DBTC Law Firm

estate planning

Powers of Attorney: They Mean What They Say.

Powers of attorney are documents used to designate a person (the attorney-in-fact) who is authorized to act for the signer under particular circumstances (a limited power of attorney), or generally (a general power of attorney), and may be drafted to allow the attorney-in-fact to act even after the signer becomes incompetent (a durable power of attorney). In one recent case, a durable power of attorney giving the attorney-in-fact the power to sell real property on any terms he deemed appropriate was interpreted to allow the sale of a home for $10.00.

The Arkansas Court of Appeals’ decision in Shriners Hospital for Children v. First United Methodist Church of Ozark, 2018 Ark. App. 216 (March 28, 2018) provides a cautionary tale for those who draft, and sign, powers of attorney. In that case, L.G. Foster made a will in 2008 that designated Shriners Hospital as the residuary beneficiary of his estate. In 2012, Foster signed a codicil to his will directing his executor, Frederick Romo, to sell Foster’s residence and contents and distribute the proceeds to Shriners if Foster still owned the residence at his death.

In March of 2013, Foster signed a durable power of attorney, naming Romo as his attorney-in-fact. Importantly, the power of attorney did not give Romo the power to make a gift. It did, however, give him the authority to sell Foster’s real property “at such times, in such places, and upon such terms and conditions” as the attorney-in-fact deemed “appropriate”. In April of 2013, Romo sold Foster’s residence to the First United Methodist Church of Ozark for $10.00. Foster died in May of 2013. In 2014, Shriners filed suit against the Church, contending that the residence should have been included as part of Foster’s estate and should have passed to Shriners under Foster’s will. (Although the opinion does not state the value of the home, it is a reasonable assumption that it was worth enough to justify the cost of a legal challenge.)

The circuit court ruled against Shriners and in favor of the Church and, on Shriners’ appeal, the Court of Appeals affirmed the lower court. Shriners argued that the sale of the residence to the Church for only $10.00 was in essence a gift and that Romo had no authority under the power of attorney to make a gift. The appellate court disagreed with Shriners, noting that if there was no fraud or deception, the question of consideration – the amount of money paid in exchange for the property – is immaterial. The court found that there was no fraud or deception in this case, relying on the affidavit of Romo stating that Foster had decided he wanted the Church, and not Shriners, to receive his residence; that Foster desired to transfer the residence to the Church before his death to avoid having to execute a new will; and that because the power of attorney did not authorize the making of a gift, Foster was fine with selling the residence to the church for $10.00. According to the Court of Appeals, because a donation was not possible under the terms of the power of attorney, “[n]ot only was this sale within the letter of Romo’s authority under the power of attorney to convey Foster’s real property upon such terms as he deemed appropriate, it was also within the spirit of the power of attorney.”

There is a lesson to be learned from this case: be very careful with the wording of any power of attorney you draft or sign, and think through its potential consequences, because that document will likely be interpreted as meaning exactly what it says.