An essential part of your estate plan should involve assigning a power of attorney (POA) to someone you trust in case you ever become incapacitated.
If drafted properly, the “attorney-in-fact” or “agent” you choose will step in and make financial, medical or legal decisions for you (the principal) and loyally serve the estate’s best interests concurrently.
Assigning POA fiduciary duties to someone is therefore a major decision, and to avoid becoming a victim of power of attorney abuse, you must be very careful of who you select and how you draft your documents.
The iowaprobatelitigation.com team recently sat down with probate counselors at the Smith Law Firm in Iowa to discuss POA drafting and how folks can lessen their chances of dealing with power of attorney abuse.
Let’s hear what they had to say…
Iowa Probate Litigation: It’s important for testators to learn which power of attorney tools are available during estate planning. What should folks know before choosing their POA documents?
Smith Law Firm: Some principals assign non-durable power of attorney authority to a trusted person to stand in for them when executing legal documents or when authorizing financial transactions—non-durable POAs take effect immediately, are revocable, and expire when the principal becomes incapacitated.
These legal instruments however are distinctly separate from the durable power of attorney documents found in estate planning, which spring up the moment principals become incapable of taking care of themselves.
Iowa Probate Litigation: Non-durable power of attorney seems like a necessary legal tool to use in today’s busy world, but why would testators want to authorize agents to perform on their behalf at a time when they’re most vulnerable?
Smith Law Firm: People draft durable power of attorney documents for many reasons, taking into account the principal’s particular circumstances beforehand. Principals may also set up more than one POA in their estate planning documents to protect their interests.
Iowa Probate Litigation: Are we talking about a durable medical power of attorney?
Smith Law Firm: That’s one estate planning tool, yes. POAs with medical incapacity powers convey authority to an agent to conduct medical decisions for the testator, generally springing into action the moment the courts find that the principal can no longer make rational choices about his or her own healthcare needs.
Iowa Probate Litigation: What’s the other POA estate planning tool?
Smith Law Firm: Financial POAs allow the agent to control the testator’s economic decision making. The principal may also limit the agent’s financial POA authority, providing authorization to execute only certain activities (buying or selling land, paying taxes, settling bills). Contrarily, the principal’s POA document may authorize the agent to conduct all financial decisions on his behalf.
Iowa Probate Litigation: What legal protections do probate attorneys include in these POA tools?
Smith Law Firm: Seasoned estate planning attorneys prepare their client’s medical and financial power of attorney documents to “spring into action” only after a specific event takes place (illness, injury, or incapacity). This option allows the principal to revoke the POA or change his or her agent before incapacity takes place, and if no event triggers the power of attorney, the legal document will simply expire upon the death of the principal.
Iowa Probate Litigation: It seems that once triggered, the agents can openly abuse their durable power of attorney authority. Is this correct?
Smith Law Firm: Some agents regrettably exploit their principal’s good will, and because of this, assigning POA authority to the wrong person with absolute authority can be disastrous to the estate.
Estate planning attorneys cannot therefore entirely prevent power of attorney abuse from happening, but they can however take affirmative steps while drafting their client’s documents to undermine POA misuse considerably once triggered.
Iowa Probate Litigation: Can you give us some examples of how to proactively defend an estate from power of attorney abuse?
Smith Law Firm: The foremost effective measure that both the estate planning attorney and testator should take is to locate a trustworthy agent to appoint. However, choosing the correct person to act on your behalf when you’re most vulnerable is no easy task.
The agent must be someone you trust and someone who you know will always have your best interests in mind while performing his or her duties. Most folks place relatives or lifelong friends in this role, and those without friends or family often hire a professional fiduciary to be their agent.
Iowa Probate Litigation: Many of our readers may not know what a professional fiduciary agent is, where can they find one?
Smith Law Firm: Financial advisers, CPAs and bankers with trust powers are typical professional fiduciaries that principals may assign durable financial power of attorney authority to should they become incapacited.
Iowa Probate Litigation: Can testators assign financial POA power to more than one professional agent?
Smith Law Firm: Absolutely! In fact, multiple agent assignment is another safeguard that attorneys use to protect testators from POA abuse. This estate planning tool divvies up responsibilities among fiduciaries, which produces innate checks and balances whenever the co-agents act collectively on behalf of the testator.
Iowa Probate Litigation: It seems multiple power of attorney assignments may serve large estates well, but what about the smaller ones, is there a similar protection for the little guy or girl?
Smith Law Firm: Tasking efficiency in multiple POA scenarios can become burdensome—imagine needing three agents to sign off on one bill payment—however, smaller estates with only one POA assignment can achieve similar accounting controls by requiring two signatures for substantial purchases or payments.
In other words, the power of attorney document would call for another trusted person to investigate whether a large transaction was legitimate before signing off on it.
Iowa Probate Litigation: We hear a lot about power of attorney abuse leading to fiduciary removal litigation. What can testators do about this problem before becoming incapacitated?
Smith Law Firm: Before drafting a durable power of attorney, our firm encourages clients to choose a backup agent. This second trustworthy individual’s POA duties will accordingly spring up should the courts dismiss the first agent or should he or she choose to leave the position.
Iowa Probate Litigation: What else can estate planning attorneys write into POA documents to protect the testator and his estate?
Smith Law Firm: It would be difficult for agents to abuse their power of attorney authority if the POA document requires them to produce regular estate accountings and surrender them to third parties.
We often include this provision when drafting POA documents, requiring agents to submit informal accountings to one of the principal’s trusted friends or family members for monthly assessment.
Iowa Probate Litigation: Are there any last words that you would like to mention to our testator readers worried about power of attorney abuse?
Smith Law Firm: If you assigned someone to take care of you and your estate in the event that you can’t do it anymore, be sure to reexamine your estate planning needs frequently and to scrutinize the agent who you elected to become your fiduciary.
Sometimes things change and you may find that a durable POA doesn’t work for your particular situation anymore. Also, never be reluctant to revoke your power of attorney if you ever feel your choice of an agent is no longer trustworthy.