Virginia Fiduciary Law Blog

LITIGATING POWERS OF ATTORNEY: AN OUNCE OF PREVENTION

 Individuals looking for assistance with the management of their financial affairs are often advised that they need a “power of attorney.”  The notion is not altogether misplaced.  Few people want to be the subject of costly guardianship proceedings, involving court filings and medical or psychological determinations. Powers of attorney, now that they can be “durable” and can last through any period of disability, may be the right answer.  But, given the increasing litigation over actions taken by attorneys-in-fact or agents, the inquiry should not end there.

 Naming someone attorney-in-fact, or “agent” under modern Virginia statutes, creates a fiduciary relationship.  A fiduciary relationship implicates duties of care and loyalty by the fiduciary toward property or money belonging to the fiduciary’s principal. Standards of care and loyalty applicable to a fiduciary's dealings are generally higher than in arm's length commercial transactions.

 Both principal and agent must be mindful of these considerations.  In particular, and although a power of attorney may be designed to be revocable, if the principal were to become disabled, an agency under a power of attorney may in fact result in a longstanding legal relationship, possibly lasting until death.  (Death revokes all powers of attorney.) What is more, the majority of financial powers of attorney are drafted to take effect immediately:  that is, they are “live” upon the principal’s signing and do not require a prior determination of disability to be triggered. 

 The alternative to a “live” power of attorney would be to create “stand-by” powers of attorney.  Stand-by powers of attorney are dormant, “springing” into force upon the happening of some specified future event.  For most individuals, there may be cogent reasons not to create “stand-by” powers of attorney, however.  One such reason is that third parties, with whom the agent must deal, may not have a satisfactory  way of determining whether the conditions necessary to trigger the agency have occurred.  This could negate the agent’s effective ability to serve the principal if doing so requires the cooperation of such third parties.  Another reason may be  that triggering events can involve an emergency, such as a disabling event, and obtaining the requisite documentation at such a time may be inconvenient or, worse, impossible to obtain.

 Because financial powers of attorney frequently are broadly drafted, the intended principal who is considering asking his or her lawyer to draft up a power of attorney should first reflect on the objectives to be served by the power of attorney.  The choice of agent under a power of attorney merits equal consideration. If a client has a broader estate plan, care should be given to determine whether different appointments in fiduciaries are indicated—should your trustee be the same as your agent, for instance? 

 Despite the routine manner in which powers of attorney today may be treated by clients, lawyers and even non-lawyer commercial suppliers of power of attorney forms, clients seeking to create such relationships would do well to give careful thought to the nature and scope of such appointments.  Likewise, any agent who undertakes to fulfill such an appointment should consult counsel early to determine the contours of the agent’s duties.  The alternative is to be embroiled in costly fiduciary litigation—regardless whether the actions of an agent are ultimately held unlawful. 

QUALIFYING AS EXECUTOR OR ADMINISTRATOR OF AN ESTATE?

 Are you about to qualify as a personal representative (executor or administrator) of an estate for a decedent who died in Virginia?  If so, do you know that, under Virginia law, you are considered to be a “fiduciary” once you become the estate’s personal representative?  Do you know that you will have fiduciary duties toward the beneficiaries of the estate?  Before you qualify, you should be asking yourself some fundamental questions.

    Individuals who are about to qualify as executor or administrator of an estate should carefully consider obtaining legal counsel before taking such a step.   Familiarity with the obligations and liabilities of the position should be part of that determination.  If you are considering to be appointed a fiduciary, you would do well to remember that the position often requires time, care, and the application of skills with people and numbers.  For example, you may be faced with navigating complex legal documents, transferring an array of different property interests, handling requests affecting the rights of and demands by individual beneficiaries, dealing with institutional charitable beneficiaries, and working through claims made by creditors, whether now known or unknown. 

    You will also have inventory and certain accounting obligations to the Office of the Commissioner of Accounts.  The Office of your local Commissioner of Accounts serves as the arm of the local county circuit court under Virginia’s court-supervised probate process.  In addition, there are strictures relating to Internal Revenue Service and state taxing authorities.  You may be required timely to file state and federal tax returns, such as the decedent’s final income tax return, the estate’s federal and state income tax returns, and possibly an estate tax return.  With these obligations come deadlines that you must be prepared to meet.

    In considering whether to qualify as personal representative of an estate, a major consideration should be whether the estate’s debts and liabilities exceed the estate’s assets.  Insolvent estates can be especially difficult to administer.  Consider whether you should assume the obligations of becoming a personal representative of an insolvent estate before you are appointed.  Once appointed as the personal representative, resignation generally requires obtaining permission from the court.

    If you have counsel, question your lawyer whether serving as executor or administrator is right for you.  If you do not have counsel, or need a second opinion, you should seek out an experienced probate attorney before making a decision to assume significant legal obligations on behalf of other individuals, usually beneficiaries whose interests you must protect.  In short, when it comes to qualifying as personal representative of an estate, look before you leap. 

STARE DECISIS OR A "RESTRICTED RAILROAD TICKET”?

Claims by employers against former employees, managers, or officers for breach of fiduciary duties abound.  Frequently, in the case of employers who have implemented noncompetition agreements, also known as restrictive employment covenants, one or more claims against a former employee are based upon the terms of a “noncompete.”  A recent decision of the Supreme Court of Virginia, Home Paramount Pest Control Companies, Inc. v. Shaffer, may render reliance on existing noncompetition agreements less certain for employers, however.

    Over a rare and blistering dissenting opinion by one of the Justices, decrying the abandonment of stare decisis (adherence to legal precedent), the Virginia Supreme Court reversed the position it took 22 years previously by striking down an employee’s noncompetition agreement as unenforceable.  The noncompetition agreement at issue in 2011 was for the same company and upon the same terms that, in 1989, the Court held to be enforceable.  In the present case, the Court did not strike down the noncompetition agreement on the basis of any geographic “over-breadth” (too large of a geographic area) or because its terms stretched too far into the future (excessive duration of the noncompetition period).  Rather, the Court’s analysis came down to a “functional” analysis – whether the prohibition of working for a competitor in “any” capacity was overly broad. 

    The majority opinion characterized the Court’s holding as part of a gradual refinement of the law, noting that the Court’s decisions since 1989 have “incrementally clarified” the Court’s position on the subject matter.  The dissenting Justice, however, cautioned that “frequent overruling of an appellate court’s decisions tends to bring adjudications of the tribunal ‘into the same class as a restricted railroad ticket, good for this day and train only.”’  Whether seen as an extension of an evolving body of case law or a repudiation of stare decisis, employers, employees and their respective counsel will want to undertake a functional analysis of any existing agreements in light of the Shaffer case.