"He that is his own lawyer has a fool for a client." - Hunt
Stewart v. Sewell (April 14, 2005).
In Stewart v. Sewell, the Court of Appeals of Tennessee considered a case where Clara Stewart was admitted to a nursing home. At the time of her admission, the nursing home asked her agents under a power of attorney to disclose Ms. Stewart's assets. The agents refused. Instead, they gave themselves $19,500 and sold a piece of property appraised at $110,000 to their daughter for $40,000 (the deed disclosed a sales price of $40,000, but there was testimony that the actual sales price was $80,000). The agents then placed the proceeds from the sale in certificates of deposit, listing themselves as joint owners. At Ms. Stewart's death, the agents claimed ownership over the CDs.
One of the problems here, however, was that the property sold was supposed to go to Ms. Stewart's step-son. Her husband's will and her own will stated that it would be his when Ms. Stewart died. The actions of the agents, selling the property and placing the proceeds in jointly owned certificates of deposit, defeated that gift by removing the property from Ms. Stewart's estate. After Ms. Stewart died, the step-son filed a lawsuit alleging that the agents acted beyond the scope of their authority and that they breached their duty to Ms. Stewart.
The court of appeals agreed with Ms. Stewart's step-son. Initially, the court found that the agents were fiduciaries and that "they were bound to exercise the utmost good faith, loyalty and honesty toward Mrs. Stewart." After making that finding, the court went on to note that the proceeds from the sale of the property were not "needed" to care for Ms. Stewart and that Ms. Stewart gained no benefit at all when the proceeds were placed in certificates of deposit co-owned with the agents. The court found the agent's attempt to explain their actions (trying to avoid giving everything to the nursing home) "wholly unconvincing." Instead, it appeared to the court as though the agents abused their power to re-design Ms. Stewart's estate plan.
The court found that the step-son had several remedies. First, the step-son was allowed to claim the proceeds were subject to a constructive trust. A constructive trust is a device used when property has been acquired under circumstances where the holder of the legal title may not in good conscience retain the benefit. When that happens, the law converts him into a trustee and deems him to hold the property for the benefit of the person who should have the property. In Tennessee, a constructive trust may be imposed where (1) a person procures the legal title to property in violation of a duty to the actual owner; (2) the title to the property is obtained by some inequitable means; (3) a person makes use of some influence in order to obtain title on better terms than it otherwise would have been obtained; (4) a person acquired property with notice that someone else is entitled to its benefits. The court found that the agents unlawfully transferred the proceeds from the sale of the property to themselves (by titling the CDs jointly in their name) and imposed a constructive trust. The court found that the step-son also had another remedy. He had a right to recover damages equal to the net sale price of the property.
There are several lessons here. First, dishonesty never pays. Second, the transactions described above, apparently, were not disclosed during the TennCare application process (the proceeds were hidden). If so, then the act of hiding those assets was fraudulent. Third, protecting assets is not the ultimate goal. Instead, we should be about the business of protecting elders. If there are surplus assets after we see to the elder's needs, then we should protect them in a manner consistent with the elder's estate plan (in this case, Ms. Stewart's will).
In our view, a more appropriate Medicaid plan would have looked first to Ms. Stewart's needs. It would have considered how we could expand her range of options to secure the highest quality of care and to improve her life. After that goal was accomplished, then her surplus assets should have been protected in a manner that would ensure that her estate plan was carried out. This might have required the sale of the property, but the proceeds should have been deposited into a Pooled Trust instead of into CDs that went to the agents at Ms. Stewart's death.
If you have questions about how to construct an appropriate plan to care for an elderly or disabled person, please do not hesitate to contact us (or another Elder Law Attorney). As the Stewart case makes clear, this is not something you should try at home.