The risk and rewards of a power of attorney

Richard Cleveland
Wills & Estates

Understanding how a power of attorney (POA) works can potentially shield you from litigation later on.

What is a power of attorney? It is basically a short document where one party (the donor) grants the right to another person (the attorney) to make business and legal decisions on the donor’s behalf if he or she is unable or incapable of making decisions.

A POA is part of all standard estate planning tools. But, even though it’s a relatively simple looking document, the powers granted to an attorney should not be underestimated. They can have many pitfalls.

Let’s use a common scenario as an example. Many parents grant a power of attorney to one or more of their adult children. When one or both of the parents become incapable of making decisions, the appointed attorney steps in to make business and legal decisions on behalf of the parent. So far so good.  

Trouble often starts, however, when the attorney begins making decisions that are not in the best interest of the donor/parent. For example, some attorneys have used the parent’s money to buy a property or transfer ownership of the parent’s home to the attorney’s name. Others have used the parent’s money to fund the attorney’s lifestyle. Actions like these are not permitted.

An attorney cannot exercise power for personal benefit or gain. Likewise, an attorney delegating his or her authority to another party or allowing personal interests to conflict with those of the donor are not allowed.

When assessing the risks and rewards of a Power of Attorney, both donors and attorneys should consider the following:

Attorneys must act honestly and in good faith, exercising the care, diligence and skill of a reasonably prudent person Donors should only appoint someone they trust as his or her attorney Attorneys should always keep the donor’s property separate from his or her own property An attorney who is a beneficiary under a donor’s will is not entitled to use or convert the donor’s property for his or her own or some other use, even if they are the sole beneficiary Attorney’s who have improperly used the donor’s funds or assets under the POA, or fail to exercise his or her fiduciary duty, risk being held personally responsible for reimbursing the donor or his or her estate.

Do you anticipate needing to a POA? Have any questions regarding what you can and cannot do as a donor or attorney? Get in touch with Brent Ellwyn or Rick Cleveland to find out more and plan for your future.