Abuse of a Power of Attorney is a Crime

According to the American Bar Association Commission on Law and Aging, too many criminal justice professionals lack awareness in the role they can play in holding offenders accountable. An agent who violates the duty owed to the principal may have committee one or more crimes. The agent may have violated state and federal laws, including laws on

  • Exploitation
  • Embezzlement
  • Forgery
  • Fraud (e.g. credit card fraud, tax fraud, welfare fraud)
  • Larceny
  • Money Laundering
  • Theft

The National Center on Elder Abuse provides resources for social service agencies and the justice system. They help with response and prevention strategies for elder and vulnerable adult abuse. While mistreatment of the elderly and adults with disabilities have traditionally been viewed as family matters, criminal justice systems are adapting to better address elder abuse and neglect as a criminal issue.

 

AARP’s Public Policy Institute has produced a report written by Lori A. Stiegel and Ellen M. Klem of the ABA Commission on Law and Aging. The report explores the problem of the abuse of powers of attorney and how state legislatures can provide protection. The report can be downloaded here.

Also, see a National Center of Elder Abuse Fact Sheet: Durable Power of Attorney Abuse: It’s a Crime Too.

 

Here in Lancaster County, Pennsylvania, the Office of the District Attorney investigates and prosecutes elder abuse. In addition, abuse can be reported at the Lancaster County Office of Aging

Who Has Standing to Challenge the Actions of an Agent Under a Power of Attorney?

Recent changes were made to Pennsylvania's power of attorney statute by Act 95 which was enacted in 2014 and amended Title 20, Chapter 56 of the PEF Code. All of the Act's provisions have been effective since January 1, 2015.

PEF Code Section 5601.3(d)(1) provides that an agent shall not be required to disclose receipts, disbursements or transactions conducted on behalf of the principal unless ordered by the court, during the principal's lifetime requested by the principal, the principal's guardian, another fiduciary for the principal or a governmental agency, and after the death of the principal by the personal representative or a successor in interest to the principal's estate.

The statute does not require an agent to disclose receipts, disbursements or transactions to an heir of the principal or a beneficiary under the principal's will.

What to do? Petition to have a guardian appointed for the principal. The guardian clearly has standing. But this route has its own risks. What if the Petition is not granted and no guardian is appointed? Might the principal retaliate, for example, by disinheriting the petitioner?

We need more tools and more ways to hold agents accountable. The PA Supreme Court's Elder Law Task Force suggested additional people be given legal standing to challenge the actions of someone given power of attorney.  You can read the full report here. The task force noted that nearly half the states provide legal standing to others interested in the welfare of someone who has a power of attorney handling their affairs. It said that allowing more people to challenge a power of attorney's actions could protect people from abuse.

Former Caretaker Convicted of Ripping Off Elderly Woman

The Springfield, Illinois State Journal-Register reports:

"Sandra Gayle, 65, of Springfield was convicted of financial exploitation of the elderly and financial exploitation of a person with a disability. A Sangamon County jury deliberated a little more than an hour Friday before returning the verdict.

Prosecutors introduced testimony over the course of the four-day trial to show that Gayle used her own family to gain the trust of the doctor. Gayle, who had the victim’s power of attorney, then “gifted” easily more than $300,000 from the doctor’s bank account to herself, relatives and friends, testimony indicated.

Gayle could receive from 4 to 15 years in prison when she is sentenced Nov. 19 by Associate Judge John Mehlick. Her crimes also are probationable."

Perhaps the most shocking piece of the news is that State's Attorney Jay Magnuson stated that  the Gayle case is the first financial exploitation of the elderly case to go to trial in Sangamon County in the 14 years he has been a prosecutor here.  Think about it.  How many cases have you seen of this type of abuse?  It's time to get serious and stop this crime.

Hat tip to Estate of Denial

 

 

Power of Attorney Abuse

Neil Hendershot has an excellent post about POA Abuse here which includes the research report "Power of Attorney Abuse: What States Can Do About It."

The most egregious abuse is where the agent simply takes (that is, steals) the principal's money for is or her own purposes.  But there are many other type of abuse.  For example, one often sees agents under a power of attorney creating joint accounts in banks or brokerage houses.  This frustrates the intent of the principal that the assets pass under his or her will to intended beneficiaries.  Similarly, one sees agents changing beneficiary designations on IRA's, life insurance policies, annuities, and other contractual benefits. 

