Creation of Survivorship Accounts by an Agent Acting Under Power of Attorney
By Douglas L. McWhorter
Dominick Feld Hyde, P.C.
Alabama Uniform Power of Attorney Act
The Alabama Uniform Power of Attorney Act (the “Act”)(Ala. Code § 26-1A-101 et seq.) became effective on January 1, 2012. While many of the powers granted to an agent under the Act may be conveyed by simple reference or by using a form provided by the Code, there are certain extraordinary powers that can only be bestowed upon the agent by specific grant. One of these so-called “hot powers” is the ability of an agent to create survivorship accounts with the principal’s assets. Ala. Code § 26-2A-201(a)(3) provides that “if the power of attorney expressly grants the authority,” the agent may “create or change rights of survivorship.” Although this express authority could apparently apply to any property of the principal, it would be particularly easy for an agent to convert his principal’s solely owned financial accounts to survivorship accounts by completing an appropriate contract of deposit under Ala. Code § 5-24-4 which included a survivorship feature. In fact, if the agent’s name is merely added to an account as a co-owner without survivorship language, it would still pass to the agent upon the death of the principal since survivorship occurs by default. Ala. Code § 5-24-12 (a).
Significance of Creating or Changing Rights of Survivorship
The authority provided by Ala. Code § 26-2A-201 (a)(3) to either “create or change rights of survivorship” is significant for two reasons. First, the exercise of such authority will affect the way those assets pass at the death of the principal. Since survivorship assets are non-testamentary, the principal’s Will can be superseded by the “creation” of survivorship accounts with the principal’s solely owned assets. Likewise, since an agent can also “change” existing rights of survivorship, non-probate assets of the principal can be diverted to the Will.
Second, subject to some limitations discussed infra, an agent possessing this extraordinary power can financially benefit from his fiduciary relationship by causing assets to flow directly to himself at the death of the principal.
Case Sevigny v. New South Federal Savs. & Loan Ass’n
The creation of survivorship accounts by an agent acting under a power of attorney was the subject of several Alabama cases decided before the adoption of the Act. In Sevigny v. New South Federal Savs. & Loan Ass’n, 586 So.2d 884 (Ala. 1991), the decedent appointed his two nieces as his agents under a power of attorney. For her own convenience in dealing with the principal’s accounts while he was living, one of the nieces caused the assets to be held jointly with right of survivorship among the principal and both agents. At the principal’s death, the other agent claimed the accounts by virtue of the survivorship language pursuant to the predecessor of Ala. Code § 5-24-12. In holding that the accounts did not pass to the agents under the survivorship language in the bank contract, the Alabama Supreme Court stated:
An agent sustains a position of trust toward his principal and in all transactions affecting the subject of the agency, the law dictates that he must act in the utmost good faith . . . . The law sedulously regards this principle and acts of an agent which tend to violate this fiduciary obligation are prima facie voidable . . . and are considered in law as “frauds upon confidence bestowed.” (Citations omitted.) (Emphasis original.)
Thus, the Alabama Supreme Court in Sevigny held that when an agent used a power of attorney to create survivorship accounts with the principal’s funds, the accounts nevertheless passed by the Will of the principal and not to the agents by survivorship. The Sevigny court concluded: “An agent is not permitted to occupy a position that would allow her to profit as a result of that relationship.” 586 So.2d at 887.
Case Harrelson v. Harrelson
In Harrelson v. Harrelson, 7 So.3d 1004 (Ala.Civ.App. 2008), the Alabama Court of Civil Appeals reached a contrary result in holding that joint bank accounts created by the agent passed to the agent via survivorship. In Harrelson, the agent (Jerry) used his power of attorney to redeem certificates of deposit held in the principal’s name and to create new CDs in the names of Jerry and principal as joint tenants with right of survivorship. When the principal died, the accounts were the subject of a dispute between Jerry, claiming by survivorship, and the beneficiaries under the Will. The Harrelson court declined to follow Sevigny, and allowed Jerry to retain the accounts he had created with his power of attorney. It relied upon the testimony of a bank employee that, at some point prior to the agent’s creation of the new accounts, the principal had told her that “he wanted to place Jerry’s name on the CDs.”
Further testimony demonstrated that when the agent came to the bank to create the survivorship accounts, the employee had telephoned the principal and confirmed that the agent had the requisite authority. She testified,
“I just asked [the principal] was it all right for Jerry to do this, that Jerry was here. And he said, yes, he was not able to come.” The court therefore held that Jerry had not breached his fiduciary duty as an agent, that he had presented sufficient evidence indicating that the principal “had intended that Jerry use the power of attorney to change the ownership of the CDs . . . and that [the principal] had given his permission for Jerry to do so.” 7 So.3d at 1010.
Results of Sevigney and Harrelson
Both Sevigny and Harrelson were decided prior to the adoption of the Act. In Sevigny, the court looked at the intent of the parties and the facts surrounding the creation of the joint account by the agent to determine if the survivorship language should be given effect. If the rationale of Harrelson is followed in future cases arising under the Act, however, it is possible that a court may conclude that a power of attorney which expressly grants the agent the authority to “create or change rights of survivorship” precludes a finding that an agent has breached his fiduciary duty by directly benefitting from his acts of self-dealing, since the principal had already “given his permission” for the agent to create the joint accounts by signing the power of attorney containing that express language.
Of course, the court can always find that the power of attorney is the product of fraud, undue influence, duress, or lack of capacity by the principal. In addition, the Act does offer some general safeguards to prevent a self-dealing agent from diverting assets to himself which would otherwise pass to others under the Will.
For example, Ala. Code § 26-1A-114 (a) obligates an agent to act “in accordance with the principal’s reasonable expectations” and “in good faith.” In addition, Ala. Code § 26-1A-114(b)(6) states: “Except as otherwise provided in the power of attorney, an agent shall attempt to preserve the principal’s estate plan, to the extent actually known by the agent.” Thus, a court could refuse to enforce survivorship language in cases in which the agent has perverted the deceased principal’s estate plan, provided it could be demonstrated that the agent had knowledge of that plan.
There are no doubt circumstances where an agent could save the principal or his estate considerable time and expense, and potentially avoid probate while still preserving the principal’s estate plan, by creating rights of survivorship if given that authority under Ala. Code § 26-1A-201(b)(3). Nevertheless, as the cases clearly demonstrate, the extraordinary authority to “create or change rights of survivorship” under the Alabama Uniform Power of Attorney Act should only be granted with considerable caution since it will clothe the agent with the ability to engage in self-dealing with the principal’s property.