Protecting Your Loved Ones

This article discusses various ways in which you can protect your elderly loved ones from certain financial rip-offs.  Particularly, making proper use of financial powers of attorney that can serve an important function but, when created without foresight, can become a license to steal.

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Financial powers of attorney are an effective tool.  The person who executes the document is called the “principal”.  The person to whom authority is given is called the “agent” or “attorney-in-fact”.  These powers of attorney can be drafted in any number of ways.  They can give the agent complete authority to transact any and all financial matters.  They can grant only limited authority to handle, for example, one specific bank account or one investment account.   They can be limited in duration (i.e., valid only for the month of July when the principal is on vacation) or remain effective indefinitely – until revoked. 

Two critical questions must be asked at the outset, and they must both be answered together: 

1.  Who is trustworthy to be the named agent?

2.  What specific financial transaction(s) does the elderely loved one need assistance with? 

The named agent must be trustworthy.  Many of my cases involve elder financial abuse and the improper use of financial powers of attorney.  Often the elder named a son or daughter as agent because the document was drafted without realistic evaluation as to their trustworthiness.  Years later, as the elder gradually became more forgetful and susceptible to financial abuse, the son or daughter’s greed took over and the elder was victimized.

Some children were trustworthy when they were named as agent but, particularly during our current economic woes, are now in jeopardy of losing their jobs, home and cars, and need to find a quick fix and a way out of their own financial troubles.  They then see the power of attorney as a readily available solution.

I cannot emphasize enough the importance of selecting an agent who can be trusted.

Once the agent is selected, consideration must then be made to determine what specific financial transactions the elder may need assistance with.  This may change over time.  While your loved one is of sound mind, then a general – more all inclusive – power of attorney is the norm.  This type gives the agent the power to transact all financial business that the principal could do for themselves, but should be restricted so that the power is granted to the agent only if the elder becomes incapacitated.  “Incapacity” is then to be determined by the written declarations, under penalty of perjury, of two qualified medical doctors that the elder no longer has the capacity to make sound financial decisions.  Then, and only then, does the agent have the authority to handle the finances.  Although still not foolproof, this requirement gives a great deal of protection against financial exploitation. A bad guy must now involve two doctors in order to carry out the rip-off.

Many times, the elder has some form of dementia, has increasing memory loss, and is no longer able to concentrate well enough to keep track of bill paying and bank account information.  Under this scenario, a trustworth relative or friend can be named as agent under a bank’s own power of attorney form.  The authority should be limited to transacting banking business which will include the power to write checks, deposit monies, and communicate with bank personnel regarding the account.

There are few circumstances when your loved one should execute a financial power of attorney that gives their agent the immediate authority to make financial decisions.  There are, of course, exceptions.  Your parents may be purchasing a new home but are locked into a non-refundable three week cruise to Alaska but need to sign escrow papers during their vacation.  A limited – or special – power of attorney can be prepared which gives their agent the narrow authority to sign all documents necessary to complete the home purchase.

It is always possible that the perpetrator will simply have the elder execute a new power of attorney that revokes all prior powers and gives the agent the immediate authority. When family members and friends are actively involved in the elder’s life, the crook will have much more difficulty in accomplishing this without being caught.

When the elder has no immediate family or friends, the odds of being financially abused are greatly increased. However, there are still some preventive measures that can be taken to reduce the risk.

Speak with bank personnel and other financial institutions where the elder’s money is invested. Show them the power of attorney and explain that its purpose is to protect the elder in case someone tries to take advantage.  Point out the added protection that requires two qualified medical doctors to confirm the elder’s lack of capacity before the power of attorney is effective.

Ask them to red-flag the elder’s accounts by placing a computer notation that the bank personnel should question any substantial withdrawals or unusual activity.

In my city and state (Riverside, California), for example, a law exists that makes all bank employees a mandated reporter. This requires bank personnel to report any reasonably suspicious activity to local law enforcement. In states where similar laws exist, bank employees will receive some training to identify the signs of financial exploitation in order to comply with their mandated reporter requirements.

Many family members hesitate on broaching the subject of powers of attorney, in fear that their elderly loved one may take offence and tell them to mind their own business. Every family has their own unique dynamics. However, you can ease some of the awkwardness by doing some of your own research and sharing it with your loved one. Many counties agencies have informational brochures that explain the purpose in creating powers of attorney and how they can assist in financial matters.

Delaying the discussion often results in no action being taken. Then, when the need arises, it is often too late because the elder no longer has the requisite mental capacity needed to execute the power of attorney.

There is no surefire way to avoid financial exploitation of an elder. However, through education, discussion and assistance with the financial institutions involved, and with the help of a qualified elder law attorney, a power of attorney can be put in place that affords piece of mind that the chances of financial abuse are minimized.