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Durable Powers of Attorney: An invitation to fraud or an integral part of estate planning?

February 2, 2015

 A durable power of attorney can be an invaluable tool in aiding individuals in need of assistance or it can be a means to facilitate fraud. How does one insure that it is the former and not the latter? There is no foolproof method, because the key factor in choosing a person to whom to give your power of attorney is trust. Is the recipient completely trustworthy? This obviously is a judgment call with no guarantees.

 

Once a person has crossed the initial hurdle of deciding to trust someone with a power of attorney, its scope must be determined. A power of attorney can be broad or narrow. If it is broad, it is very useful and effective; if narrowly drawn, the opposite is true. Again, this is a judgment call dependent largely on trust. However, one must also consider that in the event of incapacity without a power of attorney, the only means of obtaining decision-making authority is through a court order for the appointment of a guardian or conservator, a comparatively expensive, intrusive and onerous process. If a trustworthy candidate is available, a durable power of attorney granting full authority is recommended. This recommendation is not intended solely for the elderly because incapacity can occur regardless of age as a result of illness or accident. A power of attorney provides inexpensive insurance in the event of incapacity.

 

What are the responsibilities of a holder of a power of attorney or attorney-in-fact? Generally, they are to act in a fiduciary and/or health care decision making capacity for the individual who gave the power (Grantor) and to do what he or she requests, no more and no less. Frequently, an attorney-in-fact pays the bills, prepares and files tax returns, and manages the finances of the Grantor. In such a case, the attorney-in-fact should inform the Grantor of all of his or her actions and should seek approval in advance of proposed actions.

 

An attorney in-fact must avoid the tendency to do what he or she thinks best for the Grantor without consulting with or keeping him or her informed. An attorney-in-fact must bear in mind at all times that he or she is merely the agent of the Grantor and the decision-maker is the Grantor. Of course, if the Grantor becomes incapacitated to the point that he or she cannot make decisions, the “durable” part of the power of attorney takes effect and the attorney-in-fact must make decisions on behalf of the Grantor based on his or her knowledge of the Grantor’s wishes and his or her interpretation of what is in the Grantor’s best interest. An attorney-in-fact should maintain accurate and detailed records of all of his or her actions and, in particular, should maintain records of income and expenses paid on behalf of the Grantor. Providing family members or selected interested parties (with the Grantor’s consent, if obtainable) with quarterly or other regular financial statements is an excellent method to avoid suspicions from forming. Failure to keep accurate records and to keep interested parties informed is a quick way to get into difficulties when someone misinterprets the actions of the attorney-in-fact and because of lack of communication, institutes court action which defeats the whole purpose of the power of attorney, namely a simple and inexpensive means of providing assistance without court action.

 

An attorney-in-fact should prepare a budget for the Grantor based on known expenses and income. If the income is not adequate for the expenses, then the sale of assets should be discussed with the Grantor to make up for the shortfall. If the Grantor’s resources are inadequate for his or her needs, alternate living arrangements should be considered, including applying for Medicaid, if a nursing home is a possible alternative.

 

When drafting a Durable Power of Attorney careful attention should be paid not only to the laws of the domicile of the Grantor but also to those where he or she owns real property. For example, the District of Columbia Code requires a specific paragraph to be printed at the top of the first page of a durable power of attorney if it is to be used to sell real estate.

 

In summary, a durable power of attorney for health care and finance is highly advantageous, but should be granted with care and monitored. Similarly, one should not accept the designation of attorney in-fact unless one understands and appreciates what is involved and is willing to act as a fiduciary, perform the considerable duties and accept the responsibilities involved.

 

Robert A. Gazzola is an attorney in the law firm of Quinn, Racusin & Gazzola Chartered located at 888 17th Street, N.W., Suite 640, Washington, D.C. 20006 (telephone: 202-842-9300), and practices estate planning and administration, Elder Law and guardianship and conservatorship law in the District of Columbia, Maryland and Virginia.

 

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