COLUMN: Making right the wrong that's been done

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Multiple types of relationships can create a fiduciary duty - the duty to act in another’s interest with the utmost care and fairness, without benefit to self. The person who is named as agent to handle another’s financial affairs in a statutory durable power of attorney owes this fiduciary duty to the principal who appointed him or her. A person appointed as a guardian of another’s estate also has this duty. Executors and administrators of estates have this duty, as do trustees, partners and corporate officers. These examples represent formal fiduciary relationships.

Informal fiduciary relationships can arise when one person places confidence, trust and reliance upon another, usually outside a strictly business relationship. Since not every relationship in which one person trusts and relies upon another creates a fiduciary relationship, it is important to consider all the facts surrounding the relationship.

Parents As Guardians Creates Formal Fiduciary Relationship

Phyllis and Karl Bennett’s son, Jason, suffered incapacitating injuries in an automobile accident sustained when he was in his mid-twenties. The parents sued on their son’s behalf and secured a judgment of $500,000.00 in damages for him. Jason was not capable of handling his own affairs and Phyllis and Karl were appointed guardian of their son’s estate.

The couple bought a 110 acre ranch, using Jason’s money to make the $50,000.00 down payment. Then for the next 10 years they withdrew money from Jason’s account to make the $1,000 monthly payments on the purchase money mortgage. At the end of that period, Jason’s account was depleted and the couple placed him in a state mental health facility.

The Bennetts claimed that a major reason for buying the ranch was to provide an environment where Jason could roam without restriction they claimed were foisted on him in the suburban neighborhood in which they lived . In truth, moving Jason to the ranch isolated him from resources of medical treatment, physical and psychological therapies and interaction with others near his age who suffered similar disabilities.

Jason’s older sister Betty, who had always been close to her brother, was appalled. She sought the advice of an attorney to determine if anything could be done to protect Jason and recover the funds lost to him through his parents’ actions.

Potential Remedies for Jason’s Situation

Betty filed an application to have their parents removed as guardians of Jason’s estate and asked the court to appoint her as his guardian. She also filed a lawsuit against the Bennett’s on Jason’s behalf (as his “next friend”), alleging the Bennett’s converted Jason’s money for their own personal use, breached their fiduciary duty to Jason and committed constructive fraud (gaining an advantage over another person through deceitful or unfair means). Although Betty opted to have this case tried before a judge, she could have chosen to have a jury decide it instead.

A similar situation occurred in the case Wilz v. Flournoy, 228 S.W.3d 674 (Tex.2007). In that case, a jury found that a father who was his son’s guardian had breached his fiduciary duty and converted the son’s property deliberately. The case eventually went to the Texas Supreme Court, which rendered judgment that the entire farm was subject to a constructive trust for the son’s benefit.

The constructive trust is a remedy that is imposed by the court. It re-establishes property to a person deprived of it by another’s wrongdoing. The Bennetts were unjustly enriched when they obtained a ranch with money that belonged to Jason and was intended for his welfare and care.

In Betty’s case, the judge found the Bennetts were guilty of conversion, breach of fiduciary duty and constructive fraud, and imposed the remedy of a construction trust on the farm. The court ordered the farm to be sold and the proceeds placed in a trust for Jason’s benefit with Betty as the trustee. Betty took Jason into her home located in the same neighborhood where he had lived prior to having been moved to the ranch.

Betty used the money in the trust to purchase an annuity with Jason as the beneficiary. The annuity paid a monthly benefit which was sufficient to cover Jason’s expenses and needs for additional care that she could not give until he died at the age of 56.

Friendship and Caregiving Created Informal Fiduciary Relationship

Consider a hypothetical situation, somewhat similar to that in Guardianship of Bays, a case decided by the Fort Worth Court of Appeals. Louise, a 93 year old woman living in Texas, rarely saw her son, who lived in Los Angeles. She was befriended by Sam, a much younger man she met at her church. Sam, who had allegedly “taken care of” her persuaded Louise to deposit $300,000.00 into an account in both his and her names. Because Louise was vulnerable to Sam’s influence, the relationship created an informal fiduciary relationship.

Potential Remedies for Louise’s Situation

Mary, a social worker who attended the same church as Louise and Sam became aware of the account and was concerned. A lawyer with expertise in such matters, recommended that the concerned friend seek a court initiated investigation. Upon completion of its investigation, the court appointed Louise’s son as guardian and ordered Sam to deposit $300,000.00 into the registry of the court to determine if he was entitled to any of the funds. When Sam refused to do so, the court sent him to jail. Subsequently, the court determined that it was Sam’s undue influence had convinced Louise to create the account and the full $300,000.00 was returned to her.

Louise was fortunate that Mary acted as quickly as she did. If she had not, all of the funds might not have still been available to recover.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is in Fort Worth, Texas. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at swreed2@yahoo.com or by phone at 254.797.0211.