Power of Attorney Fiduciary Duties

A power of attorney (POA) is a document used in estate planning that gives someone agent’s authority to make decisions for another person once they are no longer capable. This position requires an immense amount of trust. The duties that a power of attorney conveys are a major responsibility. The consequences of breaching those duties can be devastating. It can be ruinous for the person who put their trust in someone else (the “principal”), and it can lead to significant liability for the person who breached their duties (the “attorney-in-fact”). Speak with our legal team at Midgett Preti Olansen PC to learn about the fiduciary duties that come with a power of attorney, how to fulfill those duties, and how to recover if someone has violated that trust for you or a loved one.

What is Fiduciary Power of Attorney?

Virginia law defines a “fiduciary” as a person who has the authority to act on behalf of someone else in any of the following capacities:

• A personal representative designated in a principal’s estate plan
• A representative serving in another legal capacity, such as a corporate executive or director
• A guardian appointed by a court to manage an adult person’s affairs or a minor’s estate
• A conservator appointed by a court to manage a person’s estate
• A trustee who manages property in a trust on behalf of one or more beneficiaries
• An agent appointed by a principal through a power of attorney to manage their financial affairs and other matters

A fiduciary holds a position of trust over another person. With a power of attorney, for example, a fiduciary may have to make financial or health care decisions for a principal. The law requires them to act in good faith in the interest of the principal above all other concerns. A fiduciary’s duties include care, loyalty, and disclosure.

This definition of “fiduciary” includes people who receive the original designation, additional fiduciaries, and successors. If a power of attorney names two or more people as co-agents, they each have the same fiduciary duties under Virginia state law. A person who takes over as a successor agent has the same duties as the original fiduciary.

Common fiduciary relationships include:

• Attorney to client
• Accountant to client
• Corporate officer to shareholders
• Business partner to other partners
• Executor or administrator to heirs
• Trustee to beneficiaries

What Are the Duties of a Fiduciary Power of Attorney in Virginia?

An attorney-in-fact appointed by a power of attorney owes several fiduciary duties to the principal under the Uniform Power of Attorney Act. Unless otherwise noted in the document itself, any power of attorney created under this statute is a “durable power of attorney.” This means that it remains in effect unless specifically revoked by the principal. A non-durable power of attorney might lose its legal effect upon the principal’s incapacity. Because of the significant responsibility that comes with a power of attorney, Virginia law takes an attorney-in-fact’s fiduciary duties very seriously.

Duty of Care

The duty of care requires an attorney-in-fact to act in good faith on behalf of the principal, to use sound judgment, and to act solely within the scope of the authority granted by the power of attorney. A fiduciary should not be reckless or irresponsible when making decisions that could affect the principal’s property or other interests.

Duty of Loyalty

The principal’s interests must come before the attorney-in-fact’s own interests. An attorney-in-fact cannot make decisions that are not in the principal’s best interest. Decisions that favor the attorney-in-fact over the principal may constitute self-dealing or a breach of the fiduciary relationship.

If the fiduciary is also a beneficiary, such as when they are serving as a trustee, they must work to prevent any conflict of interest. This means that they cannot favor themselves over the other beneficiaries in their duties.

In some situations, an attorney-in-fact might have specific information about the principal’s expectations. They must act in accordance with those expectations rather than their own understanding of what would be in the principal’s best interest.

Duty of Full Disclosure

A fiduciary is responsible for informing beneficiaries of a will or trust about their rights in regard to those documents, and they may have to provide them with periodic reports or accounting statements. They cannot withhold relevant information from the beneficiaries of a will or trust or the principal of a power of attorney.

What is a Breach of Fiduciary Duty?

A breach of fiduciary duty occurs when a fiduciary:

• Does not act in the principal’s best interest
• Places their own interests above those of the principal
• Fails to disclose important information to the principal or their beneficiaries
• Engages in other acts that go against their legal duties or harm the principal’s interests

For example, an attorney-in-fact with a financial power of attorney would be liable for a breach of fiduciary duty if they misappropriate funds from the principal’s accounts for their own benefit.

Breaches of fiduciary duty can be hard to identify. Common red flags include excessive delays in making decisions or providing information, unwillingness to share information when requested, or efforts to deflect or delay questions. Many types of matters that an attorney-in-fact may have to handle involve rather extensive paperwork. The process of maintaining real property, such as making payments for the mortgage, utilities, and property taxes, should generate information that the attorney-in-fact should be disclosing to the principal or beneficiaries. A lack of information could be a sign that something is amiss.

If you suspect that an attorney-in-fact is withholding information or engaging in other types of misconduct, you should seek legal advice from a trust and estate lawyer who has not been involved in the estate planning process up to that point. They can put a fresh set of eyes on the power of attorney and other important documents to help you get to the bottom of what might be happening.

A principal or beneficiary may bring legal action to recover damages for breach of fiduciary duty and seek other relief, such as the removal of the fiduciary from their position. A plaintiff must prove the following in order to establish that they are entitled to relief from a court:

• A fiduciary relationship existed that included specific fiduciary duties.
• The defendant did not uphold their agent’s duties. This typically involves a specific action or series of actions, but it can also consist of a failure to act when the fiduciary was required to do so.
• This caused the plaintiff to suffer actual damages.

What Are the Remedies for a Breach of Fiduciary Duty in Virginia?

State law in Virginia allows courts to award damages for breach of fiduciary duty if a plaintiff can prove that a breach caused them material damages. Remedies may include compensatory damages and reimbursement of misappropriated funds, court costs, and in rare cases, attorney fees. Removal of the fiduciary from their position is also a potential remedy.

In some severe cases, the plaintiff may have additional remedies through a civil lawsuit for claims like negligence or tortious interference with inheritance rights. The remedies for these types of claims are similar to those that a plaintiff could obtain in a breach of fiduciary duty claim.

An attorney-in-fact who has significantly breached their duty could face criminal prosecution. Depending on the circumstances, charges could include the following:

• Larceny
• Embezzlement
• Fraud
• Perjury
• Forgery

The main purpose of a criminal proceeding is to determine the defendant’s guilt and assess penalties. Restitution for the victim is often part of the process. However, a principal’s family member or heir would not have as much involvement in a criminal case as they would in a civil lawsuit.

Let Us Protect Your Interests

A diligent and thoughtful Virginia estate planning attorney can help you ensure you have a thorough estate plan that will meet your needs and the needs of your heirs. Midgett Preti Olansen handles breach of fiduciary duty and all estate- and trust-related matters in Virginia Beach and throughout the Hampton Roads area. Contact our firm today at 757-687-8888 or through our online contact form to schedule a confidential consultation to see how we can help you.