It’s not unusual for an older adult to give a friend or relative power of attorney in order to handle their financial affairs. Giving a trusted individual power of attorney can help prevent the need for a state-appointed guardian or conservator if an older adult becomes incapable of making their own financial decisions and can help protect assets so that they can be willed to beneficiaries. Unfortunately, power of attorney can also be relatively easily abused by unscrupulous family members, friends, and neighbors.
Older adults lose approximately $2.9 billion per year due to financial abuse, according to the MetLife Mature Market Institute, and experts suggest that number will only increase as Baby Boomers age. Abuse of power of attorney is a relatively common form of financial manipulation because power of attorney documents are not routinely tracked by a court system, and anyone can draw up a power of attorney simply by printing off a template from the internet and convincing someone else (known as the principal) to sign it.
In many cases, the principal might not understand the extent of the power they are giving to the person they appoint to act on their behalf (known as the agent). Abuse of power of attorney is much more subtle than some of the more well-publicized scams targeting the elderly, but it’s incredibly insidious and can be financially devastating.
If you or a loved one is signing either a general or durable power of attorney, it’s important to understand exactly what you’re signing, where the potential for abuse comes in, and how to keep your finances from being mishandled by an unreliable agent.
Power of Attorney Abuse Examples
There are many different unique cases of power of attorney abuse, but most cases hinge on the agent failing in their duties as specifically outlined in the power of attorney document. Below are a few examples.
The agent converts the principal’s property for their own benefit. In their fact sheet about the abuse of durable power of attorney, the American Bar Association uses the example of an 85-year-old woman who gave her daughter durable power of attorney only to have the daughter use her power of attorney to sell the woman’s home and use the money to support her own lavish lifestyle and failing business. In this example, the mother would need to show that her daughter used the property that was inconsistent with her rights to ownership and that she (the mother) had demanded the return of the property but that the daughter was unable to meet that demand.
The agent profits off the principal’s estate without informing the principal. An agent might, for example, invest some of the principal’s money in stocks without informing him or her and keep any profit that the investment brings in.
The agent transfers property to him or herself without explicit permission to do so in the power of attorney. The power of attorney document should outline exactly what the agent is allowed to do on behalf of the principal, and the agent cannot transfer property from the principal’s bank account to their personal account unless the document specifically gives the permission to do so.
How to Prevent the Abuse of Power of Attorney
The examples above are not meant to discourage anyone from creating a power of attorney. Rather, they are a reminder that it is incredibly important to choose your agent carefully. Name someone who you trust and who you feel will be able to competently manage your finances (for example, it might not be the best idea to ask a son or daughter who is embroiled in a costly divorce and custody battle to become your agent). You should also notify your bank as soon as you appoint someone to be your agent and ask them to alert you to any changes in your account.
If you are the family member of someone who you believe is being taken advantage of by their agent, talk to your loved one and check bank accounts for unusual or suspicious activity. If you determine that the agent is misusing your family member’s finances and your family member has been deemed to have legal “capacity,” he or she can revoke the power of attorney. If your family member does not have the capacity to make that decision, you may need to request a “proceeding to determine capacity” in order to prove that your loved one was not mentally capable of entering into a power of attorney and was manipulated into signing the document.
Whenever possible, plan ahead with the help of an estate planning attorney to avoid running into issues with power of attorney. Customize your power of attorney to make sure your wishes are carried out the way you intend.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011, 2012 and 2014 in Estate and Trust Litigation.