Law Lessons from Mary Costanza v. Patricia and Louis Costanza (Docket No. BER-C-75-08; Decided by the Honorable Robert P. Contillo, J.S.C., on June 9, 2009):

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Powers of attorney are statutorily recognized in the State of New Jersey. Revised Durable Power of Attorney Act, N.J.S.A. 46:2B-8.1, et seq. A power of attorney is a written instrument by which an individual known as a principal authorizes another individual, known as the attorney-in-fact, to perform specified acts on behalf of the principal as the principal’s agent. N.J.S.A. 46:2B-8.2(a). A power can be durable, or not. A durable power of attorney conveys authority “…exercisable notwithstanding the principal’s subsequent disability or incapacity…”. N.J.S.A. 46:2B-8.2(b).

A third party acting in good faith may rely upon the authority granted in a durable power of attorney “…until the third party has received actual notice of the revocation of the power of attorney, the termination or suspension of the authority of the attorney-in-fact, or the death of the principal.” N.J.S.A. 46:2B-8.6.

A principal, through her power of attorney, may empower her attorney-in-fact to give gifts. However, a power of attorney can not be construed to authorize the attorney-in-fact to gratuitously transfer property of the principal to the attorney-in-fact “…except to the extent that the power of attorney expressly and specifically so authorizes”. N.J.S.A. 46:2B-8.13(a).

In sum, then, a power of attorney, which, as to gifting, simply authorized the attorney-in-fact “To make gifts on my [the Principal’s] behalf”, does not provide any authority to permit the attorney-in-fact to gift herself gifts of the principal’s property, but it does give her authority to give gifts to third parties, and third-parties are entitled to rely upon the authority granted in a durable power of attorney – including the authority to give gifts of the principal’s property – provided they are engaged in “good faith reliance”, i.e., provided they are without actual notice of revocation of the power, termination or suspension of the authority of the attorney-in-fact, or the death of the principal”. N.J.S.A. 46:2B-8.6(a).

A power of attorney imposes a fiduciary duty upon the attorney-in-fact to administer the principal’s assets solely for the principal’s benefit. See Albright v. Burns, 206 N.J. Super. 625, 635-36 (App. Div. 1986); Gallo v. Gallo, 66 N.J. Super. 1.5 (App. Div. 1961). Therefore, the attorney-in-fact has the burden of proving that she expended the principal’s funds for the principal’s benefit. D’Amato v. D’Amato, 305 N.J. Super. 109, 115 (App. Div. 1997).

A bona-fide, good-faith, innocent recipient of a gift has no legal duty to disgorge the gift which the attorney-in-fact had the power to give him, notwithstanding that the attorney-in-fact had no right to make them, unless it can be shown that the gift recipient knew, or should have known, that the gifting was unauthorized or improper.

Also, an innocent third party who relies on an attorney-in-fact to his detriment – for example, a creditor – can not be stripped of his rights where he relies in good faith on the authority of the agent to his detriment even though the agent’s conduct is unauthorized, and even though the principal received no benefit from it. See, New Century Financial v. Dennegar 394 N.J. Super. 595, 602 (App. Div. 2007).

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A “gift” is a transfer without consideration upon delivery of the subject matter of the gift. Hill v. Warner, Berman & Spitz, P.A., 197 N.J. Super. 152, 164 (App. Div. 1984). See also, In re Matter of Estate of Del Guercio, 206 N.J. Super. 159 (Law Div. 1985).

An inter vivos gift creates an interest in the donee before the donor’s death, provided that certain elements are met: first, a delivery effected before the donor’s death; second, a donative intent; and, third, an acceptance by the donee.

The law requires that proof of each of the foregoing elements must be clear, cogent, and persuasive. Czoch v. Freeman, N.J. Super. 273, 284 (App. Div. 1999), certif.. denied, 161 N.J. 149 (1999), citing Farris v. Farris Engineering Corp., 7 N.J. 487, 500-01 (1951). See also, In re Dodge, 50 N.J. 192, 216 (1967).

The burden of proving an inter vivos gift is on the party who asserts the claim.

If the party challenging the gift can show that the recipient and the transferor shared a “confidential relationship,” the burden of proof can shift to the recipient to show that no undue influence occurred. In re Dodge, 50 N.J. 192, 216, 227 (1967); Oachs v. Stanton, 280 N.J. Super. 478 (App. Div. 1995). In general, the donee then has the burden to show by clear and convincing evidence that “no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.” Id. At 227, quoting In re Fulper’s Estate, 99 N.J. Eq. 292, 302 (Prerog. 1926). A gift which strips the donor of all of her assets will be presumed to be the product of undue influence. Seylaz v. Bennett, 5 N.J. 168, 173 (1950); Petruccio v. Petruccio, 205 N.J. Super. 577 (App. Div. 1985).

To constitute an inter vivos gift, there must be an unequivocal donative intent. In re Dodge, 50 N.J. 192, 216 (1967). If the donor did in fact intend to make a gift, the gift will be sustained provided the requirement of delivery is satisfied. Dierksen v. Albert, 106 N.J. Super. 220, 225 (App. Div. 1969); Hill v. Warner, Berman & Spitz, 197 N.J. Super. 152 (App. Div. 1984).

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