Misuses of Power of Attorney and Nominee Trusts
There are two legal instruments that lend themselves particularly well to fraud and abuse: the power of attorney and the nominee trust. A great deal of litigation is spawned by the misuse of those instruments.
Powers of Attorney
A power of attorney is itself danger waiting to happen. POAs give the holder (or the “attorney-in-fact”) the right to act on behalf of the person granting the POA. The powers given range from writing checks, controlling investments, bringing and defending lawsuits, making gifts, and forgiving debts.
Some POAs are made effective immediately, while others have “springing” powers; that is, they only go into effective upon the occurrence of a certain event, such as the declaration by a physician that the grantor of the POA has lost the mental capacity to manage his/her own affairs. People who exploit elders are often able to get them to sign POAs with immediate validity, and no sooner is the ink dry on the signature than the holder begins draining the holder’s bank accounts. If you see a POA that has been made effective immediately, and if the elder in question was not in immediate need of a POA, you should be suspicious.
Nominee trusts have long been used as vehicles for owning real estate. A nominee trust is very simple in its design: The trustee, usually a family member, friend or attorney, appears in the registry of deeds as the record owner of the property. However, the true owner, the beneficiary of the trust, has their ownership interest set forth in a document that is not recorded in the registry. This type of arrangement satisfies two objectives: (a) it creates an anonymity of ownership relative to the property; and (b) deters creditors from looking to the property to satisfy any debts owed by the beneficiary (even though the property can be reached by creditors), since creditors may not be aware of the beneficiary’s ownership interest.
But beneath this veneer lies an awful truth: While a trustee is not permitted by law to sell property held in a nominee trust without the consent of the beneficiaries, a relatively recent change in Massachusetts law allows a trustee acting with an evil motive to sell property without actually obtaining such consent. Section 35 of Chapter 184 of the General Laws provides that a certificate, signed by a trustee of a nominee trust, certifying that the beneficiaries have given the trustee their consent to sell the property, can be relied upon by third parties who purchase the property. With this new law in place, all a trustee need do is falsely state in the trustee certificate that he/she obtained the consent of the beneficiaries. The trustee can then sell the property, have the check for the sales proceeds made payable to him/her, then liquidate the trust without paying the beneficiaries.
Attorney Alan Fanger is a Massachusetts probate attorney concentrating in matters pertain to Power of Attorney and Real Estate Trusts. He serves the entire Greater Boston and Boston metrowest region including Norfolk County, Suffolk County, and Middlesex County, and the communities of Arlington, Boston, Braintree, Brookline, Cambridge, Canton, Concord, Dedham, Dover, Framingham, Lexington, Milton, Natick, Needham, Newton, Norwood, Quincy, Sherborn, Sudbury, Waltham, Wayland, Wellesley, and Weston, Massachusetts.