Sadly, this is often in a family context where one child is acting to the detriment of his or her siblings.

The principal thinks that all the children are being treated equally because that is what the will says.  After the principal's death, the facts emerge and siblings see that what passes under the will is relatively small compared to the assets that pass to the agent via beneficiary designations.

Our prior post  How to Act as an Agent under a Power of Attorney talks about how to stay out of trouble when acting as an attorney in fact,

For a discussion of power of attorney abuse as illustrated by the unfortunate case of Brooke Aster,  whose son Anthony Marshall was indicted for abusing her POA, see this NY Times article.

 

PA Superior Court - Wrong Again

In a decision filed April 17, 2008, the Pennsylvania Superior Court turned what we know about wills and joint property on its head.  In In re Estate of Amelia J. Piet, the court ruled that joint accounts did not pass to the surviving joint owner because the accounts were made joint after the execution of a will that would have provided a different disposition.

The concept of a 'convenience account' has long been part of the law of the Commonwealth.  20 Pa.C.S.A. §6304 of the Multiple Party Accounts Act provides:

"(a) Joint Account. - Any sum remaining on deposit at the death of a party to a joint account belongs to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent at the time the account is created."

The Allegheny County Orphan's Court, after hearing, found that for the accounts in question, there was no evidence to overcome the statute's presumption and that the accounts passed to the surviving joint owner.

The Superior Court said they would not "blindly adhere" to the section 6304(a) ownership presumption, because  the testamentary intent of the testator would be frustrated.    (In other words, they are  not going to follow the statute.)  The court held that the previously executed will "trumps" the joint registration of the bank accounts.   Have you ever heard of anything like that?

The court cited In re Estate of Novosielski (a troubling case in its own right - see an excellent discussion of Novosielski and of the Piet case by Attorney Thomas K. Johnson II in Dechert LLP's newsletter) to support its holding even though that case can be readily distinguished on its facts as pointed out in the dissenting opinion.

In a lone dissent, Judge Maureen Lally-Green says "It has been the law for centuries in the Commonwealth that regardless of what is devised in a will and to whom it is devised, a testator can gift away any or all assets during his or her lifetime as long as donative intent and delivery are present.  The gifting can occur in many forms from an outright inter vivos gift to a gift that occurs in a joint tenancy with rights of survivorship by the death of one joint tenant and the passing of the gift to the survivor.  All such gifts take effect outside of the estate that passes by will."

Further:  "I do not believe that the creation of a joint account with a right of survivorship alters the testamentary scheme.  Rather, such an account alters the amount of the estate,  The execution of a will does not prevent the testator from subsequently altering the amount in the estate as he or she sees fit. such as by the creation of a joint account or through inter vivos gifting."

What do we do now?

Does this mean that whenever we administer an estate we must determine when joint property is created and if it is after the last Will, we must seek to recover it for the estate?  Does the same thing apply to beneficiary designations? 

Here is the advice of Attorney Thomas K. Johnson II: 

"It seems likely that the Pennsylvania Supreme Court or the Legislature will have to address this issue in the near future.  For now, however, attorneys, financial institutions and joint account holders need to be aware that they may need to change their current practice to carefully document the creation of any joint account as consistent with a prior will or to anticipate the issue when drafting wills and address the issue of after-created joint accounts by expressly stating that such accounts may be created and are not inconsistent with the testator's wishes."

 Thank you to Lancaster Attorney Will Campbell for pointing out this very troubling decision.

 

 

How to Act as an Agent under a Power of Attorney

And stay out of trouble!

More and more agents are being asked to account for  their actions and more and more litigaiton is aimed at agents who abuse their powers, especially by making gifts to themseles.  Learn how to do it right and stay out of trouble.

When you agree to serve as attorney-in-fact under a Power of Attorney you become the Agent of the Principal. A Power of Attorney is a grant of authority. It authorizes and permits an Agent to act but does not require the agent to act. The Agent is not obligated to serve. However, an Agent may have a moral or other obligation to take on the responsibilities of agent, especially if the Principal was relying on him or her to do so. Once an Agent begins to act, he or she has a duty to act prudently. An Agent is held to the highest standards of good faith, fair dealing, and loyalty with respect to the principal. The Agent must always act in the best interest of the principal.

