1) Remember the #1 Rule: the Power of Attorney agent (a/k/a Attorney-in-Fact) must act in the “best interest of the principal” (Principal is the person who executes the power of attorney)
2) Remember #2 Rule: the power of attorney agent acts as a fiduciary for the principal.
a. One definition of fiduciary is: A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. Another includes the definition: Trustee.
3) Rule #3: Maintain all statements, bills, receipts. Keep them in a large container, organized by date.
4) Rule #4: Make sure to give at least an annual accounting to the principal. Get direction on whether to share with other family members or the POA’s attorney.
a. Practice Pointer for principals executing a power of attorney. Designate a person or lawyer in the power of attorney document that has to receive at least an annual accounting from the attorney-in-fact.
5) Duties of the Attorney-in-Fact: The Attorney-in-fact (or POA) in a nutshell is responsible for maintaining the property and assets of the principal (or maker of the power of attorney document). This includes protecting assets, collecting assets, paying reasonable and necessary expenses, and investing the assets prudently.
a. The prudent investor rule is in effect.
b. Prudent Investor invests monies wisely based on age, income, assets, and risk tolerance of the principal. By example, the fiduciary as a general rule shouldn’t be investing in options trades and high-risk start-ups. As a general rule, the attorney-in-fact should be in low risk, interest/dividend related investments.
6) Gifting. This is the greatest area for mistakes or abuses by the Attorney-in Fact.
a. The principal should be cautious about what gifting he/she allows in the power of attorney document.
b. If gifting is allowed, one option is to allow gifting as the principal did prior to the power of attorney going into effect (how did the person making the power of attorney gift to charities & persons prior to their incapacitation)
c. Gifting to spouse. This is also an area of concern. The concern is alleviated if the couple has been married for a long time and this is their first marriage. You don’t necessarily want this gifting power if there are children from a prior marriage.
d. Gifting to power of attorney agent. This is an area where the greatest abuse and mistakes occur.
e. No matter what, the attorney-in-fact should never gift to himself/herself or others to the detriment of the principal. This is the source of a lot of power of attorney abuse litigation. Causes of action include in a lawsuit: self-dealing, misappropriation, embezzlement, conflict of interest, and breach of fiduciary duty.
f. No personal expenses- the attorney-in-fact should not be spending the principal’s money on the attorney-in-fact personal expenses. The attorney-in –fact should apply this test: Would they want a bank to use their money in the same manner?
7) If you are the power-of-attorney for someone, you are a child of the principal, and you have siblings, then keep siblings updated on the status of the assets and expenses. When the attorney-in-fact ‘goes dark’ and keeps things secret, then it causes the siblings and others to begin assuming untoward acts are being committed with the principal’s money and assets. The Attorney-in-fact should explain to others why he/she is doing certain activities for the principal.
8) A lot of Attorneys-in Fact (POA’s) that get sued in power of attorney abuse lawsuits tend to be motivated by greed and control. If you are making a power of attorney, consider the financial standing of your named attorney-in-fact and whether they can be trusted to do what is right and above board.
9) If you are an Attorney-in-Fact for a person on Medicaid (particularly if Medicaid is paying nursing home expenses), there are stricter guidelines for how to spend money for the principal.
10) There are now felony statutes for taking monies from an elderly person. So the attorney-in-fact needs to be extremely careful. See NCGS 14-112.2 (below)
§ 14-112.2. Exploitation of an older adult or disabled adult
Older adult. — A person 65 years of age or older
Disabled adult. — A person 18 years of age or older or a lawfully emancipated minor who is present in the State of North Carolina and who is physically or mentally incapacitated.
In either situation, 14-112.2 states: It is unlawful for a person:
(This applies to Power of Attorneys & Trustees) “(i) who stands in a position of trust and confidence with an older adult or disabled adult, or (ii) who has a business relationship with an older adult or disabled adult to knowingly, by deception or intimidation, obtain or use, or endeavor to obtain or use, an older adult’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the older adult or disabled adult of the use, benefit, or possession of the funds, assets, or property, or to benefit someone other than the older adult or disabled adult.”
“It is unlawful for a person to knowingly, by deception or intimidation, obtain or use, endeavor to obtain or use, or conspire with another to obtain or use an older adult’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the older adult or disabled adult of the use, benefit, or possession of the funds, assets, or property, or benefit someone other than the older adult or disabled adult. This subsection shall not apply to a person acting within the scope of that person’s lawful authority as the agent for the older adult or disabled adult.”
Depending on the amount taken, the violator’s acts are punishably criminally in North Carolina as Class F, G, or H level Felonies.
Kirk Sanders 336-723-7200 at Hendrick Bryant Nerhood Sanders & Otis, LLP has litigated numerous power of attorney abuse cases successfully.
