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Drafting a Power of Attorney that Lessens the Chances of Abuse

  • October 23rd, 2019

A power of attorney is one of the most important estate planning documents you can create, but it is also one that can be misused.  While it isn't possible to entirely prevent the possibility of abuse, there are steps you can take in drafting the document to greatly reduce the chances.    

A power of attorney allows a person you appoint -- your "attorney-in-fact" or "agent" -- to act in place of you – the "principal" -- for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Unfortunately, if the agent chooses to exploit the principal, a power of attorney in the wrong hands or with too much power can be very bad news. The following are some ways to draft a power of attorney to prevent someone from taking advantage of you.

  • Trustworthy agent. The most important thing you can do is appoint a trustworthy agent. Think carefully about whom you want acting on your behalf. You need to appoint someone you trust to have your best interests in mind. If you do not have any friends or relatives who are appropriate, you could hire a professional fiduciary. A professional fiduciary can be a bank with trust powers, a certified public accountant, or a trust company. Another option is to have multiple agents, which allows more than one person to share the responsibility and permits them to divvy up tasks. Requiring the co-agents to act together provides checks and balances, but it could become very cumbersome if all of your agents have to sign every check or other document. 
  • Second signature. If you don't want to have co-agents, but you want a check on the agent, one option is to require two signatures for large transactions. The power of attorney document can set rules on what transactions would require an additional person to sign off on them. 
  • Backup agent. In addition, to having a trustworthy agent, it is a good idea to have a backup agent in case the first agent becomes incapacitated or no longer wants to serve as agent. If you do name alternates, make sure the document is very clear about when the alternate takes over and what evidence he or she will need to present when using the power of attorney. 
  • Third-party accounting. One way to prevent an agent under a power of attorney from exploiting the principal is to require the agent to provide an accounting to a third party. The third party could be a family member or a friend. It doesn't have to be a formal accounting; it can be a summary of the financial transactions. The power of attorney document can provide the details on what information needs to be provided to whom and how often. 
  • Limit powers. The power of attorney can provide detailed instructions on the various powers the attorney-in-fact may carry out. You can make it as broad or as limited as you want. For example, you can allow your agent to pay bills, but not to change your will. One of the most important powers in the power of attorney document is the power to gift. One way to prevent abuse is to strictly define when gifting is allowed and how much the agent can give. 
  • Review the choice. Every few years, you should review your choices in case something has changed. Don't be afraid to revoke the power of attorney if you are no longer happy with your choice of an agent.

Because of these drafting choices, it is a good idea to have an attorney draft the document for you.  Your attorney can help you decide how to best protect yourself or a loved one. To find a qualified attorney near you, go here: https://www.elderlawanswers.com/elder-law-attorneys

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Last Modified: 10/23/2019
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