![Wisconsin Lawyer](/AM/Images/headers/2005/wllogo.gif)
Vol. 73, No. 9, September
2000
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.
Wisconsin Lawyer