That fact that the Principal has named you as her agent does not mean that the Principal cannot act for herself. So long as the Principal is competent, he or she can do anything, including undoing something you may have done as Agent. Obviously, communication with the Principal is key. As long as the Principal is competent, his or her Power of Attorney can be revoked by written notice to you.

What should you do and not do when you are acting as an Agent?

1. Read the Power of Attorney in which you are appointed as agent. Not all Powers of
Attorney are alike. Some are General Powers of Attorney and grant full powers to do anything the Principal could do with regard to financial matters. Others are limited to specific actions. You can only do the things the document authorizes you to do. A Power of Attorney is not a license to take over the Principal's affairs and do things your way. As an Agent it is your duty to carry out the instructions and wishes of the Principal.

2. Sign the Power of Attorney, if required. For Powers of Attorney executed after April 11,
2000, the Agent must sign an oath in which he or she promises to fulfill his or her duties before the Agent can use the power.

3. Make several copies of the original Power of Attorney. Give a copy to each entity with
which you transact business on behalf of the Principal. Banks, brokerage houses, mutual funds, and insurance companies, sometimes insist that you use their own in-house Power of Attorney forms. Find out what forms these institutions require. Have your Principal sign these forms while he or she is still able.

4. Make a complete inventory or list of all of the Principal's assets and income sources.
You need to do this so that you know what you are responsible for, what resources are available, and so that you can keep property such as real estate and motor vehicles properly insured. If you have many assets to manage, consider a custodial account with a financial institution. As Agent, you are responsible for keeping the assets safe.

5. Sign as Agent. When signing documents as an agent, always make clear that you are signing on behalf of the principal. Sign your name and follow it with at least ", Agent" or better, the phrase, "as agent for _____________." Complete the phrase with the name of the principal. If you sign correctly, you will avoid personal liability. The exact wording is not important. Just make sure you indicate that you are signing oh behalf of your Principal, not for yourself. If you sign your name with no indication of your capacity as Agent for another you may be personally responsible.

6. Separation. Always keep the Principal's assets separate from your own. Do not
commingle them.

7. Keep good records of all your Principal's assets and income and all of your actions as
Agent. Keep copies of all statements and all transactions. Use a single checking account. The checks will act as receipts and the checkbook register as a running record of your expenditures.

8. Possible duties. In the course of managing the Principal's financial affairs, the Agent
may need to do any one or more of the following: pay the everyday expenses of the Principal and his or her family; buy, sell, maintain, pay taxes on, and mortgage real estate and other property; apply for and collect government benefits including Social Security, Medicare, Medical Assistance, or other government benefits, invest in stocks, bonds, and mutual funds; handle banking transactions; buy and sell insurance policies; file and pay the Principal's income taxes; operate a business; claim inheritances; transfer property to a trust the Principal created; handle litigation in which the Principal is a party; manage the Principal's retirement accounts.

9. Borrowing and Selling. You may not use the Principal's assets for yourself. Unless the
Power of Attorney document specifically says so, you may not borrow money from the Principal even if you are paying it back at the same or a higher interest rate you would pay a bank. You should not sell any of the Principal's property to yourself, your friends, or your relatives even at a fair price unless the Power of Attorney makes it clear that you can.

10. Gifts. You may make gifts only if the document specifically authorizes gifts. You are to
use the money for the Principal's benefit, and donations and gifts without being specifically authorized are not considered to be for the Principal's benefit. The document may permit limited gifts, that is limited in amount (such as the federal annual exclusion amount) and limited to a particular class of donees.

11. Communicate. Avoid misunderstandings by communicating with the Principal's family
members about how you are managing the principal's affairs.

12. Hire the help you need. An Agent may hire accountants, lawyers, brokers, investment
advisors, or other professionals to help with the agent's duties, but may never delegate his or her responsibility as agent. The reasonable costs of these services are expenses that should be paid from the Principal's assets.

