The most dangerous document an attorney can draft for a client is a Power of Attorney (POA). The POA allows another person – an “Agent” (typically a child, sibling, or trusted friend) – to perform financial transactions for another person – a “Principal.”
The POA is not just another legal document – it is incredibly powerful.
Do you want to take money from someone’s bank account? A POA allows you to go to the Principal’s bank, produce the POA, and transfer the money wherever you want. Do you want to sell someone’s home? Yes, you can do that with the POA. What about liquidating the Principal’s stock so that you may take your long-deserved vacation? Pull out the POA and you can be in the Islands in no time. As you can see, a POA is extremely dangerous in the wrong hands.
The power to transact someone’s business affairs is typically given to someone who the Principal trusts implicitly – this is the primary check on its misuse. But, unfortunately, that confidence is sometimes misplaced. When an Agent takes money for his or her own benefit, it is more than a problem for the Principal, it is a crime.
The Agent under the POA has three primary responsibilities:
- to undertake each transaction in the best interest of the Principal
- to keep his or her assets separate from the Principal
- to keep a written record of the transactions undertaken by the Agent under the POA
Of course, these duties and responsibilities do not stop someone who has moved to the “dark side” and is intent on using the POA to take advantage of the situation and the Principal.
The POA, in fact, is the most abused estate document in terms of theft. Abuse of this document can be litigated in two ways: (1) in civil court, through a “Petition for Accounting,” which is designed to require the Agent to detail to a Judge all of the transactions that he or she undertook for the Principal; or (2) through a criminal prosecution. Both have different consequences to a wayward Agent.
Knowing the danger of this document and having experience litigating against persons who have stolen money from their respective Principals, Baratta, Russell & Baratta (BRB) always requests the client include an “Accounting Provision” in the POA.
This provision requires the Agent to provide detailed documentation on an annual (or more frequent) basis to, for example, the Principal’s children on the Agent’s use of the POA. This accounting provision may not prevent the theft of a Principal’s funds, but it provides an affirmative obligation for the Agent to communicate on a regular basis with the Principal’s heirs – it demands transparency and allows the participation of others in an oversight role.
This has the positive effect of allowing others to review the use of the Principal’s funds under the POA, potentially alerts the other children or persons close to the Principal of irregularities of an account, or may trigger some investigation when the Agent fails to follow the mandatory accounting provision.
The required Accounting Provision is another way that BRB works for our clients. We anticipate problems not considered by others and attempt to correct them through “out of the box” provisions. Does your POA have such an accounting provision?
Please feel free to contact Ken Russell at 215-914-2222 if you have any questions or concerns regarding your POA.
Ken Russell is a founding partner of Baratta, Russell & Baratta and heads up the Estate planning and Administration department. Ken has assisted many clients with Elder Law and Long-Term Care Planning issues as well as estate planning, trusts and estate administration matters. Ken specializes in working with his clients to make sure that as much of their wealth passes down as possible.