GIFTS UNDER A POWER OF ATTORNEY CHALLENGED

The taxpayer was in a nursing home and had given a person a power of attorney which did not specifically refer to the ability of the agent to make gifts with the assets of the taxpayer.

While in the nursing home, and in a condition where all the taxpayer was able to do was nod in agreement to the making of a specific set of 38 separate $10,000 gifts to family members ($380,000 in all) when presented by the person named in the power of attorney with the prospect of making the gifts, the named person consummated the gifts prior to the death of the taxpayer which occurred only weeks later.

The issue before the IRS was whether the gifts made before death were in fact valid gifts. The IRS looked at California law which required that the power of attorney make specific reference to gift giving if the person named in the power of attorney was to have such a power (This is also the law of New York). Since the power of attorney did not contain the appropriate language, the gifts were a nullity and therefore the $380,000 was included in the gross taxable estate of the taxpayer.

It seems that the issue was whether if the taxpayer consented to the making of the gifts, does that override the fact that the power of attorney was devoid of provisions dealing with gift giving. Understand that the only reason courts insist that the power of attorney contain specific authority to make gifts is that the principal may not have wanted her/her assets to be used in such a manner. The failure to have the specific authority might violate the trust relationship established by the power of attorney. In other words, the person named under a power of attorney is a fiduciary and must employ and use the assets of the principal only in ways that are in the interests of the principal and in keeping with the wishes of the principal. Yet here while the power did not confer specific authority we are told by the facts that the principal consented to the making of the gifts. It would seem that if the principal truly consented, the gifts should have been upheld. In any event, the moral of the story is to make sure that your powers of attorney allow very broad gift giving power if that's what you wish. Also make sure that gift giving is not limited to $10,000 per year per donee if that is not what you really want.