While many have bemoaned the reality that a Power of Attorney (“POA”) can be misconstrued as a grant of authority to steal, the potential tax consequences of such a scenario have been largely neglected.
In a recent case, Nice v. United States, it was determined that Mary Ellen Cranmer Nice (“Mrs. Nice”) was liable to pay the taxes on IRA distributions withdrawn from her account by her son, Charles Nice, III (“Chip”), utilizing a POA that was subsequently determined to be invalid.
Mr. Nice died in 2002, leaving behind a substantial estate intended to care for Mrs. Nice for her remaining years. Chip was appointed Executor of Mr. Nice’s estate and subsequently moved in with Mrs. Nice. Three years later, Mrs. Nice began to show signs of early dementia, which later progressed.
Chip continued to financially exploit his mother in her vulnerable state. In 2011, he managed to secure a POA naming himself as his mother’s agent. With this POA, he cut his mother off from her accounts, directed her income for his personal use, gained and channeled her retirement funds to his own account.
Finally, in 2014, Mrs. Nice’s daughter intervened on her mother’s behalf and was appointed Mrs. Nice’s conservator. In 2016 the POA was ruled to be null and void.
Notwithstanding the circumstances that created this situation, it was ruled that Mrs. Nice herself owed the $519,502 in federal income taxes from the retirement account distributions transacted by Chip with the void POA.
Mrs. Nice’s estate argued that due to the circumstances she never actually received the funds. The estate cited a previous case, Roberts v. CIR, where one party had used forged signatures to divert IRA distributions away from the rightful owner. There the court ruled that since the withdrawals were made with a forged signature and that the victim had minimal knowledge of the existence of the account, the exploited party was not responsible for the taxes incurred.
Mrs. Nice’s estate attempted to maintain that she didn’t receive the taxed income because she was unaware of the funds, was restricted from accessing the funds and only minimally benefited from the funds.
However, the court found evidence that Mrs. Nice would occasionally make payments with her checkbook and was generally aware of the account. Therefore, the court ruled that Mrs. Nice had enough access to and control of her account, and though the funds were obtained through an invalid POA and that Mrs. Nice was largely deprived of the benefit of such funds, Mrs. Nice was still responsible for the resulting tax liabilities.
What can you do to help protect individuals in similar situations?
Heightened awareness and greater transparency are two great places to start. Financial institutions are working to equip employees with the skills to detect any kind of exploitation of older adults. Further, granting online banking access to financial advisors and/or other family members may more quickly alert others of possible financial abuse.
What do we do to help you?
As a firm, we do everything possible to protect you and your assets during and after your lifetime. One primary way we help protect against elder abuse is by encouraging our clients to appoint two or more agents to act together as POA. This creates a system of checks and balances that reduces the possibility of financial exploitation. To find out more about ways we help our clients, visit us at www.greenwaldweiss.com.