13. Fees. Whether or not the Agent is entitled to a fee for his or her services depends on the
document and the circumstances. In most situations where a family members is the Agent and the Agent's duties are fairly simple, there is no compensation paid to the agent. If, however, the Agent is burdened with substantial responsibilities (such as running a business), payment may be appropriate. If the Principal wants to make sure the Agent is paid, the Powers of Attorney should establish the criteria for payment.

Small articles bought for use exclusively by the Principal such as clothing and toiletries can be paid out of pocket and reimbursed from the principal's funds later. Mutual use expenses, such as for gas and insurance for the Principal's car that the Agent also uses may only be reimbursed to the extent of the Principal's use.

Fees for services such as cleaning the Principal's house and yard, feeding the Principal, or doing the Principal's laundry are legitimate fees, but only if charged at a reasonable and customary rate. Charging twenty five dollars an hour for cleaning house is not reasonable unless you do it for a living for others and normally charge that amount. If you do the taxes for the Principal, running the numbers through a tax program would not entitle you to the same fee charged by a CPA unless you prepare taxes for a living.

Remember, you may have to justify your fees to a judge hour by hour and job by job, and if it appears you overcharged, you may find your fees cut back to minimum wage or eliminated altogether. When in doubt, undercharge and avoid that trip to his honor's woodshed.

14. Prohibitions. There are a few actions that an Agent is prohibited from doing. An Agent
may not sign a document stating that the principal has knowledge of certain facts. For example, if the Principal was a witness to a car accident, the Agent cannot sign an affidavit stating what the Principal saw or heard. An Agent may not vote in a public election on behalf of the Principal. An Agent may not make or revoke a will or codicil for the Principal. If the Principal is a trustee, executor, or other fiduciary the Agent is not permitted to act in those capacities.

Legal Guardian vs. Power of Attorney

Appointment of a Legal Guardian


If an individual lacks the mental capacity necessary to make rational choices, there are two ways recognized by the law for proving a substitute decision maker: (1) the individual, while he was still competent, designated someone to be their agent, also known as an attorney-in-fact, by signing a power of attorney, or (2) the state, acting through the courts, may appoint a substitute decision maker known as a guardian (also sometimes called a “conservator”), for the incapacitated individual.

Power of Attorney

A "power of attorney" is a document which is signed by an individual (the "principal") appointing another person or persons (called the "attorney-in-fact" or "agent") to act for and on behalf of the principal. If the power of attorney authorizes the agent to act for the principal in almost all circumstances, it is called a "general" power of attorney. If the power of attorney is effective even if the principal is disabled or incompetent, it is called a "durable" power of attorney.

A person executing a durable general power of attorney naming a husband, wife, child, or other family member as attorney-in-fact authorizes that family member to manage his or her financial and personal affairs even after incapacity, avoiding the need for any guardianship.

Spouse Has No Legal Authority

Just because you are married does not give you legal authority over the property and person of your spouse. It is absolutely essential that you give your spouse, or some other person you trust, power of attorney. If your spouse becomes incapacitated and you don’t hold his or her power of attorney, you cannot sell the home you own jointly, cannot make withdrawals from your spouse’s IRA or other retirement plan, and cannot act for your spouse in any other legal capacity. If you don’t have a power of attorney, the only other alternative is a court appointed guardian.

Guardianship

The court procedure is termed a “guardianship” in Pennsylvania, In some other states, the procedure is referred to as a “conservatorship.” The individual for whom a guardian has been appointed is called a “ward.” Sometimes the ward is referred to as an “incapacitated person,” which has replaced the old-fashioned and offensive nomenclature of an “incompetent person.” The court appoints a guardian after hearing evidence that a person is incapacitated and deciding that there is a need for a guardian. The law requires due process for the proposed ward. The proposed ward, or alleged incapacitated person, must be given formal legal notice of the proceeding, has a right to be present at the hearing, and has the right to be represented by a lawyer.

Who is incapacitated?

The Pennsylvania guardianship statute defines an incapacitated person as follows: “Incapacitated person" means an adult whose ability to receive and evaluate information effectively and communicate decisions in any way is impaired to such a significant extent that he is partially or totally unable to manage his financial resources or to meet essential requirements for his physical health and safety. Whether or not an individual is incapacitated within the meaning of the statue depends on their actions, not on a diagnosis. A medical diagnosis of dementia or Alzheimer’s is not enough to meet the statutory definition.

