Abuses of a Power of Attorney – Purchaser Be careful
A power of attorney (POA) is utilized to entrust legal authority to another individual. The principal is the person giving the power of attorney and gives the representative, likewise known as the attorney-in-fact, the authority making legal decisions on his/her behalf, consisting of managing checking accounts, real property, and other assets.
The possibility of fraud or exploitation exists in every power of attorney arrangement, through self-dealing, embezzlement, and illegal gifting. In some circumstances, a power of attorney holder will significantly diminish an estate, leaving the beneficiaries with little or no inheritance. Other instances where a POA can be mistreated include changing beneficiary classifications on life insurance or annuities, and opening a financial account with joint title or pay on death provisions in favor of the representative.
If a validly executed power of attorney has been abused by the representative, grounds may exist to take legal action against the agent for the return of embezzled property or monetary damages. If the principal has passed away before the power of attorney abuse has been uncovered, the principal’s estate or the designated beneficiaries of the estate may be able to take legal action against the agent for breaching his fiduciary duty, or a number of other causes of action. See this excellent article on fixing abuses by agents.
Due to the capacity for abuse with a power of attorney, their use should be limited. Often individuals developing a power of attorney will leave the original instrument with the preparing lawyer until the conditions activating the POA have occurred, such as the incapacity of the principal.