Pitfalls with Enduring Powers of Attorney
There can be potential pitfalls for children using an enduring power of attorney (EPOA) given to them by a parent. Morton v DeBono [2021] NZHC 1582 is a case in point. The facts below are those recorded by the High Court. There appear to have been other issues not before the Court. No comment is made on those.
John Morton did not think that he had been adequately provided for under his mother’s will and criticized his sister’s use of an EPOA.
John Morton and his sister Julie were the children of Rona Morton. Rona Morton had accumulated substantial real estate assets. One property was situated in Queenstown. Rona Morton was very close to her daughter Julie’s children. Under Rona Morton’s 2010 will, the Queenstown property was to be left to Julie Morton’s children.
Rona Morton lost legal capacity in early 2015 and an EPOA in favor of Julie Morton came into effect.
From late 2014, interest had been expressed through a Queenstown real estate agency in a developer purchasing the Queenstown property for $1.6m and then $1.85m. Although Julie Morton rebuffed these offers, the developer’s interest did not wane. After consultation with her children, an agreement for sale and purchase was signed on 22 October 2016 for $4.5m with settlement on 30 April 2017.
Unfortunately, Julie Morton received advice that the sale proceeds of the Queenstown property would remain earmarked within Rona’s assets for the grandchildren. This was not correct. Had the sale proceeds of the Queenstown property remained in Rona’s ownership, that cash would have fallen to residue which Julie and John would have shared equally.
Solicitors on sale identified the issue. The solution adopted was for the sale proceeds to be gifted by Julie under the EPOA to her children. However, the damage was already done because once the sale proceeds were received by Rona, Julie could be seen as having used the power of attorney for her own benefit, that is, to have sold a property to enhance the value of the residue in which she had an interest. The Judge notes that Julie’s actions appeared to have been driven by incorrect advice.
Rona Morton died on 3 April 2018. John Morton brought a claim under the Family Protection Act. He also argued that Julie Morton should not have used the EPOA in the way that she did. The Family Court reviewed and validated the use of the EPOA. The case was appealed but does not appear to have been heard.
The case is nevertheless a warning for adult children who use an EPOA to deal with their parents’ assets.
Our family team (led by partner Nicholas Burley) have frequent instructions in this area. If our team can be of any assistance with queries regarding the use of EPOAs or in claims against estates and trusts, please give us a call.