A Financial Power of Attorney is a legal arrangement that helps people, generally older people, turn over management of their finances or other business matters to family members or friends. Recent high profile cases demonstrate that it is also a vehicle for fraud.
Years ago, these documents were rarely challenged or exploited. However, professionals in this area are of the opinion that cases of friends, family members and especially adult children stealing from their parents with the use of a Power of Attorney are on the rise.
In addition, financial institutions have starting rejecting financial maneuvers made under the disguise of a Power of Attorney for fear that they may be implicated in future litigation claiming they were part of the fraudulent scheme.
Power of Attorney agreements are sound, legal documents of substantial value when drafted appropriately and steps taken to make sure that the person giving the power is not exploited.
There are steps to take to protect yourself or family members from being taken advantage of when using Power of Attorney documents. Although never a guarantee taking these steps can protect you from fraud.
First, set it up early while you are still healthy and in control of your faculties. Be comfortable with the person to whom you are giving power of attorney since generally it can be revoked at any time. When setting it up decide whether to make the powers you authorize narrow or broad, make sure you trust the person and understand when these powers take effect.
Next, consider drafting your Power of Attorney with a “springing” power that goes into effect only after you become incapacitated. The advantage is that there is a smaller time window for abuse. However, there are risks with the “springing” power. In most cases, one needs the power of attorney when someone is suddenly incapacitated, you generally require two competent medical doctors to declare the incompetency before the Power of Attorney kicks in. This can cause substantial delays and some very difficult times. Consider your options.
Third, keep your Power of Attorney current. One of the best ways to avoid banks, fund companies and other asset-holders is to renew your Power of Attorney on a regular basis. Generally, these documents are inexpensive in considering the impact on a person’s life so that regular review and revision is a good idea.
Fourth, check with your banks and brokerage companies to see if they have their own forms that they prefer you use and have those thoroughly reviewed before executing. This could help avoid the banks or brokerage firms declining the use of your own Power of Attorney.
Fifth, keep it safe. Many institutions require the original Power of Attorney. This requires the person holding your Power of Attorney to access your original document. Consider letting your lawyer know where your originals are kept so when the time comes, she/he can be contacted to inform your agent where they can find your original documents. It is just one more person that can ask questions as to the purpose of the Power of Attorney to avoid deceptive practices.
Sixth, you may want to consider limiting the dollar amount that the power of attorney can spend without authority from others. For example, in cases where there are multiple children and one child has the power of attorney limit that person’s ability to write a check up to a certain amount and then require authority of all of your children for higher amounts. Although you may have your power of attorney pay your bills and manage your brokerage accounts you may want to draft the document so that they cannot alter your will or change beneficiaries on life insurance policies. You can also require your agent to provide monthly or yearly accounting statements to family members as well as your lawyer. These are all ways to make sure that if someone is financially taking advantage of you, you can cut your losses by early detection of abuse.
Seventh, consider multiple power of attorneys set up in various states if you spend substantial amount of time in other states. Every state uses these documents differently and just because one works in Wisconsin does not mean it will work in Florida.
Many times it is other family members complaining of an agent/family member taking advantage of a loved one. Many times those claims can be avoided by requiring your agent to provide financial updates to show what is happening to the money. Generally, the lack of knowledge is what worries people and often times leads them to a lawyer asking to demand the agent to document what has been happening to the money. If a lack of documentation exists, the agent could be subject to litigation. Often times, that litigation is funded by the person giving the power of attorney thus further depleting the estate. A carefully drafted Power of Attorney cannot only help the person getting the power of attorney but can provide great assistance to the agent and protection to the family.
If you feel a loved one is being exploited by an agent with the power of attorney, there are steps you can take to make sure they are protected. Please feel free to share with us any concerns or comments you may have when it comes to protecting your financial estate and your loved ones with a carefully drafted Power of Attorney.
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