For Agents Under A Power of Attorney, Meticulous Records are a MUST

When you serve as a fiduciary, it’s important to  keep detailed records explaining how you acted in that role.  This concept is especially important when you act as an Agent under Power of Attorney.  Countless fiduciaries have met with woe because they could not produce receipts or provide proper and logical explanations for checks they had written, charges they had made on a principal’s credit card,  and so on.  A simple fact is: Fiduciaries must account for each and every dollar that passes through their handsThe recent opinion of Judge Herron of the Orphans’ Court of Philadelphia County, Bitschenauer, Incapacitated, 3 Fiduc. Rep. 3d 186 (O.C. Div. Phila. 2013), serves as a helpful guide on this critical issue.

The Fundamentals of Being an Agent Under Power of Attorney

The Agent under a Power of Attorney has a fiduciary relationship with the principal that includes the duty to:  1) Exercise the powers for the benefit of the principal; 2) Keep separate the assets of the principal from those of an agent; 3) Exercise reasonable caution and prudence; 4) Keep a full and accurate record of all actions, receipts and disbursements on behalf of the principal.  See 20 Pa. C.S.A. §5601(e).

In the absence of language in the Power of Attorney document that expressly waives these bedrock principles, all Agents under a Power of Attorney must abide by them.  Indeed, Agents in Pennsylvania are required to sign a document when they accept the appointment as Agent in which they expressly agree to uphold these principles.  Nevertheless, and unfortunately for them and the principals they serve, Agents often fail to heed these duties – especially the obligation to keep full and accurate records.

The Consequences of Disorganization and Dishonesty as an Agent

Bitschenauer shows the consequences of keeping unorganized records (and of dishonesty) while acting as an Agent.  In the case, Anna Bitschenauer (“Bitschenauer”) named Barbara Louise Tucker (“Tucker”) to serve as her Agent.  Bitschenauer had lost all of her family members and trusted Tucker, who had done investing for her in the past.  Bitschenauer did not give Agent Tucker any gifting authority, and crucially, included a clause in the Power of Attorney stating, “[m]y agent shall not be entitled to compensation for serving as agent hereunder, but shall be entitled to reimbursement for reasonable out of pocket expenses.”

Despite the express prohibition against compensation for her duties as the Agent, Agent Tucker in fact paid herself $87,505.00 as compensation for them. Furthermore,  Agent Tucker also  paid her husband $270,138.00, allegedly  as “a loan or advance” for work that he apparently intended to perform in the future for Mrs. Bitschenauer.

The problem with the Agent’s decision to pay herself and her husband should be obvious.  She directly contradicted the Power of Attorney document that did not allow her to pay herself for anything other than reasonable out of pocket expenses.  Using her husband as a “straw” recipient of funds was also a bad move on her part.

Beyond this blatant misconduct, the Agent’s poor recordkeeping caused her severe financial consequences.  The Court relied on Pettit Estate, 22 Fiduc. Rep. 2d 182, 193 (O.C. York Cty. 2001) in establishing that “when an individual renders personal services to another, ‘evidence of the value of such services rendered and accepted is sufficient if it affords a basis for estimating with reasonable certainty what the claimant is entitled to.”  Agent Tucker failed to keep adequate records of her Agency, and was unable to provide evidence of any of her financial dealings to substantiate the fee she paid herself.

For example, Agent Tucker alleged that she distributed $27,875 in cash withdrawals to Mrs. Bitschenauer to use for “her day to day expenses and outings.”  However, Agent Tucker admitted that she lacked any documentation of the purpose of those cash withdrawals.  She had kept no receipts, and could not even prove that the principal received those funds.  As a result of Agent Tucker’s complete lack of recordkeeping, Judge Herron ordered her to return $27,875 to the Estate.

The Agent also improperly paid her husband, Michael Tucker, $270,138.  She claimed that the payment was for cleaning Mrs. Bitschenauer’s apartment, doing her laundry, and giving her medicine, even though Mrs. Bitschenauer’s nursing home already performed those tasks.  The Agent kept no time records, and had no proof of the services provided to Mrs. Bitschenauer.  Even more problematically, the Agent characterized the payment to her husband as a “loan” in her testimony.  The Agent testified that her husband was paying back the loan, which did not bear any interest, by cleaning for and giving medicine to Mrs. Bitschenauer.  According to the Agent, the outstanding amount of her husband’s loan was $160,000, taking into account the work he already performed.  However, she did “not know the exact number,” and had no loan documents.  The Agent provided no proof of the work performed by her husband, and it did not appear in the accounting as a loan.  The Agent even admitted that it wasn’t wise of her to give her husband the money as a loan.  Due to the Agent’s lack of credibility and complete lack of records, she was ordered to return the $270,138 in payments to her husband to the Estate.

With regard to the $87,505 in payments to herself, the Agent again had no documentation of the services she performed.  Aside from completely contradicting the terms of the power of attorney document, which did not allow the Agent to pay herself for her services, the Agent failed to give credible testimony.  For example, in 2005 the Agent paid herself $33,700 for her services at a rate of $35.00/hour.  This meant that the Agent claimed to have worked 20 hours per week for Mrs. Bitschenauer while she was working 50 hours per week as a financial advisor and raising two children.  The Agent couldn’t support this incredible statement with any records, and was ordered to return $87,505 to the Estate.

Finally, the Agent made gifts of $12,000 to herself and to her husband in 2005 and 2006.  Altogether, she gave herself and her husband $48,000 in gifts.  The Agent failed to identify any of those distributions as gifts in her Account.  Instead, she characterized each of those $12,000 distributions as reimbursements for “out of pocket expenses, mileage, and services rendered.”  The Court viewed the discrepancy between the Agent’s testimony and the Account as a concession of the “unreliability of her accounting.”  Further, the power of attorney document did not provide the Agent with any gifting authority.  It is a well-established law that a power of attorney document must provide for gifting authority to authorize the Agent to make gifts.  As such, the Court ordered the Agent to return $48,000 to the Estate.

Important Take-Aways

–Always read and understand the Power of Attorney document before acting under it, and comply strictly with all of its terms.
 For example, unless the Power of Attorney authorizes gifting, then the Agent can make no gifts of any size without the risk of liability.

Remember that your every action as Agent must be in the best interest of the Principal. Before you spend each dollar, ask yourself if it meets this duty.

–Agents must keep contemporaneous and meticulous records of every dollar received and how it is spent, no matter how trivial the expense may seem. An Agent Under a Power of Attorney is effectively running a small business, and the boss is the Orphans’ Court Judge.

–An Agent can be required to account not only by the Principal, but also by the Executor or beneficiaries of the Principal’s estate, the Attorney General, and the court—so Agents who plunder their Principals’ assets while assuming no one is watching are making a big mistake.

–Think long and hard before granting your Agent the authority to make gifts on your behalf.  Even the most trustworthy friend or family member can run amok if given the ability to make gifts with someone else’s money.