You must know the risks involved in signing powers of attorney. Here is a list of the top 10 abuses by people acting as attorneys. Still, the benefits of a power of attorney outweigh the risks of not having one. I’ll show you how to protect yourself from power of attorney abuse.
Here’s my top ten list of attorney abuses:
1. attorney misappropriating money
2. using the POA for identity theft
3. inappropriate taking of bank funds and investments
4. causing losses with improper financial decisions
5. making bad investments
6. selling or transferring real estate
7. changing beneficiaries or creating joint assets
8. neglecting the person who gave the power of attorney
9. breaching fiduciary duties as an attorney
10. being unable to explain where the money went
Provincial Laws Control Powers of Attorney
In Ontario, for example, it is the Substitute Decisions Act, 1992 that applies. This Ontario law states what a person, like Sheila, must know to make a POA. Sheila is presumed to have legal capacity to make a continuing power of attorney.
“Continuing” means her son, Kevin, can use her POA if Sheila later becomes incapable. Section 8 of the Ontario law governs here. Upon signing the POA, Sheila must appreciate that there is risk of:
1. Kevin not managing Sheila’s property prudently, causing its value to decline; and
2. Kevin misusing the authority given to him.
Sheila loves to golf during the winter. She wants to give Kevin her power of attorney for property decisions. She figures this is a good idea since she travels south before the snow falls.
Should You Include Conditions in Your POA?
Most people decide to make a POA that is effective immediately.
Sometimes clients want the POA to become operative only if they become incapable. There are problems with such “in the event of my lack of capacity” stipulations. These are referred to as springing POAs. This condition may be difficult to satisfy.
Picture Kevin telling Sheila’s bank that he wants to move money into her chequing account using Sheila’s POA. He needs to pay her mortgage and condo fees.
The bank’s legal department will look at how the condition is worded. The bank must be satisfied before Kevin can use the POA. In questions of incapacity in Ontario, only assessors can make assessments. This can take weeks when medical reports and capacity assessments are required. Is this really what Sheila wants? She can consider other options.
Consider These Options for Making Your Power of Attorney
- Make a POA that is only effective while you are out of the country.
- Give someone rights to manage property, but not sell it.
- Specify that you can make multiple powers of attorney. Create one to pay your bills and one to handle digital passwords or assets. You can make another POA to allow someone else to make investment decisions.
- Restricted powers may not be required on all attorneys. (Presumably you would only name attorneys you trust.)
- Discuss options with your estate planning lawyer. You may have property or personal needs that require more supervision by an attorney.
- If you place too many burdens on your attorneys, they may refuse the job.
- Always name a back-up attorney in case one resigns.
- Specify attorneys can share financial information with certain relatives only.
- State in the POA your attorney can use your money to pay for professional advice – otherwise, your attorney may be afraid to hire a professional advisor.
Remember, attorneys are bound by the rules imposed on all fiduciaries. They must put your interests before their own.
1. Every family is different. How many of your family members should act as your attorney? Should they act jointly or individually? These are important decisions. Your lawyer can help you make them.
2. Powers of attorney are legal documents. They are subject to court review. POAs should be drafted by an experienced estate lawyer.
3. Financial institutions worry about power of attorney abuse. They will consider suspicious POAs not drafted by lawyers.
4. You need to meet with a lawyer to review your circumstances. In cases of blended families, having an independent review is crucial.
5. Deal with your own lawyer, not your proposed attorney’s.
6. You need to appreciate the risks of a POA, but you can take steps to stop possible abuse.
For related posts on powers of attorney, visit my law firm blog.
Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of Executor Kung Fu: Master Any Estates in Three Easy Steps. © 2013