Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

A recent appeals court rules that a durable power of attorney that allows the agent to “make gifts” does not accord the power to change retirement plan beneficiaries or to make large gifts of personal property absent specific authorization in the document.  In this case, Ronald Slomski executed a power of attorney naming his mother, Rita Slomski, as attorney-in-fact. The document authorized the attorney-in-fact to “make gifts” but it did not contain further instructions regarding gifting powers. Shortly before Mr. Slomski died, his mother, acting under the power of attorney, changed the beneficiary designation on his retirement account from his step-children to his siblings. She also used the document to distribute some $115,000 of Mr. Slomski’s assets to his siblings. Mrs. Slomski claimed that she was acting on her son’s instructions.

Mr. Slomski’s step-daughters and his estate sued Mrs. Slomski, claiming that she lacked the proper authorization to make gifts. They argued that Pennsylvania law requires that a power of attorney specifically grant the authority to make unlimited gifts. Mrs. Slomski maintained that the statute grants an attorney-in-fact broad powers to manage bank accounts and retirement plans and that the change in beneficiaries should not count as a “gift.” The trial court ruled that Mrs. Slomski had the power to change the beneficiary designations but not to make the large distribution to the siblings. Both sides appealed.

The Court found that the power of attorney does not grant Mrs. Slomski the power to make unlimited gifts or to change the beneficiaries of the retirement plan. Citing the statute’s requirement that a power of attorney specifically authorize even limited gift making, the court says “if the phrase ‘to make gifts’ is insufficient to vest an agent with the authority to make limited gifts, it is clearly insufficient to vest an agent with the broader authority to make unlimited gifts.”

A number of years ago, I received a call from a potential client who had the following tale to tell.  The woman’s husband had died leaving a will and some assets, one of which was a 401k. The marriage was a second for her husband, who had 2 sons from his first marriage.  While he was single he had changed the beneficiaries of his life insurance and 401k plan to his sons and had redone his will.
 
After his second marriage, the husband and his new wife bought a new home together.  They asked their real estate attorney, who handled the purchase for them, to draft new wills as well.  The husband listed for his attorney the assets he wanted to pass to his sons and which to his new wife.  The 401k he wanted to go to his wife. Unfortunately, the attorney didn’t understand the difference between probate and non-probate assets.  So when he wrote  a will that specifically left the 401k to the wife, he didn’t know that the will would have no effect on this asset because the beneficiary designations on file with the custodian of the 401k plan still listed the sons from the first marriage.
 
When the husband died, the wife received a big shock when she was told that she had no interest in the $500,000 account.  That’s because a will doesn’t automatically control the distribution of all your assets.  Contract property such as life insurance, annuities and retirement accounts pass in accordance with whom you have designated on the beneficiary forms completed and filed with the life insurance and annuity companies or retirement account custodians.  Other types of property pass by operation of law such as joint accounts with right of survivorship or real estate that is owned by husband and wife.  When one owner dies the property automatically passes to the surviving owner.  It does not matter what the will says.
 
That is what happened in our story.  The 401k is contract property so it passed according to the beneficiary designation form on file, not by the will.  The wife tried unsuccessfully to get a court order directing the funds be paid to her.

The moral of the story is that although many people think drafting a will is simple and often undertake to do it themselves or ask the attorney who did other work for them to handle this task as well, they may miss important steps that must be taken that can save a lot of heartache and money. 

This example is further reason why attorneys should reconsider doing “simple wills” when requested by a client.  Simple does not mean right.  For more information on this post, contact Fredrick P. Niemann, Esq. at fniemann@hnlawfirm.com.