The most common reason for guardianship is that the incapacitated person cannot pay bills. Another reason for guardianship is that an unscrupulous individual is taking advantage of the alleged incapacitated person by inducing him or her to give away money or to sign documents under undue influence. A guardianship proceeding can stop this and the guardian can recover stolen assets.

Sometimes incapacitated people do not receive proper medical care, or they become incapable of dressing, bathing, toileting and obtaining food. Sometimes large amounts of “stuff” accumulates in the homes of incapacitated people. A guardian can take care of all of these situations.

Who can be the guardian?

The court may appoint any qualified individual, bank, trust company, or non-profit corporation. A person who has a conflict of interest with the ward is generally not an appropriate person to appoint as a guardian. Similarly, anyone providing residential services to a proposed ward is not a suitable guardian.

Once appointed, it is the duty of the guardian to protect the rights and best interests or the ward. The guardian must respect the expressed wishes and preferences of the incapacitated person to the greatest possible extent and must encourage the ward to participate in all decisions to the maximum extent of his abilities. As you can imagine, ensuring the best interests of the ward may mean that the guardian will not follow the wishes of the ward. For example, the ward may want to continue to live in her home, but the guardian may determine that assisted living or skilled care is required. The guardian can admit the ward to a facility even over the ward's objections.

Expense of a Guardianship?

Court appointment of a guardian can be very expensive. There are court fees, attorney fees, fees for the doctor or other persons who give testimony about capacity. Often there is an attorney for the petitioner who is requesting that the guardian be appointed and another attorney for the proposed ward. If the court appoints a guardian, the fees are paid from the incapacitated person's property.

After the guardian is appointed, annual reports are required to the court and there are restrictions on what the guardian can do without court approval. The guardian is entitled to a fee for services. Often a family member will serve without taking a fee, but if an agency, bank or trust company serves, they charge for their services.

Avoid Guardianship with a Power of Attorney
Making a power of attorney which appoints an agent to make personal and financial decisions can make guardianship proceedings unnecessary. Making a power of attorney is much less expensive and much less stressful than the court-appointed guardian process.

PA Supreme Court reverses Superior Court AGAIN

Congratulations to Attorney Kendra McGuire on her win in In re: Weidner, 2007 WL 4555334.  The PA Supreme Court struck down the Superior Court's restrictions on agents acting under powers of attorney and limitations on power of attorney documents.  See Kendra's commentary and analysis by clicking here.  In her words:

"Attempts to interpret power of attorney documents in such limited ways have been litigated repeatedly with the Superior Court applying very limited interpretations of documents and the Supreme Court confirming time and time again that power of attorney documents must be interpreted broadly. Kudos to the Supreme Court for grasping the implications of this issue, as it effects all of those, and there are many, who act under these power of attorney documents."

The attorney-in-fact in this case changed the beneficiary on the principal's life insurance policy.  The clear holding of the Supreme Court is that the power of attorney document expressly incorporated the Powers of Attorney statute and the general language shows the principal's intent to empower the agent to do any or all of the things permitted by the statute, which includes engaging in insurance transactions.  Said the Court: "[W]e hold the power of attorney at issue was sufficient to empower [the agent] to change the beneficiary of the life insurance policy."  The case was remanded for consideration of two other issues:

  • Should the trial court have considered only whether the power of attorney
    authorized the attorney-in-fact to change beneficiaries under insurance
    policies, and declined to consider the principal’s expressed intent regarding
    the particular beneficiary designation under the life insurance policy at
    issue, or whether a breach of fiduciary duty by the attorney-in-fact would
    void the change of beneficiary by the attorney-in-fact, even if the power of
    attorney authorized the type of transaction generally?
  • Do the pleadings establish that the principal intended to authorize the
    attorney-in-fact to change the principal’s named beneficiary during the
    principal’s lifetime without any notice of the principal?

Do you think an agent can change the principal's beneficiaries?

 

Probate Predators: Some fairy tales hit too close to home

 

Thank you to Stephan Worrall for sharing this Non Sequitor cartoon:  

Click here for the Estate lawyer's version of Little Red Riding Hood.

 

 

 

 

 

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