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Special Focus Issue - Elder Abuse
Preventing Financial Abuse
By Agents Under Powers of Attorney
by Ellen J. Henningsen
| Ellen J. Henningsen,
U.W. 1975 cum laude, formerly worked as the elder advocate in Wisconsin's
Department of Justice. The comments in this article are the author's
and do not necessarily reflect the opinions of the Attorney General
or the Wisconsin Department of Justice. Henningsen now works as
the Medicare project director for the Elder Law Center of the Coalition
of Wisconsin Aging Groups. |
Power of Attorney for Finances and Property is a
dangerous instrument when placed in the hands of an unscrupulous agent.
Consider the case of 84-year-old Mrs. Smith. To make sure her "affairs
were in order," she hired an attorney to draft a Durable Power of Attorney
for Finances and Property, naming her niece, Ann, as her agent.
Mrs. Smith signed a general Durable Power of Attorney, granting Ann broad
powers. Ann was authorized to "do anything and everything I would be
entitled to do, including but not limited to the power ... to do anything
that I could do with respect to insurance policies on my life; ... and
to make gifts of any of my property to anyone for any reason." The document
did not include any restriction on Ann's authority and was silent about
Ann's fiduciary duty as Mrs. Smith's agent.
Mrs. Smith soon suffered a stroke, and Ann began to handle her aunt's
financial affairs. After spending several months receiving rehabilitative
services in a skilled nursing facility, Mrs. Smith was able to return
to her home. She soon discovered that Ann had cashed out her life insurance
policies and taken the money. Worse, Ann had not paid Mrs. Smith's mortgage,
property taxes, or utility bills – that money was gone, too. Her house
was in foreclosure, the taxes were delinquent, and the utilities turned
off. The likelihood of recovering any money from Ann was minimal, so
a civil action was not pursued. The district attorney declined to prosecute,
concerned that the broad grant of authority to the agent, particularly
the unrestricted gifting clause, would create a reasonable doubt in
the minds of jurors that Ann had exceeded the scope of her authority.
The benefits of Powers of Attorney for Finances and Property are well
known, but the risks are often ignored. As illustrated by the above
scenario, financial abuse of Wisconsin's elderly often occurs by agents
acting with apparent authority pursuant to Powers of Attorney. Attorneys
who draft these documents for elderly clients need to recognize and
respond to this risk. This article suggests ways that attorneys can
help prevent and remedy financial abuse involving Powers of Attorney.
Attorneys can reduce the risk that an agent will abuse his power by
crafting a document that clearly explains the limits of the agent's
authority and by educating the agent about his responsibilities and
limitations; an agent who is aware of his responsibilities and limitations
is less likely to abuse his power. Attorneys can increase the likelihood
that abuse will be discovered by crafting a document that includes oversight
provisions. Attorneys can increase the likelihood that financial abuse
will be remedied by creating both documentary and testimonial evidence
that can be used in a civil or criminal case to establish that the agent
knew that her conduct was unauthorized. Consider the following suggestions.
Grant Only Those Powers Needed
Attorneys should question their clients to determine exactly what they
want the agent to be authorized to do and not do, and draft accordingly.
If, for instance, the principal only wants the agent to pay bills and
keep accounts balanced, a Power of Attorney that is so broadly drafted
that the agent has the authority to effectively disinherit heirs by
changing beneficiary designations and retitling assets and real estate
goes well beyond what the client wants, and exposes the client to an
unnecessary risk of abuse. Clients who assert that they want the agent
to do anything the client could do should be given examples of exactly
what that means, and asked if that is what the principal wants.
Clients who want agents to have the authority to make gifts should
be questioned about the purpose of those gifts. Perhaps the client will
respond that she wants the agent to continue the client's pattern of
providing cash to children and grandchildren on birthdays and holidays.
