Severe Liability Imposed on Agent When Not Using Power of Attorney – Action Needed
On January 30, 2015, the Tyler Court of Appeals handed down its decision in Jordan v. Lyles, and held that Cynthia “Cyndi” Lyles, the agent named by her step-father, Bud Jordan, in a power of attorney, was liable to return to his estate funds transferred to her under beneficiary designation made by Bud on certain annuities and accounts. The kicker is that, in every transaction, Bud made all of the arrangements, and, more than that, every arrangement he made basically continued what he and his wife had set up before she had died. Cyndi never acted under the power of attorney. At most, Cyndi filled in forms the way Bud wanted them filled in, or drove him to the bank. This case requires action: if you have named someone as an agent under a power of attorney, you need to consider amending it. And if you are the agent, you need to think about whether you want that power of attorney amended. These actions involve more than just filling out a form (the statutory form fails to provide protection or guidance – in fact, it does not warn that this could be a result). You need to consult with an attorney and make some decisions on which way you want your powers of attorney to read or, if you are the agent, whether you want to be named at all.
Jordan v. Lyles
The Tyler Court of Appeals found that Cyndi was liable to Bud’s heirs because she didn’t explain to Bud the nature and consequences of everything that he was doing, even though there is nothing in the Court of Appeals’ opinion indicating that Bud had any sort of diminished mental capacity or lack of understanding. While agents under powers of attorney have always been construed to owe fiduciary duties to the person signing the power of attorney, in almost every context, the agent’s actions are questioned only when actually acting under the power of attorney. In this case, Cyndi never used to the power of attorney but she was held liable as an agent anyway.
Bud had three children, Harold, Gilbert and Melvin Jr. Bud was married to Joy, who had five children, one of whom was Cyndi. “Cyndi lived with Bud and Joy from an early age and, by all accounts, had a very close relationship with Bud. On the other hand, Bud was estranged from his sons until they reconciled on his seventieth birthday in 1983.”
“In 2001, Bud and Joy executed wills that were, in pertinent part, identical to one another. By their wills, each left his or her estate to the other. In the event the decedent was not survived by a spouse, one-half of his or her estate would pass to the decedent’s own children and one-half to the decedent’s spouse’s children. The wills further provided that if any child predeceased the decedent, that deceased child’s share would go to the child’s surviving descendants. On or about March 15, 2004, Bud executed a codicil changing the disposition of his estate in the event Joy predeceased him. Under the codicil, Bud left one-half of his estate to his two then-living sons as follows: 20% to Gilbert and 80% in trust to Melvin Jr. with Cyndi serving as trustee.”
Joy died in 2004. The next day, Bud signed a power of attorney appointing Cyndi as his attorney in fact.
Joy had established three annuities with three different companies. She listed Bud as the primary beneficiary and Cyndi as the contingent beneficiary. When Joy died, Bud had to elect whether to take a lump sum payment of the annuities or exercise a spousal continuation, which effectively meant he stepped into Joy’s shoes as an account holder. Either way, the original beneficiary designation of Cyndi as a contingent beneficiary went away. In late January 2006, Bud executed change forms effectively continuing Joy’s designation of Cyndi as the sole beneficiary after Bud died. At that time, the three annuities were worth over $249,000. Cyndi filled out portions of the forms at Bud’s direction and mailed them to the respective financial institutions after Bud signed them. Cyndi did not try to explain to Bud what his options might have been otherwise. There is nothing in the Court of Appeals opinion that would indicate that Cyndi knew what the options were – other than the obvious which is, “you could name someone else as beneficiary.”
On February 25, 2009, Melvin Jr. died. Two days later, Bud, who had been ill, signed a new power of attorney appointing Cyndi. That same day, Cyndi drove Bud to Bank Texas, where Bud and Melvin Jr. had maintained a joint money market account. Cyndi was listed on the account as a pay-on-death beneficiary. Bud could not go inside due to his catheter, so a bank employee came out to the car to assist him. As he sat in the car, Bud signed a form making Cyndi a joint account holder with rights of survivorship, effectively continuing the existing pay-on-death beneficiary arrangement, albeit through a different mechanism. Other than driving Bud to the bank, there is no evidence that Cyndi participated in the discussions between Bud and the bank employee.
And overall, there is no evidence that Cyndi attempted to influence Bud in any way.
On March 1, 2009, Bud died. Cyndi collected approximately $275,000 from Bud’s annuities and bank accounts. Bud’s probate estate comprised less than $30,000 in assets. On February 25, 2011, one of Bud’s children, the three grandchildren from Melvin Jr. and two of Joy’s children filed suit against Cyndi for breach of fiduciary duty and interference with inheritance rights. The case was submitted to the jury with instructions that included, “You are instructed that Defendant, CYNTHIA KAY LYLES, was in a fiduciary relationship with the Decedent, MELVIN “BUD” JORDAN, from December 14, 2005 through the date of Joy’s death, through the date of Bud’s death on March 1, 2009.” The question to the jury asked if Cyndi complied with their fiduciary duties to Bud, saying that it was Cyndi’s duty to prove: (a) all transactions were fair and equitable to Bud; (b) that she made reasonable use of the confidence he placed in her; (c) that she acted in utmost good faith and exercised the most scrupulous honesty toward Bud; (d) that she placed Bud’s interests before her own; (e) she did not use the advantage of her position to gain any benefit for herself at his expense; and (f) did not place herself in any position where her self-interest might conflict with her obligations as a fiduciary. The jury answered that question, “No.” Notice that the Court of Appeals effectively added another duty, which was that Cyndi should have explained to Bud the nature and consequences of everything he was doing, even though he was doing it himself and she was not doing it for him as his agent.
In reaching its conclusion, the Court of Appeals cited some earlier cases. The law that an agent acting under a power of attorney owes fiduciary duties to the person signing the power of attorney is not new law. That has been the law for years. One of the cases cited, however, involved a relationship between an older man and a younger woman, in which the older man named the younger woman as an agent under his power of attorney. In facts similar to this case, he took certain actions in which she was not involved, and she ended up getting sued claiming that she had violated her fiduciary relationship to him even though some of the transactions were ones in which she had not participated. The Court of Appeals in this case distinguished that earlier ruling, where the younger woman was exonerated on some of the transactions, saying the older man in that case “consulted numerous times with an attorney concerning the disposition of his estate…. Moreover, the court noted that [his] primary physician signed an affidavit stating that [he] was able to perform the transfers and understood the consequences of his actions.” Bud, however, apparently never consulted attorneys or never got a doctor to issue an opinion about his capacity.
The big news is that the Court of Appeals said that the fact that Cyndi never acted as agent under the power of attorney made absolutely no difference. She owed fiduciary duties to Bud whenever he did anything that benefited her, whether she was directly involved or not. And if she were not an attorney who could have explained to Bud the nature and consequences of what he was doing, perhaps she should have gotten him an attorney.
Sadly, through a failure to guess what the Court of Appeals would say in terms of technical court procedure, Cyndi’s lawyers did not get the judge to include a question asking whether or not Cyndi was involved in any of the transactions, other than being the person who merely wrote down what Bud wanted her to write on the annuity documents and being his driver when she drove him to the bank. The Court of Appeals hinted that the result might have been different.