When working with clients, I often include a power of attorney (POA) with a will package. However, a POA is not a substitute for a well-executed estate plan. So many institutions refuse to accept a POA that it does not offer guaranteed protection.
In a POA, you may name someone to act as your attorney-in-fact (or agent), giving him or her control over assets that are solely held in your name. But a person should be cautious in relying solely on a POA. Here are seven scenarios in which the use of a POA may be problematic.
1) SPOUSE USING A POA WITHOUT PERMISSION FOR A SPOUSE WHO IS OVERSEAS OR IN THE MILITARY
Having a spouse overseas may be a very good reason to have a POA; for instance, occasionally, one spouse needs to sell a house or automobile in the other’s absence.
However, if can be misused when the spouse at home decides to leave the absent spouse and uses the POA without the absent spouse’s knowledge or permission to remove funds or sell assets. Once marital issues arise, it may be hard for the absent spouse to revoke the POA.
2) PARENT INSISTING ON GIVING A POA TO MULTIPLE CHILDREN
It is common for parents to want to give their children a POA in case they need help handling their assets. However, if a parent insists on giving the POA to multiple children, it can cause problems. Some examples are if the parent becomes mentally impaired and one child removes all the funds or assets, or multiple children with a POA cannot agree, and the banking institution will not accept the dueling documents. In that case, the POA will not be beneficial.
3) FINANCIAL INSTITUTIONS OR COMPANIES HAVING SPECIAL REQUIREMENTS, FORMS, OR RULES
Some institutions have certain conditions that must be met before they’ll accept a POA, such as it must be dated within the last six months. If your loved one has become mentally incompetent after signing the POA and the institution will not accept the original POA, the loved one does not have the legal ability to sign a new one. Other legal action will be necessary for such situations.
4) AGENT USING POA FOR PERSONAL GAIN OR TO EXCLUDE OTHERS
A common breach of fiduciary duty is for individuals who are attorneys-in-fact, or agents, under a POA for a parent or spouse, for instance, to use a POA to change account owners or beneficiaries before a person dies to benefit themselves or their children at the expense of other family members or children from a first marriage. The use of a trust with an independent trustee would be much greater protection.
5) PLAIN FRAUD
This refers to a situation where the individual named in the POA uses his or her position as attorney-in-fact, or agent, to steal money or an asset. This is a direct breach of fiduciary duty, and we can bring a lawsuit. However, it often is hard to recover a horse that already has escaped from the barn, or, in this case, recover money after it probably has already been spent.
6) THE NAMED AGENT IN THE POA DYING BEFORE YOU
If the named agent in the POA passes away before you, leaving no one named as a successor, issues will arise.
7) THE POA NOT BEING VALID AFTER YOU DIE AND CAN NO LONGER CONTROL YOUR ASSETS
A POA does nothing to help with arrangements for your assets after the date of your death.
Trusts generally are more useful and flexible, as you can specify what you want to happen with your assets even after your mental incapacity or death. A trust would name a successor trustee to ensure your wishes are followed and your assets are protected, even when you are unable to do so.
Kathy Brown van Zutphen of Coastwide Law LLC is an attorney licensed to practice law in Alabama and Mississippi. She focuses on the “elder law” areas of trusts, estates, and conservatorships. Additionally, she litigates lawsuits and represents small business owners as part of her legal practice. Visit https://coastwidelaw.com/ to learn more or reach her at her office: (228) 357-5227.