Under certain circumstances, testators and grantors of trusts may need someone to make financial and healthcare decisions for them should they become disabled or incapacitated during their lifetime. In anticipation of this event, many older adults choose to hand over such decision-making authority voluntarily to a third party through execution of Power of Attorney (POA) documents.
The Power of Attorney is therefore a beneficial and potent legal instrument for many, but it could also turn into a dangerous weapon when the person assigned to care for a loved one abuses the legal authority granted to him/her.
Power of Attorney abuse in Iowa is a familiar and a distressing problem that Will and Trust dispute lawyers tackle frequently. A family member, caregiver, or business entity that holds fiduciary control (POA) over a care recipient’s estate will abuse or misuse his/her authority when he/she wrongfully converts or misappropriates estate property or assets.
Future heirs and beneficiaries should therefore learn the particulars of POA authority, understand how POA documents work, and consider how supervising the duties of the person/entity authorized to take care of a disabled or incapacitated loved one may prevent a costly inheritance hijacking.
Why do people execute Power of Attorney documents?
A properly executed Power of Attorney allows a trusted individual or entity (Agent) to make personal, financial, or healthcare decisions for you (Principal) when you cannot make these decisions for yourself.
For many elders, POA estate planning documents are preferable because they allow the testator or grantor the ability to determine which individual or business entity will care for them when the unexpected happens—when estate plans do not include POAs, the courts often will choose the fiduciary that will assume conservatorship or guardianship control over the incapacitated elder.
Elder business owners likewise execute Power of Attorney documents to appoint an Agent that will step into their shoes and keep their business running when incapacity arises.
The courts will uphold Power of Attorney instruments when they follow Iowa Code and when the Principal executes the documents accordingly. In general, POAs must be in writing, dated correctly, and the Principal must have been legally competent when signing the documents.
When a POA is properly executed or when it springs into action, the Agent will hold high fiduciary (legal) duties to perform in the best interests of the Principal, to be loyal, and to avoid conflicts of interest while caring for the Principal—this includes abstaining from self-dealing and managing the Principal’s assets prudently.
Which Power of Attorney documents do Principals regularly execute?
A Principal may draft three of Power of Attorney instruments when planning his/her estate.
- Nondurable Power of Attorney—effective upon execution but expires when the Principal passes away, revokes the document, or becomes mentally incapacitated in which the Agent’s POA authority automatically dissolves.
- Durable Power of Attorney—effective immediately upon execution and likewise expires when the Principal passes away. However, the Agent will continue to hold POA authority over the Principal when he/she becomes incapacitated or disabled, unless the courts remove the Agent from duty.
- Springing Power of Attorney—springs into action when the Principal actually becomes incapacitated or disabled. The POA authority only dissolves when the Principal passes away or when the courts remove the Agent from duty.
What’s important to note here is that while a Springing Power of Attorney only becomes effective upon the Principal’s incapacity, a Durable Power of Attorney is operative once signed and continues in effect during the Principal’s lifetime—blanketing an extensive period that makes this legal instrument more susceptible to Power of Attorney abuse.
How do Agents engage in Power of Attorney abuse?
Power of Attorney abuse may occur in many forms, but financial abuse is unquestionably the most common. Here, an Agent, who takes full control of the Principal’s cash and investment assets, exploits the money for his/her benefit.
Fiduciary financial abuse is not always obvious. For example, the law allows Agents to use the Principal’s cash to pay themselves for providing fiduciary/caregiver services or for reimbursing their expenses. However, the courts may hold the Agent has engaged in Power of Attorney abuse if the payouts become unreasonable or excessive, if the Agent overcharges the Principal, or if he/she takes a commission on real property sales.
Remember that POA Agents assume high legal duties while performing, and when they misuse their authority or fail to act in the Principal’s best interest, the law will hold them in breach of their fiduciary duties.
A breach of duty usually provokes Agent removal and replacement litigation where the courts may hold the fiduciary criminally or personally liable to the Principal’s estate.
Many family members find it difficult to discover Power of Attorney abuse when it occurs because most outsiders do not enjoy free access to the Principal’s bank account statements and financial records. However, some breaches are flagrant enough to find when caring relatives actively monitor the Principal’s estate for any of the following fiduciary wrongdoings and malperformance activity:
- Embezzlement—converting or misappropriating estate property with intent to deprive the Principal of ownership.
- Undue Influence—asserting apparent authority, obtained from a confidential relationship with the Principal, to coerce, pressure, or persuade the Principal into assigning the Agent Power of Attorney authority of which the Principal would not have done had the Agent’s influence not been present.
- Fraud—misleading a Principal into executing a POA.
- Exceeding the Scope of POA Authority—violation of the express and implied terms found in a Power of Attorney document.
- Incompetent Agency—not holding the skill or capacity to act in Principal’s the best interests.
Look for Agents living well beyond their means soon after taking control of the Principal’s estate and investigate further if you notice assets or property missing without a reasonable explanation as to why.
How to resolve Power of Attorney abuse matters and prevent them from happening?
The options for tackling Power of Attorney abuse will depend on the type of abuse the Agent has participated in. Seeking legal advice and assistance from an Iowa estate dispute attorney is an excellent first step.
If the Agent has breached one of his/her legal duties owed to the Principal, you most likely will need to bring fiduciary removal and replacement action in court.
Here, the Iowa judiciary will dismiss the Agent from duty and remove the fiduciary’s POA authority—remember that the courts may also order Agents who breach their fiduciary duties to personally reimburse the heirs and beneficiaries who had their inheritance hijacked.
Liable Agents may further face criminal liability if they broke the law while committing the civil wrongdoing.
Sometimes, family members may only need an accounting performed so they can properly monitor the Agent’s work. In this situation, Agent removal proceedings would not be necessary—an equity lawsuit and an order from the courts forcing the Agent to produce a formal Estate Accounting usually resolves this matter.
Power of Attorney abuse has unfortunately risen in Iowa after the COVID-19 pandemic caused elders and the disabled to be isolated from their families for two years. Now, more than ever, heirs and beneficiaries must take active roles in their loved one’s lives to prevent fiduciary financial exploitation and other civil wrongdoings from taking place.
- Agent Selection. Careful selection of a trustworthy Agent is the first step preventing Power of Attorney abuse.
- Separation of POA Authority. Add Co-Agents to the POA document and require that fiduciaries only make major financial decisions through majority or unanimous consensus.
- Define Each Agent’s Power. Clearly indicate which Agent holds what powers and define the POA responsibilities that each Agent will assume while caring for the loved one’s estate (i.e. an Agent may pay bills less than $500 without approval but may not sell the Principal’s real property without an independent third-party signing off on the deal).
- Provide for Accountings. Power of Attorney documents should also allow for heirs or third party beneficiaries to make estate accounting requests from the Agent when necessary.
- Indicate POA Ouster Provisions. POA instruments should further establish the wrongdoings that would automatically revoke the Agent’s authority and which person(s) should replace an Agent when ousted.
- Limit POA Scope of Authority. Carefully consider how much authority to give an Agent when dealing with the modification or elimination of estate assets and real property.
Finally, take time to review your loved one’s Power of Attorney documents periodically. As people grow older, circumstances change, named Agents may pass away, financial matters may improve, or relatives may drift closer or further apart. Reviewing an elder’s estate planning POA instruments every few years accordingly ensures the entire estate will run more effectively and securely should the unforeseen ever happen.