A power of attorney is a legal expression of trust where a principal grants an agent the ability to legally act on her behalf. This may mean that the agent, otherwise known as the attorney-in-fact, can sell the principal’s assets or bind him to contracts. The power of an agent is even greater when she acts for an incapacitated family member. Abuse of that power is not just something that the agent can be sued for; it is also a crime. Powers of attorney are governed by state law, so standards may vary. There is an attempt to make standards regarding power of attorney consistent by getting all states to adopt the Uniform Power of Attorney Act. However, only 13 states have adopted the Uniform Act as of September 2012.
Nondurable vs. Durable Power of Attorney
There are two types of power of attorney. A nondurable power of attorney grants an agent authority to act for a principal only as long as the principal is alive and has his full mental faculties. As a result, if someone gives a family member a nondurable power of attorney but becomes incapacitated, the agent loses his power. A durable power of attorney also ends at the principal's death, however, it grants the agent the authority to act for the principal even if he is incapacitated. What qualifies for incapacitation is either defined by the law of the state where the power of attorney was drafted or by the document granting the power of attorney.
An agent with power of attorney owes his principal a fiduciary duty. This duty requires that when using the powers granted to him under the power of attorney, the agent must put the principal’s needs before his own. This means that the agent cannot use his power to enrich himself in a way that hurts the principal. The agent is generally required to make the choices that the principal would make if she could.
Abuse of Power
Power of attorney abuse generally falls into one of three categories: the agent acts in a way that exceeds the authority granted by the power of attorney; the agent executes a transaction that benefits himself and not the principal; or the agent acts in a way that undermines the principal’s stated expectations and goals. An agent may abuse his authority either because he does not understand his responsibility or because he does understand but wants to personally profit. Examples of actual actions that could represent abuse include making inappropriate gifts of the principal’s property or misusing his funds. A person may also use his influence to coerce an incapacitated relative to sign a power of attorney, granting the person agency for the relative.
Read More: Can a Person With Power of Attorney Change a Will?
It may initially be difficult to determine if an agent of an incapacitated family member is abusing his power of attorney since the family may be not in position to observe the agent’s actions. As a result, abuse is often not discovered until after the relative passes away. When the family does discover abuse, it can sue the agent to recover what the agent took by alleging the agent violated his fiduciary duty. The family can also press criminal charges against the agent. Depending on what the agent did, he could be guilty of exploitation, embezzlement, fraud, larceny, money laundering or theft.
There are some steps that a principal can take to prevent abuse by an agent. The first is to draft the power of attorney well in advance when the principal still has a clear mind and to limit what the agent can do to very specific areas. One area in which a principal might want to limit an agent’s authority is the principal’s retirement and pension accounts. A principal may also want to contact the entities that control his financial assets, such as his bank, and let them know to what degree the agent can act on his behalf.
- Uniform Law Commission: Power of Attorney
- Florida Asset Protection, Estate Planning, Probate and Elder Law Blog C. Randolph Coleman: Steps to Avoid Power of Attorney Abuse
- American Bar Association: Durable Power of Attorney Abuse: It’s a Crime Too
- AARP Public Policy Institute: Power of Attorney Abuse: What States Can Do About It
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.