complete discretion in distributing all of the personal property in
a deceased’s house. It is often difficult to win on a claim for
breach of fiduciary duty with such a broad discretionary standard even
if the fiduciary does something that seems blatantly unfair, such as distribute
all of the personal items to one beneficiary.
Once a duty has been established and you believe there has been a breach,
it is time to gather facts. A breach of fiduciary duty claim should, ideally,
be made as specific as possible. This may be difficult because a fiduciary
with improper motives is usually reluctant to release information to the
beneficiaries. However, the failure to provide information to beneficiaries
is itself a breach of fiduciary duty and can be used as one of the bases
for a breach of fiduciary duty complaint.
Reasonable beliefs that a fiduciary is acting improperly can be used to
support claims for breach of fiduciary duty, but there is some risk. However,
there should be some facts that would lend support to the belief. Keep
in mind that once financial records are obtained, a review of the records
may show that the fiduciary did not act improperly. The following example
illustrates the steps involved in investigating a breach of fiduciary
Josephine is 85 years old. Although she is relatively sharp mentally, she
has several health problems that make it difficult for her to get around.
As a result, she lives in assisted living. Josephine is also slowly losing
her vision due to macular degeneration. Josephine was an English teacher
and never really liked paying bills and balancing her checkbook, but she
did so capably. Now that she has her health issues, she really does not
want to deal with her finances.
She gave her son, Richard, a financial power of attorney that allows him
to handle all of her finances. Her daughter, Karen, who is Josephine’s
agent under a medical power of attorney, received a call from the assisted
living facility informing her that Josephine’s monthly rent payment
is late. Josephine also tells Karen that her long-time financial advisor
called her the other day and mentioned that Richard transferred a lot
of money from her investment accounts.
Concerned, Karen flies in from out of state to investigate. She confirms
that money was transferred from Josephine’s investment accounts,
but her bank account does not show corresponding deposits. Karen calls
Richard, who tells her he transferred funds to his own account to reimburse
himself for expenses. He also tells Karen that a friend told him that
he could pay himself a fee for helping his mother, and now that he is
nearing retirement, he decided that this was a good idea because he needs
some extra money. He apologizes for not paying the assisted living facility
and said that he was just very busy and forgot.
Richard’s actions certainly look suspicious. Fortunately, Josephine
is still mentally competent and can revoke the power of attorney that
names Richard as her agent and sign a new power of attorney appointing
someone else. This is a good idea for two reasons. First, if Richard is
improperly using Josephine’s funds, this will put a stop to that.
Second, the new agent will have the authority to access Josephine’s
financial records and be able to assess the damage.
The power of attorney that appointed Richard should be reviewed to determine
whether Richard is allowed to receive compensation and reimbursement for
expenses. Under Colorado law, unless the power of attorney states otherwise,
an agent is allowed to receive compensation and reimbursement for expenses.
This means that if the document says nothing about compensation and reimbursement,
the agent is allowed to receive compensation and reimbursement.
However, that is not the end of the analysis. The compensation must be
“reasonable.” As a fiduciary, an agent should keep a log of
his time for each day. The entries should be as descriptive as possible,
especially if the agent bills for a big block of time. For instance, if
the agent wrote down “Helped mom, 5 hours,” this is a red flag.
The same goes for any reimbursement. The agent should keep receipts for
all expenses. Large expenses should be questioned. As a practical matter,
a child acting as an agent might buy items for a parent using their own
funds or their own credit card as a matter of convenience. If a parent
needs new furniture for a room in a facility, the reimbursement can be
very large. This is not the best practice. Ideally, the agent should use
the parent’s funds for such large purchases. However, this is not
exactly wrong, provided the agent has kept receipts for the purchases.
As this example shows, although Richard’s actions initially looked
“bad,” if he can substantiate his expenses and the time he
spent acting as agent for Josephine, if his hourly rate for compensation
is reasonable, and the power of attorney does not prohibit Richard from
receiving compensation and reimbursement, it is possible that he did not
nothing wrong. However, additional information will be needed, including
information from Richard, to make a final determination.
There is one final question remaining: even if Richard did not use Josephine’s
funds improperly, his actions call into question whether he should continue
to act as her agent. Failing to pay the assisted living facility in a
timely manner is a breach of fiduciary duty, and Richard should reimburse
Josephine for any late fees. If Richard is “too busy” to timely
pay Josephine’s bills, this is a concern. In addition, because Josephine
is mentally competent, Richard should have discussed with her the fact
that he wanted to receive compensation. If he had done this, he could
have saved everyone lots of worry and saved Karen a trip.
Breaches of fiduciary duty are complicated claims that require a thorough
evaluation not just of the claims themselves, but also the possible remedies.
If you feel that a fiduciary has acted improperly, our attorneys can sit
down with you and determine the best course of action.