A clause limiting the agent's authority to make gifts for that sole
purpose should then be drafted. A principal who suggests an unrestricted
gifting clause should be advised that such a clause can be interpreted
as authorizing the agent to give away all of the principal's money to
the agent or to anyone else of the agent's choosing – an informed principal
will be able to decide if this is what she in fact wants, and the attorney
can draft the document accordingly. More likely, the principal will
reveal that this broad grant is not wanted, and the attorney can draft
an appropriately limited gifting clause.
Attorneys should meet with the client alone, that is, outside of the
presence of the proposed agent, to ensure that the client is able to
express his own wishes, not the wishes of the proposed agent. (Please
see the accompanying article by Betsy Abramson elsewhere in this issue
for a discussion relating to the competency of the client to execute
a Power of Attorney.)
Include a Statement of the Fiduciary Duty
Common law imposes a fiduciary duty on the agent.1
Unless expressly stated otherwise in the document, the agent's authority
is limited by the fiduciary duty. As a fiduciary, the agent is to act
with utmost loyalty to the principal, in good faith, and solely for
the principal's benefit; the agent may not use the principal's money
or property for the agent's benefit.2 Unfortunately,
many are not aware of this limitation, and Power of Attorney documents
often are silent. Including a recitation of the duty in the Power of
Attorney document puts the agent on notice of the limitation, and provides
necessary proof for a civil or criminal case against the agent in the
case of wrongdoing. An additional safeguard is to have the agent affirmatively
accept this duty by including an acknowledgement provision in the document
for the agent to sign. An agent who hesitates or refuses to sign is
not a good choice for agent.
Because making gifts to the agent is contrary to the fiduciary duty,
Powers of Attorney that authorize gifts to agents often include a waiver
of the entire fiduciary duty, either in the gifting clause or in the
document as a whole. Arguably, such a waiver is unenforceable. Even
if permissible, however, this practice should be avoided as it strips
the principal of the only protection against misconduct by the agent
and virtually eliminates any chance of civil recovery or criminal conviction.
Carefully Craft Gifting Clauses
The common law requires that gifting be expressly authorized in a Power
of Attorney; without an express gifting clause, the agent has no power
to make any gifts.3 Nevertheless, if the
principal does not want the agent to make gifts, include an express
prohibition of gifting so that it is clear the agent does not have this
power.
An unlimited gifting power is exceptionally dangerous because it permits
agents to give away the principal's property and assets under circumstances
that the principal may not have intended. For this reason, the statutory
Power of Attorney form expressly prohibits gifting by agents for any
reason.4 Most principals do not want their
agents to have this unlimited power.
An unlimited gifting power that is silent about the authority of the
agent to make gifts to the agent can be reconciled with the agent's
fiduciary duty not to use the principal's money for the agent's benefit,
by interpreting it to prohibit gifts to the agent. However, in the author's
experience, unlimited gifting powers are rarely interpreted this way.
Therefore, a principal's intent to either permit or prohibit gifts by
the agent to the agent should be expressly stated in a gifting clause.
Gifting clauses can be limited in other ways to protect the client
from financial abuse. For instance, gifting can be authorized for the
sole purpose of continuing an established pattern of charitable giving.
Or the agent can be authorized to make gifts to the principal's children
(including the agent, if a child of the principal) but only in equal
amounts and to all at the same time. Perhaps the agent should be required
to provide notice to a third party of any gifts over a certain amount
or to a certain individual, particularly if the agent is the recipient.
Perhaps the agent should be required to obtain the consent of all of
the principal's children if a gift is made to the agent. Perhaps the
client should name a special agent for the purpose of making gifts to
the agent. Restrictions also could be included that clarify that the
gifting clause is not to be used to change the client's estate plan.
Any number of restrictions are appropriate, depending on the client's
wishes. Particular care should be taken when drafting gifting clauses
that authorize gifting for estate and medical assistance planning purposes
to ensure that the principal's wishes are met and the risk of abuse
minimized.
As noted above, the practice of waiving the fiduciary duty so that
agents can make gifts to themselves should be avoided. Instead a clause
can be included to the effect that the agent must act in a manner consistent
with the fiduciary duty when making gifts, except that the agent may
make gifts to himself under specified circumstances.
