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Money August 2016

Dollar Sense

You Gave Your Power of Attorney to the Wrong Person… Now What?

By Teresa Ambord

Distribute copies of the new power of attorney to everyone you normally transact business with, immediately. Make sure it‘s understood that the previous agent no longer has power to act for you. Don’t delay. In some states, banks will be protected if they continue to honor the old agent’s demands, unless they have received a notice of revocation.

Do you, or an elderly relative, have a financial power of attorney? Or it might be called a “power of attorney for property.” Whatever you call it, this can be a valuable tool for planning your estate, assuming you give the POA to someone you truly trust. It can serve as a strong protection in the event you are unable to act for yourself. But it can also be subject to abuse.

Abuse of power happens when a POA agent acts in a way that exceeds the authority of the POA. The abusive act could be simply a misunderstanding, but it could also be deliberate. Here are a few examples of abuse relating to a POA:

  • An elderly woman depends on her nephew to take her to medical appointments. He may coerce her to sign a POA, naming him as her agent, by threatening to stop helping her.
  • He uses the aunt’s money to make inappropriate gifts.
  • He spends her money for his own purposes without her permission.

The person making the POA, in this case, the elderly aunt, is called the principal. Often nobody learns of the abuse until the principal has passed away. In the example above, the nephew could drain his aunt’s retirement funds and other assets without anybody realizing it.

 

What if You Suspect Abuse is Taking Place?

Suppose your elderly neighbor signed a POA giving broad authority to his private caregiver. Now your neighbor is in a nursing home, and the caregiver seems to be living well above her means. Meanwhile your neighbor’s bills are piling up, unpaid. What can you do? Contact an attorney immediately.

The agent, in this case, the caregiver, has a fiduciary duty to deal honestly with your neighbor, with the utmost good faith and loyalty, and on your neighbor’s behalf. If the caregiver fails in that capacity, your neighbor, as the principal, may be able to sue the caregiver for breach of duty and be paid damages as well as having the attorney fees paid by the caregiver.

Unless someone steps in who suspects abuse and helps the victim contact an attorney, the abuse is likely to continue.

 

If You’re Writing or Changing a POA — Incorporate These Steps to Prevent Abuse

Start fresh. Legalzoom.com (founded by a team of attorneys who seek to make common legal matters easier for everyone to understand and be protected) says if you need to change your POA, it’s wise to start fresh with a new agent. Prepare a new POA, appointing a different agent to act on your behalf. Make sure this one states that you are revoking the previous POA, terminating the authority of the previous agent. State laws vary, so be sure to ask an attorney if your revocation is done properly.

Revoke the old POA. Also prepare a separate revocation notice. If there has been misconduct or mistrust between you and the previous agent, this puts him or her on notice that all authority has been terminated.

Notify others promptly. Distribute copies of the new power of attorney to everyone you normally transact business with, immediately. Make sure it‘s understood that the previous agent no longer has power to act for you. Don’t delay. In some states, banks will be protected if they continue to honor the old agent’s demands, unless they have received a notice of revocation. So for example, let’s say your elderly mother discovered her agent, in this case her caregiver, was taking unauthorized withdrawals from your mother’s bank. Your mother revoked the POA, but failed to notify the bank. The thieving caregiver could still exercise whatever power she had before, which might include draining every last penny from your mother’s account. And in your mother’s state of residence, she might have no recourse.

Record the new documents. Record the new POA as well as the revocation of the old POA at the county’s land records office. This gives the public notice of the change.

Draft the POA now. Legalzoom recommends that the new POA be created while the principal is still clear minded. Also, limit what the new agent can do to specific actions. In addition to specifying what the agent may and may not do, it’s a good idea to notify the principal’s bank in writing of the authorized powers and limitations of the new agent.

One last point: if your attorney-in-fact is your spouse and you are terminating the marriage, the divorce may automatically revoke the POA. However, this varies by state so don’t leave it to chance.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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