How a Power of Attorney Can Be Abused

by | Dec 18, 2019

How a Power of Attorney Can Be Abused

 

By: Barry E. Haimo, Esq.
February 5, 2015

Imagine you were going to give someone access to your bank account, retirement and savings accounts, and property. You’d feel better about giving that access to someone you trust, wouldn’t you?

Unfortunately, the people we trust can still make mistakes, irresponsible decisions, and poor judgments. When given access to substantial funds, even our closest loved ones might succumb to the powerful incentive to steal or manage funds inappropriately.

That’s why it’s so important to draft Power of Attorney documents with great caution, assigning powers to a trusted agent very carefully.

What is a Power of Attorney? It is a legal document that gives another person the right to act on the creator’s (or principal’s) behalf, such as accessing bank accounts, buying and selling real estate, initiating and defending lawsuits, making gifts, or signing contracts. A Power of Attorney is a useful estate-planning tool that can be used to access and maintain your interests if you become incapacitated.

Oftentimes a senior citizen will sign a Power of Attorney in preparation for the distant future, granting a trusted relative permission to cash checks, pay bills, and handle money. They may believe they are handing over responsibility to someone who is better equipped to handle financial matters, but find themselves unpleasantly surprised with the outcome. This is exactly what happened to Margret Sheridan.

An Untrustworthy Agent

Margret Sheridan, a retired high school English teacher, had three joys in her life—her daily cup of English breakfast tea in the morning, her afternoon scrapbooking club, and her grown son, Max. When Margret’s husband had become sick, it was Max who cared for his mother, visiting her every weekend, tackling odd jobs around the house, and taking her out to the Olive Garden every first Thursday of the month.

Margret was very proud of Max, admiring the skilled way he managed his own business and effortlessly handled things like checking his credit and banking online. Margret didn’t know much about these matters herself—her husband had always handled their finances.

So when Margret’s husband died, she decided to execute a Power of Attorney in favor of Max. By giving Max access to all her bank accounts, savings, and property, she hoped he would help her pay her bills, manage funds, and look out for her best interest—and of course, buy a nice treat for himself and his lovely wife every now and then.

Max was honored by his mother’s decision, and had every intention of protecting her assets to the best of his ability. But he was also sure that he had a great idea for a new frozen yogurt business—he just needed a bit of startup capital

Not wanting to confuse or worry his mother with the particulars, Max transferred a chunk of money from her bank account into his own without informing her. He thought that he would pay it back as soon as his business became profitable.

Before Max could even begin building his frozen yogurt empire, Max’s wife got ahold of the cash. She was a nice enough lady, but she had a bit of a shopping problem. Not realizing Max had dropped all their own funds in his new business and replenished the account with his mother’s money, Max’s wife started using the funds – buying designer handbags, shoes, and even a couple of surgical face lifts.

When Max tried to access the account, he found it was overdrawn. He was left with no money to invest in his business, and no way to repay his mother. Sheepishly, he confessed to Margret what he’d done.

Fortunately, Margret was a more capable financial manager than she’d given herself credit for. Even without the money her son “borrowed,” she had plenty of cushion to continue living comfortably, enjoying her daily cup of tea, book club meetings, and—yes—even the company of her ashamed son.

Choose Your Agent’s Powers Carefully

While things worked out for Margret, not everyone who executes a Power of Attorney to a less-than-responsible agent is so lucky. In many cases, individuals unknowingly choose agents who are dishonest, or become desperate enough to steal. When given broad control of finances, these types of agents could write checks against your bank account, collect your Social Security payments, or sell securities in your name.

Choosing someone you trust is essential when appointing an agent in a Power of Attorney, but it’s equally important to choose limits on what your Power of Attorney can do. When drafting the document, you can clarify the responsibilities you want your agent to have. Do you want to allow them unfettered access to all your bank, savings, and retirement accounts, or limit their access to certain ones? Do you want them to be able to sell your stocks or manage your real estate? Do you want them to be able to fill out your income taxes or apply for benefits in your name? Do you want to allow them unencumbered access, or require them to periodically report on your finances? If concerned about overbreadth of power, consider executing a limited purpose power of attorney.

The process of choosing an agent, delegating duties, and drawing up the Power of Attorney document is a complex and sensitive one. To ensure your funds and best interests are protected, it’s highly advisable to hire an experienced estate planning attorney. An attorney can work with you to choose an agent, clarify responsibilities, and monitor transactions to prevent misconduct.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose
Email: barry@haimolaw.com
LinkedIn: http://www.linkedin.com/in/bhaimo
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