Maybe He Even Reads My Blog

I’m delighted to see that Judge Lauber decides that a Power of Attorney (POA) is a piece of paper. The party designated to act for the principal in most of the uniform POAs I’ve seen is called the “agent.”

So Judge Lauber uses the correct terminology in Vincent J. Fumo, Docket No. 17754-13, filed 10/14/16; and for that I’ll even forgive him for not designating this order.

Vincent J. is in the unhappy situation of being about to depart the free world for durance vile. So he opens a joint bank account with his son, who soon proves the truth of the old adage about “sharper than a serpent’s tooth.”

Vincent J. pours nearly $1 million of his money in, and goes off to spend 61 months as a guest of a certain State.

“The powers granted to petitioner’s son, referred to in the POA as his ‘agent,’ included the powers to ‘draw and sign checks for me and in my name, including any accounts opened by my agent in my name at any bank or banks’; and to ‘prepare, sign and file tax returns of all kinds.’ Petitioner explicitly stated in the POA that ‘[m]y agent does not have the authority to make gifts.’ In accepting these powers, petitioner’s son promised: ‘I shall exercise the powers for the benefit of the principal’ and “I shall keep the assets of the principal separate from my assets.’” Order, at pp. 2-3.

You can guess the rest; son transfers money from joint account to a different bank from where the joint account was held, and uses some of the cash to buy real estate in his own name.

When Vincent J. breathes free air again, he sues son and they settle.

IRS, with breath-bereaving coolness, claims gift tax on everything above the annual exclusion, and slams Vincent J with a $300K deficiency.

Now IRS wants summary J.

Might there be a question of fact or two? Judge Lauber thinks so.

“A gift is a transfer by a donor that is motivated by ‘a detached and disinterested generosity’ toward the donee. Commissioner v. Duberstein, 363 U.S. 278, 285 (1960). To determine whether a gift has been completed and is thus subject to gift tax, we must determine (among other things) whether the donor has parted with dominion and control over the property so as to leave him no power to change the disposition of the gift. Treas. Reg. § 25.2511-2(b).

“Several disputes of fact [sic; probably “several disputed facts”] must be resolved before we can determine whether the $920,000 transferred from [A] Bank account to the [B Bank] account constituted completed gifts from petitioner to his son. First, the record does not conclusively establish in whose name the [B Bank] account was titled. [Bank B] reported to petitioner the interest earned on that amount; this creates an inference that his name was listed on the account. As respondent recognizes, the transfer of money into a joint account does not, in and of itself, establish a completed gift to the other account-holder.

“Second, factual disputes exist as to whether petitioner intended to make a gift of $920,000 to his son. Petitioner’s son effected these transfers pursuant to the powers granted him by the POA. But the POA prohibited petitioner’s son, in his agency capacity, from making gifts. And petitioner’s son, in accepting his role as agent, pledged to keep petitioner’s assets separate from his own. By virtue of his imprisonment, petitioner lacked power to control the actions his son took pursuant to the POA. But the fact of imprisonment, without more, does not establish that petitioner made a gift to his son of the assets over which his son possessed fiduciary powers.” Order, at p. 3.(Names omitted).

The present uniform State law POA, which has a separate rider when gifts by the agent are to be permitted, owes much to New York’s Matter of Ferrara, 7 NY 3d 244 (2006).

Powers of Attorney may be only pieces of paper, but they can do a lot of damage.