Terms of Power of Attorney Strictly Construed – No Express Power To Change Beneficiary of Annuity

November 28, 2014 | Roger A. McEowen

The Cincinnati Life Insurance Company v. Estate of Mangino, et al., No. 14-0039 (Iowa Ct. App. Nov. 26, 2014)

Overview

Under Iowa law, the terms of a power of attorney (POA) are strictly construed. Thus, for an agent to have the power to do a certain act on behalf of the principal, the POA must expressly grant that power. The question of whether an agent, acting under a POA, had the authority to change the beneficiary designations of the principal’s annuities was at issue in this case.

Facts of the Case

At the age of 76, the mother of the family involved in the case was diagnosed with Alzheimer’s disease and shortly thereafter executed a durable POA that named one of her daughter’s as agent with the daughter’s husband named as successor-agent. A few months later, the mother executed a will leaving 30 percent of her estate to her living grandchildren equally with the balance passing equally to her three children. The daughter that was named as agent under the POA was also named as the executor of her will. The mother also bought two annuities a year later designating her two daughters as the primary beneficiaries in equal shares. No contingent beneficiary was named for either annuity.

The daughter that served as agent and executor was subsequently diagnosed with terminal cancer and soon thereafter died. Her husband then became the agent under the mother’s POA. The mother was now in a nursing home and unable to handle her financial affairs or express her intent regarding the distribution of her future estate or any beneficiary change with respect to the annuities. However, her son-in-law, acting as agent completed change-of-beneficiary forms for the annuities that removed his deceased wife as beneficiary and divided her one-half share equally between himself and the couple’s four sons (the mother’s grandsons). Later, he adjusted the percentages and named an additional grandchild as a beneficiary. As a result of the changes, the mother’s daughter who initially had a 50 percent share saw her share reduced to 32.5 percent, with her son receiving 17.5 percent and the remaining 50 percent split equally between the agent and his four sons.

Legal Proceedings

The mother died at age 83 with the annuities making up the largest portion of her estate. The life insurance company that sold the annuities to the mother asked the trial court to determine the persons to whom the proceeds should be paid. Ultimately, the court determined that the agent couldn’t make a gift to himself and also determined that the POA didn’t specifically authorize the agent to change the beneficiary designations. Consequently, the surviving daughter was determined to be the sole beneficiary of the annuity proceeds.

On appeal, the court affirmed. The court noted that the standard boilerplate language in the POA did not authorize the agent to change the beneficiary designations to deal with the death of one of the named beneficiaries. There was no provision in the power that granted the agent the express authority to change beneficiaries. Likewise, the general “grant-of-power” clauses did not specifically grant the authority to the agent to change beneficiaries on the principal’s annuities. While a paragraph in the POA did authorize the agent to make gifts “of any of my property…to members of my family”, the court held that the agent’s naming of other persons as beneficiaries was not a gift. The court reasoned that simply changing a beneficiary did not constitute a “gift.”

Conclusion

This case points out that care must be taken when drafting POAs. Specific grants of authority are necessary to give the agent the power to act. While broad, boilerplate, language is often utilized in simple POAs, this case points out that such language may prove to be insufficient. Also, the recently enacted Iowa Uniform Power of Attorney Act (Iowa Code Ch. 633B) did not apply in this case because the acts in issue occurred before July 1, 2014. But, had the Act applied, it would have required that the POA expressly grant the agent the authority to change a beneficiary designation (Iowa Code §633B.201(1)(d)).