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 is not possible to prevent the possibility of abuse in its entirety, there are steps you can take in drafting the document to greatly reduce the risks of abuse happening.
Let’s start with what a power of attorney actually does. A power of attorney allows a person you appoint (your “attorney-in-fact” or “agent”) to act in your place (the “principal”) for financial purposes when and if you ever become incapacitated. If that should happen, the person you designate will have the authority to step in and take care of your financial affairs. Needless to say, a power of attorney in the wrong hands or with too much power can be detrimental to the principal.
Below are a few tips when drafting a power of attorney to help you prevent someone from taking advantage of you.
Designate a trustworthy agent.
Appointing a trustworthy agent is the single-most important action you can do. Think carefully about whom you want acting on your behalf. You need to appoint someone you trust to always have your best interests in mind. If you do not have any friends or relatives who fit that criteria, then you should consider hiring 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 allows them to divvy up the tasks that need to be performed. Requiring the co-agents to act together provides checks and balances, but it could become very cumbersome if each of the agents are required to sign every check or document on your behalf.
If you do not want to have co-agents, but you still want to have 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 provide a second signature.
In addition to having a trustworthy agent, it is also a good idea to have a backup agent in the case that the first agent becomes incapacitated or is no longer in the position to act as your 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.
Another key way to prevent an agent under a power of attorney from exploiting the principal is to require the agent to provide accounting to a third party. That person could be a family member or a friend. Also, it does not have to be a formal accounting and can simply 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 they need to provide it.
The power of attorney can provide detailed instructions on the various powers that the attorney-in-fact can carry out. It can be as broad or as limited as you desire. For example, you can allow your agent to pay bills, but that person may not have the power 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, as well as exactly how much the agent can give.
Review the choice.
Every few years, you should review your choices in case something has changed. Never 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 always a good idea to have an attorney draft the power of attorney document for you. Your attorney can help you decide how to best protect yourself or a loved one.
Willis Law Group LLC provides complete services when it comes to drafting documents for a power of attorney. To have a consultation with us about your estate planning, we encourage you to attend one of our free educational workshops throughout New Jersey or give our main office a call at (877) 296-2575.