The Moneyist: My husband sold his grandmother’s house and paid off our mortgage — now his family is threatening to sue

Dear Moneyist,

My husband and I took his grandmother in after his grandfather passed away in 2013. She lived with us for four years. During this time my husband had durable power of attorney over his grandmother. They shared a bank account and used the money she made off of selling her estate to pay off our home, in which she lived in. We had to purchase a home that would better accommodate her disabilities and her dog.

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She invested $225,000 in our home. The agreement to use this money was made between my husband and his grandmother while she lived with us. Since placing her in a home, we are selling our house and using the money she invested in our home to cover her nursing home costs. My husband’s mother wants to sue us for other expenses she is claiming we used of the grandmothers while she was living with us.

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We didn’t make her pay any bills while living with us. My husband’s mother was her healthcare agent.

Basically, she took it upon herself to obtain my husband’s and his grandmother’s checking accounts. (She stole the statements from the grandmother’s room.) She looked through the statements over the past four years and says we owe the grandmother money in addition to the $225,000.

My husband’s mother showed up in 2016 and decided to put the grandmother in a home. She is now threatening to sue us for the money that was invested in our home, plus any money he spent from their joint account. Does my husband’s mother have grounds to sue?

Worried wife

Dear Worried,

Your husband’s grandmother lived with you for four years. Giving up her home and her life’s savings seems like a steep price to pay.

It may be that you started out trying to do the right thing, but may have been blinded by this financial opportunity. It was risky and, likely, unethical. You don’t say whether he also had financial power of attorney, in addition to medical. Whatever the answer, I believe you should do whatever you can to make this right for your husband’s grandmother and appease your mother-in-law.

You were kind to take in your husband’s grandmother, but this was done as part of an ill-advised financial transaction. There are several issues that could pose a problem for you and your husband. Did your husband act in his grandmother’s interest or his own? Was his grandmother of sound mind and/or was she under any kind of duress? Was she dependent on you and your husband?

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A power of attorney gave your husband the legal authorization to act on his grandmother’s behalf. But along with that power of attorney comes a fiduciary duty. That requires putting your husband’s grandmother’s interests ahead of his own and acting in her best interest. Was it in her best interest to sell her home and use the proceeds to pay off your mortgage? Probably not.

Critically, a fiduciary must not engage in self-dealing. In Tewksbury vs. Tewksbury, a 2011 case involving a power of attorney, the Court of Appeals of Ohio ruled: “Self-dealing runs counter to the fiduciary duty that the attorney in fact owes to his principal. The proper method to carry out these transfers …is to appoint an attorney in fact who is completely disinterested in the transactions.”

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This is part of a power of attorney’s duty of care. Drendel & Jansons law firm in Batavia, Ill. breaks it down: “Even when a transaction between an agent and the principal appears to be reasonable, and even if the parties consent to the transaction, any benefit to the agent derived from dealing with the principal’s assets and accounts is presumed to be a violation of the fiduciary duty.”

There are other duties that a power of attorney must uphold: Duty to protect, duty to preserve and maintain the principal’s assets, duty to disclose changes to the principal’s affairs to others with an interest (that includes your mother-in-law and any other relatives or legal heirs) and a duty to properly invest. To that point, your husband’s grandmother’s name is not on the deeds of your home.

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Proving someone is cognitively impaired can be difficult. But elder financial abuse can occur when the principal is of sound mind if there was some kind of undue influence and/or if the principal was dependent on his or her carer. The Elder Justice Act covers “financial or material exploitation is the illegal or improper exploitation or use of funds, property, or assets of an older adult.”

The fact that you are prepared to return the $225,000 by selling your home or, indeed, refinancing, suggests to me that you realize that what you did was not such a good idea. Your mother-in-law is clearly angry and — whether she decides to pursue legal action or not — she is making you sweat. A lawyer could, at the very least, best prepare you for the worst and help you make this right.

In the meantime, this legal and financial limbo leaves you and your husband — not unlike many elderly people who can no longer live alone — in a very vulnerable position.

Do you have questions about inheritance, tipping, weddings, family feuds, friends or any tricky issues relating to manners and money? Send them to MarketWatch’s Moneyist and please include the state where you live (no full names will be used).

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