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 duty claim.
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.