The case involved an adult daughter who had been named as the trustee of her mother's revocable living trust. She used her role as trustee to spend a large sum of her mother's money to purchase property and build a house for herself with the stated but never realized intention of having her mother live with her.
Upon the petitioning of the mother's other children, a professional guardian was assigned for the mother who sought to put a lien on the house to recover the mother's money only to find that the daughter had already transferred the property and her other real estate to her husband and brother-in-law via quit claim deed for no consideration. The court allowed the guardian to put the lien on the home anyway under a theory of fraudulent transfer and found that the homestead exemption did to apply to the home because it was bought with ill gotten resources. The daughter appealed and the court upheld the lower court's decision.
While much of case focuses on the ins and outs of liens and exemptions, it also contains some good reminders about the meaning of fiduciary duty that can be helpful to anyone serving as a trustee or attorney-in-fact for a parent.
It is not uncommon in our experience for aging parents to prefer to live with adult children if possible over living in a nursing home or other institutional setting and that often involves costs to the children that can properly be paid for by a trust or through a power of attorney but only with great care - which was not taken in this case. The court found that if the daughter had really intended to have her mother live with her she should have segregated her mother's funds from her own and protected her mother's interest by providing her with a secured interest in the house - which would have prevented the very kind of self-serving transfer the daughter later engaged in. While court isn't specific, it appears that to avoid the breach the trustee could have either put the trust directly on the title of the property to reflects its percentage investment or could have been given a promissory note backed by a deed of trust.
Moreover the court makes it clear that any self-dealing and co-mingling of assets can be a breach of fiduciary duty that would result in a fiduciary being removed even if the money is eventually replaced as the trust suffers no losses. All to often we find that people get "sloppy" with powers of attorney and revocable trusts because, unlike guardianship or court supervised trusts, there are usually not annual accountings or reports that need to be affirmatively produced for the court each year. That lack of oversight is part of why these are less expensive ways to assist a disabled loved one but it should not be viewed as permission to cut corners by creating joint accounts, failing to keep keep funds segregated, or failing to keep adequate records of spending. The facts of the Roberts case suggest that this fiduciary did not have her mom's best interests at heart and clearly should have been removed. But we have also seen very well intentioned and loving adult children get challenged and even removed from their parents' care because family conflict erupts and they have not bee doing a good job of keeping funds separate and accounted for.
If you are serving as a trustee, attorney-in-fact or other fiduciary and what advice how to best protect you and your loved ones, please call us to schedule a consultation at firstname.lastname@example.org or (206) 459-1908. If you are concerned that you or a loved one is being taken advantage of by a current fiduciary and want to understand your options for responding, please contact us as well.