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Potential Litigation Under the General Obligations Law

By Joel Krooks, Esq., Littman Krooks LLP

A Power of Attorney is a very powerful legal document which allows a person (referred to as a principal) to appoint another person (referred to as an agent) to assist with the principal’s finances on their behalf.  Often, spouses, children or siblings act as agent for the principal. However, many agents accept their role without understanding the responsibilities and potential litigation commenced by an interested party that may arise from their appointment.  An interested party can include but is not limited to a monitor, a co-agent or successor agent, a government entity, or someone appointed by the court.

Breach of Fiduciary Duty and Removing Agent

First, an agent owes a fiduciary duty to the principal. This means that an agent must act in the best interest of the principal. The agent is required to act as a prudent person would if it were their own assets. If an interested party believes that the agent is not acting in the best interest of the principal or is not acting in a prudent manner, then that person may have the right to bring a breach of fiduciary duty claim against the agent. The person bringing the action will need to prove that the agent breached their fiduciary duty. An interested party can commence a legal proceeding to remove an agent on the grounds that the agent violated, or is unfit, unable or unable to perform, the fiduciary duties under the power of attorney.

Approving the Record of all Receipts, Disbursements and Transactions Entered into by the Agent on Behalf of the Principal              

An interested party can commence an action requesting the Court to appoint a neutral third party to approve and review all of the receipts, disbursements and transactions entered into by the agent on behalf of the principal. It is critical that anyone who is acting as agent keep a detailed record of all receipts, disbursements and transactions.

Validity

Another often litigated matter is the validity of a Power of Attorney. An interested party can bring an action to determine if the Power of Attorney is valid, if the principal had capacity when the document was executed or if there was duress, fraud, or undue influence to sign the Power of Attorney. As such, it is important to work with an attorney who is experienced with the Power of Attorney law, and the requirements of properly executing the Power of Attorney. It is much more likely for a Power of Attorney to be invalidated if a principal does not have an experienced attorney involved with this aspect of their estate planning.

Compensation

In order for an agent to receive compensation, the principal needs to authorize the compensation in the Power of Attorney. The work of an agent can be very strenuous, and the agent may want to be compensated for all of the time that they spend. In the Power of Attorney, the amount of compensation can either be specified or it can say reasonable compensation. Interested parties may contest what reasonable compensation is. There is no set rule for reasonable compensation, rather it is determined based on the amount of work involved, the complexity of the principal’s affairs, and various other factors.

A new Power of Attorney law went into effect on June 13, 2021. This changed the way the Powers of Attorney are drafted and executed. Littman Krooks is experienced with all aspects of litigation relating to Powers of Attorney and the proper drafting and execution of Powers of Attorney. If you have issues, or just need to update your Power of Attorney, please reach out to us.


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