A statutory durable 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 is not possible to completely prevent the possibility of financial abuse, there are steps you can take when drafting the document to greatly reduce the chances.
Power of Attorney
A statutory durable 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. This allows the person you choose to 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 bad news. The following are some ways a power of attorney can be drafted by your attorney to prevent someone from taking advantage of you or your loved ones.
Trustworthy Agent
The first and most important step you can take is to appoint a trustworthy agent. Think carefully about who you want acting on your behalf, as 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 for this role, you can hire a professional fiduciary. This professional fiduciary can be a bank with trust powers, a certified public accountant (CPA), or a trust company.
Second Signature
At Your Legacy Legal Care, we never recommend appointing co-agents, as this can cause more issues than just having one agent. For many decisions to be made, all co-agents may need to be at the same location, which can pose a problem for any co-agents that may live out-of-state. However, one option you can implement 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 encouraged for you to have a backup agent in case the first agent becomes incapacitated or no longer wants to serve as agent. At Your Legacy Legal Care, we always include backup agents to ensure you will be taken care of, should something happen to the first 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
Another 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. This third party could be a family member or a friend. The accounting does not have to be formal; it could be a summary of the financial transactions. The power of attorney document can ultimately 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 agent may carry out. You can make it as broad or as limited as you wish. One of the most important powers in the power of attorney document is the power to gift. Strictly defining when gifting is allowed and how much the agent can give is one way to prevent abuse.
Review Your Choices
Every two to three years, you should review your choices in case your decision has changed – maybe the agent is no longer responsible with money, or they no longer have the capability to serve. If this is the case, do not be afraid to revoke the power of attorney if you are no longer happy with your choice of an agent.
While these steps will be helpful to include in your statutory durable power of attorney to prevent financial abuse from happening, it is crucial to have an attorney draft the document for you. Power of attorney documents found online may exclude these important provisions. The steps listed above will give you a good idea of what an excellent estate planning and elder law attorney should include in the document.
To discuss putting a statutory durable power of attorney in place with an experienced member of our team, give us a call at (281) 218-0880 or schedule online here.
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