One potential vehicle for elder financial abuse is a power of attorney for financial affairs. A financial power of attorney gives a designated representative, known as an agent, the power to make financial decisions on behalf of someone else. The power of attorney can enable abuse when a rogue agent uses their power to act in their own interest instead of the person they are representing.
While abuse through a power of attorney is a real danger, there are times when a financial power of attorney is a necessary planning document to protect a person’s interests. An experienced, elder law attorney can carefully draft a power of attorney that allows for a person’s interests to be protected while also including protections against abuse.
As a general rule, individuals should never sign a financial power of attorney without first meeting with an attorney. People should operate with extreme caution when a third party places a power of attorney in front of them to sign. A meeting with an attorney is necessary to make sure that the power of attorney is for a necessary purpose, the best way to accomplish the task at hand, and is sufficiently limited to minimize the risk of abuse.
Individuals should also not rely on power of attorney forms found online or through other services. These self-serve forms do not sufficiently guide individuals to determine what exactly they are signing away and what the potential alternatives are. There is also the danger that the forms may not meet the legal requirements to accomplish their intended purpose when the time comes.
What constitutes a valid power of attorney is a matter of state law. The laws and regulating powers of attorney can vary significantly from state to state. What would be a valid power of attorney in one state may not be a valid document in another state.
The primary task for preventing abuse through a financial power of attorney is selecting a trustworthy person to act as an agent. For most individuals, the first choice is to select their spouse or trusted adult child. For planning purposes, individuals should also think of potential alternatives in case their first choice is unable to act as their agent.
After selecting an agent, individuals should discuss with their attorney what safeguards they want in place to prevent abuse. One way to limit the potential for abuse is to carefully draft the power of attorney to ensure that the power of attorney can only be used for specific, limited circumstances. An additional safeguard is to mandate accountability to a third party either in the form of allowing someone else to inspect to financial records or a requirement to produce reviewable accountings of any transactions. These safeguards also have to be balanced against the ability to efficiently perform necessary tasks in the interest of the person signing the power of attorney.
To discuss how a financial power of attorney with safeguards against financial abuse fits into your estate plan, please call Martha C. Brown & Associates at (314) 962-0186.