Navigating the agent’s power to gift under power of attorney (POA)

A power of attorney (“POA”) is a document that appoints another — known as the “attorney-in-fact” or “agent” — to act in the principal’s place for business, financial, legal, or other purposes, often when the principal cannot do so on his or her own behalf.  There are various types of POAs, and the terms and scope of an agent’s authority, like contracts, are defined in the POA.  Generally, an agent must act: (1) in the principal’s best interest; (2) in good faith; and (3) only within the scope of authority granted in the POA.

Agents occasionally have the power to carry out a principal’s wishes regarding gifts to family, charities, and others. But such “power” can come at a cost and expose agents to liability, especially when gifts benefit themselves. A recent case from the Virginia Supreme Court lends guidance to agents when navigating gifts under a POA. In Davis v. Davis, 835 S.E.2d 888 (Va. 2019), a son’s POA gave his mother power to transact all business for him, “execute and perform all and every act or acts, thing or things in law needful and necessary to be done in and about [Son’s] affairs,” and “sell and convey any and all personal property and all real property.” Shortly before he passed away, Mother transferred Son’s personal property to herself and executed certain deeds of gift transferring real property to Son’s siblings, at the exclusion of Son’s new wife. When Son passed away, New Wife successfully invalidated Mother’s actions.

The court held that the words “sell and convey” only permit the agent to sell the principal’s property. They do “not include the authority to make gifts or transfers for inadequate consideration.” The court also rejected Mother’s argument that the gifts to herself were permissible under Va. Code § 64.2-1622(H), which allows an agent to make gifts on behalf of the principal if they are consistent with the principal’s pattern and history of prior gifting.  Although Son once gave $10,000 to his brother and rented property to a family friend for below market rent, those gifts were not factually similar to those that Mother gave to herself. The court held that when making a § 64.2-1622(H) determination, it must compare the purpose, nature, amount, and frequency of the principal’s lifetime gifts with those made by the agent. Since the gifts by Mother to herself were dissimilar to prior gifts, they were invalid.  Further, when a gift benefits the agent personally, Virginia law imposes a presumption that the gift was fraudulent, which Mother could not overcome.

The Davis case serves as a warning to agents with power of attorney who may be looking to “give a little extra” from a loved one. Before proceeding, the agent must consider the principal’s needs and ensure any contemplated gifts are in the principal’s best interest. Further, the agent should review the agent’s gifting authority under the POA. Besides the gifting power afforded by the Virginia Code, a general gifting power in a POA is limited to the Federal annual gift tax exclusion amount, or $15,000 per donee in 2020, unless the POA document states otherwise.  Even if the contemplated gift is authorized under the POA, agents should consider those impacted by the gift. If gifts are made to certain individuals at the exclusion of others, the agent may wish to seek an advance acknowledgement and consent to avoid conflict following the transaction.

In all events, the agent should proceed cautiously when gifting under a POA — and consult an attorney if unsure — to minimize the risk of future liability.

Kevin W. Weigand is a counsel in the commercial litigation practice at Venable LLP’s Tysons office. Anna Katherine Moody is an associate in the tax and wealth planning practice in Venable’s Washington, D.C., office.