The Federal Circuit recently affirmed a ruling by the Court of Federal Claims that gifts made by the nephew of a decedent under a durable power of attorney were beyond the power's scope of authority and are therefore includible in the decedent's estate.

After Sylvia's health declined in 1990, she signed a durable power of attorney granting her nephew Dean the authority to manage and dispose of her assets according to his "sole discretion." However, this document did not specifically grant him the authority to make gifts on her behalf. In California, where Sylvia resided, a durable power of attorney is not construed to confer the power to make gifts unless the document expressly provides that power in writing.

Still, Dean suggested in 1991 that Sylvia make $10,000 gifts by check to 40 individuals for the purpose of minimizing the effect of estate taxes. Sylvia approved 38 of the 40 gifts by nodding her head when Dean read each individual's name.

But that was not enough for the IRS, which claimed that the gifts were invalid under California law. The United States Court of Federal Claims agreed and granted summary judgment for the government.

The estate appealed to the Federal Circuit Court, arguing that regardless of the fact that the durable power of attorney did not expressly grant Dean the power to make gifts, the gifts were valid because Dean was not required to invoke the durable power of attorney to write the 38 checks. Instead, he was authorized by common law agency principles to make the gifts since Sylvia directed him to make them. The Federal Circuit disagreed, explaining that the estate's argument, though substantial, still contradicts California law.