Transfers From Joint Account by POA Agent Not Necessarily Self-Dealing

In a case highlighting the conflict between the duties imposed by a POA and the rights of joint account holders, the Wisconsin Supreme Court declines to establish a bright-line rule that an agent's withdrawal of funds from a joint account for his own use creates a presumption of fraud, but rather holds that courts should resolve such conflicts based upon the facts and the credibility of witnesses. Russ v. Russ, (WI 83,No. 2005AP2492, 2007).

In 1992, Johnnie Russ and her son, Elliott, opened a joint bank account into which they agreed to deposit all of Mrs. Russ's income. Seven years later, Mrs. Russ executed a durable power of attorney (POA) designating Mr. Russ as her agent. However, Mrs. Russ chose not to give her son authority to make gifts.

Upon Mrs. Russ's admission to a nursing home, the circuit court declared her incompetent, appointed a guardian, and terminated the POA. The guardian subsequently filed suit on Mrs. Russ's behalf seeking recovery of funds that Mr. Russ had withdrawn from the joint account between March 1999 and April 2002, for expenses related to himself, his business and his wife. The suit claimed that Mr. Russ's use of funds constituted self-dealing, an authority that was not authorized in the POA. Mr. Russ countered that the funds belonged to all account holders and that he was entitled to spend the money, regardless of the POA.

The circuit court dismissed Mrs. Russ's claim, holding that Mr. Russ had not breached his duty. The court reformed the POA document to authorize Mr. Russ free use of the money in the joint account. Mrs. Russ appealed.

The Supreme Court of Wisconsin holds that a joint checking account established prior to execution of a POA creates a presumption of donative intent, but also that the transfer of funds from such a joint account by an agent acting under a POA for the agent's own use creates a presumption of fraud unless the POA explicitly authorizes self-dealing. The court holds that when two conflicting and inconsistent presumptions coincide, the circuit court may make a determination based on facts and credibility of witnesses. The court is satisfied that, while the circuit court reformed the POA on the basis of mutual mistake and held that equitable estoppel barred Mrs. Russ's claim, such an approach should not be undertaken in the future. Instead, courts should decide conflicts between provisions governing joint accounts and fiduciary duties imposed by POAs pursuant to case law.

For the full text of this decision, go to: https://www.wisbar.org/res/sup/2007/2005ap002492.htm .

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