Include Oversight Clauses
Although providing a regular accounting to the principal is part of
the common law duties of an agent, principals and agents often are not
aware of it. Include a provision in the document setting forth this
requirement, including how often it should be done and what it should
include. Consider including the name of a third party, in addition to
the principal, to whom the accounting also should be given. This provision
is particularly important if the principal becomes incapacitated.
A provision detailing which records the agent must keep and for how
long also should be included. Records include check statements, cancelled
checks, check registers, mutual fund statements, and so on. Consider
including a requirement that these records must be turned over to a
designated third person on request.
Many agents use their apparent authority under a Power of Attorney
to open joint accounts with the principal, thus blurring the distinction
between agent and co-owner. To avoid this problem, include a provision
indicating the proper titling of accounts between the agent and the
principal; that is, the agent should open only Power of Attorney accounts
and be listed as the agent. The principal and agent should be instructed
to avoid joint accounts with the principal and agent, and the Power
of Attorney should state that any joint account between the two is not
jointly owned, but created solely for the convenience of the principal.5
Educate Your Client and the Agent
Instruct your client about the responsibilities of the agent, such
as the requirement to provide a regular accounting. Make sure your client
understands the warning signs of financial abuse and what to do if suspicions
arise. Provide the client with instructions about how to revoke the
Power of Attorney, along with a blank revocation form, and a sample
cover letter to send to the agent and financial institutions.
Meet with the agent. Give the agent a copy of the booklet Powers
of Attorneys and Trusts: Duties and Rights as Agents and Trustees,
published by the State Bar of Wisconsin, and point out relevant portions.
Discuss the duty owed to the principal and review the Power of Attorney
document, providing instructions to the agent about her powers and limitations.
Confirm the basics of your conversation in a letter to the agent. If
the agent abuses her power, your testimony about this meeting, along
with the Power of Attorney document, and a copy of the confirming letter,
will provide compelling evidence against the agent in a civil or criminal
case.
Avoid Representing the Agent
After the agency relationship has begun, agents often consult with
the drafting attorney about matters pertaining to the agent's duties.
In addition, the agent may retain the attorney for legal services unrelated
to the Power of Attorney. When an attorney-client relationship exists
with the individual acting as the agent (as distinguished from a relationship
with the agent as the representative of the principal), the attorney
who suspects that the agent is abusing the principal is prohibited from
alerting the principal, the county lead elder abuse agency, or law enforcement.6
To avoid this dilemma, the attorney should avoid providing legal services
to the agent except in the agent's capacity as a representative of the
principal. It is best to clarify before the agency relationship begins
that the attorney will only provide legal services to the agent in the
agent's representative capacity. In addition, consider including in
the acknowledgement provision mentioned above a clause to the effect
that the agent agrees that the attorney will only provide services to
the agent in the agent's capacity as the principal's representative
and that communications between the attorney and the agent are not subject
to the attorney-client privilege.
Conclusion
Certainly, the vast majority of agents perform their duties in a responsible
manner. Those who do not can cause their victims financial and emotional
devastation. By understanding the risks that a Power of Attorney presents
and by responding accordingly, attorneys can prevent financial abuse
of their elderly clients and assist in the civil or criminal prosecution
of the abusers.
Endnotes
1 Bank of Calif. v. Hoffmann, 255 Wis.
165, 171-71a, 38 N.W.2d 506, 509 (1949).
2 Id., 255 Wis. at 171, 38 N.W.2d at
509; Alexopoulos v. Dakouras, 48 Wis. 2d 32, 40-41, 179 N.W.2d
836, 840 (1970).
3 State v. Hartman, 54 Wis. 2d 47, 56,
194 N.W.2d 653, 657-58 (1972).
4 Wis. Stat. § 243.10(1).
5 Wis. Stat. § 705.03.
6 SCR
20:1.4.
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