A financial Power of Attorney is a legal document which grants another person the authority to act as your legal representative and to make binding legal and financial decisions on your behalf. The person signing the financial Power of Attorney is called the “principal.” The person being granted the power to act is called an “agent” and the “attorney in fact.”
What happens if the attorney in fact uses the financial Power of Attorney to their own advantage? Let’s say they gift themselves $1,000,000 of the principal’s money. Is it legal? What about if they sell the principal’s house to themselves for less than the fair market value. Is that allowed?
The concept of taking advantage of your position in a transaction and acting for your own interests is referred to as “self dealing.”
In Michigan, the first place to look in answering whether a transaction is permitted is the document itself. The case law in Michigan provides that a financial Power of Attorney document “should be strictly construed” which means that if it is not written in the document itself, it should not be assumed to have been intended by the principal.
Generally, if there is no provision within the financial Power of Attorney allowing for self-dealing or gifting then it is prohibited. MCL 700.1214 prohibits most instances of self-dealing. The statute states:
Unless the governing instrument expressly authorizes such a transaction … a fiduciary in the fiduciary’s personal capacity shall not engage in a transaction with the estate that the fiduciary represents and shall not invest estate money in a company, corporation, or association with which the fiduciary is affiliated…. A fiduciary in the fiduciary’s personal capacity shall not personally derive a profit from the purchase, sale, or transfer of the estate’s property….
For a financial Power of Attorney created after October 1, 2012, Michigan law now further clarifies the authority of an Attorney in Fact. An Attorney in Fact acting under a financial Power of Attorney may only make gifts with to the extent expressly provided for in the financial Power of Attorney. MCL 700.5501 provides:
(d) The attorney-in-fact shall not make a gift of all or any part of the principal’s assets, unless provided for in the durable power of attorney or by judicial order.
(e) Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.
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