Misuse of a Power of Attorney
As Powers of Attorney have become more easily accessible, there has been an increase in the misuse of a power of attorney. This post will explore the ways abuse can occur and ways to to prevent or mitigate misuse of a power of attorney.
A New York Power of Attorney is a document that allows you to designate one or more individuals to manage your financial transactions during your lifetime. Indeed, this legal authority can be an important estate planning mechanism that allows an agent to make financial decisions and conduct financial transactions on behalf of the principal in the event that the principal is unable to do so.
Although a Power of Attorney is meant to be used as a way of assisting the principal, there is also rampant misuse of a power of attorney. Misuse of a power of attorney means that the agent is acting in some way that abuses or neglects the person whose matters they are in charge of.
What are the Ways to Misuse a Power of Attorney?
One of the most common ways that the agent can misuse a power of attorney is by stealing money or mismanaging finances in some way. For example, Betty, who has three children, appoints one child, Jerry, to serve as her agent. Betty signs a Power of Attorney but does not give permission for Jerry to make gifts. Jerry then becomes the Power of Attorney for Betty, goes to the bank, adds himself on as the agent, and then proceeds to transfer all of Betty’s assets to himself. This is an unauthorized gift and a clear misuse of a power of attorney.
Some attorneys-in-fact will also mismanage properties or steal properties without the consent of the principal. Let’s use Betty in our next example. Jerry, who has Betty’s Power of Attorney, decides to sell Betty’s home, and place the proceeds of sale into Jerry’s personal bank account. This is again a misuse of a power of attorney. Alternatively, Jerry uses Betty’s Power of Attorney to transfer Betty’s house to himself, or to a Trust for his benefit. This is another clear misuse of a Power of Attorney. Similarly, if Jerry sells the house on behalf of Betty but then deposits the money into his own account, this is also a misuse of the Power of Attorney.
Although theft or conversion is a clear example of misuse of a power of attorney, simply not acting in the principal’s best interests is also and instance of misuse. In this example, let’s assume that Betty signs a Power of Attorney that does contain permission for Jerry to make gifts. Jerry then transfers all of Betty’s money to himself. Although Betty technically did give permission to Jerry to make gifts to himself, transferring all of the money to himself is clearly not in Betty’s best interest because she needs the money to live.
Yet another example of misuse of a power of attorney is when the agent breaches their fiduciary duty to the principal. Failing to maintain accurate records of the transactions that the agent undertakes or commingling funds is a breach of fiduciary duty. For example, Betty give Jerry a Power of Attorney. Jerry then commingles the assets with his own funds and buys everything on Amazon. He does not keep receipts or track in any meaningful way what was purchased for Betty and what was actually purchased for Jerry. As Jerry is not able to account for Betty’s money, he has breached his fiduciary duty to Betty.
Failing to pay the principal’s bills and obligations is also a breach of fiduciary. Jerry becomes Betty’s power of attorney but neglects or refuses to pay any of her nursing home or home health aide bills.
When Does the Misuse of a Power of Attorney Typically Occur?
Abuse often happens when the principal is losing capacity or has lost capacity and cannot recognize what’s happening or speak up for themselves. If they feel like there is nothing they can do about it or feel helpless in the situation, this is considered abuse.
Here are a few examples:
- Betty had a stroke but was in contract to sell the house. While she is in the rehabilitation facility, Jerry sells the house and deposits the proceeds into his account.
- Betty has been showing signs of memory loss and confusion. Jerry sees that Betty is forgetting things, downloads a power of attorney, calls a mobile notary and has Betty sign sign a Power of Attorney
- Jerry, seeing that Betty’s family is not around, starts isolating Betty from her friends and neighbors. Jerry starts telling Betty’s family that he is taking care of Betty and no need for them to travel to see her.
- Betty completely and totally reliant on Jerry to take care of her because she is bed bound, gives Jerry a power of attorney.
- Betty, afraid of Jerry, gives him power of attorney.
How can you Prevent or Avoid Misuse of a Power of Attorney?
There are several ways you can reduce the risk of an agent abusing their authority under a power of attorney. Here are a few examples.
- Use a limited power of attorney. A durable POA document can be personalized to grant only specific powers to the agent, thus minimizing the potential range of areas someone can act upon. It can best accomplished by hiring a legal professional who will tailor the document to suit your needs.
- Choose the agent carefully. The person appointed as your or your relative’s representative should be trustworthy. It would be best if you also revisited your decision annually, especially as you get older, because even the most loyal person can change because of sudden personal or financial problems.
- Track account changes. You should keep an eye on your or your loved one’s financial accounts if they become incapacitated, providing, of course, you have the necessary access to do so. Look for any suspicious purchases or freeze the principal’s credit report to prevent any illegal loans.
What to Do If Suspect Misuse of a Power of Attorney?
Although you can briefly discuss the idea of revoking the power of attorney given to the abuser, this is not the complete solution because your principal may not have capacity to sign a new document, you may not properly revoke the prior document, or, you may enter the land of competing Powers of Attorney where the principal starts signing multiple documents.
The optimal solution in most instances of abuse is to report the abuse and take immediate action. To this end, after you speak with the guardianship or elder law attorney, you can report the abuse to the local adult protective services unit alleging financial abuse or exploitation. After you make this report, you can then contact the financial institutions with the Power of Attorney on file and advise the financial institution of the abuse.
Pursuant to General Obligations Law 5-1504, if a financial institution knows or has knowledge that a report to the adult protective services unit has been made for elder abuse and exploitation, then they must refuse to honor the Power of Attorney. (This is a temporary solution but one that will at least pause or freeze the abuse.)
You will likely also want to file for guardianship, request that the Power of Attorney be immediately suspended pending a hearing, and request the appointment of a temporary guardian.
If you suspect that an agent has abused or misused a power of attorney, then contact us right away to discuss the available options.
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