We all need well drafted financial powers of attorney for potential incapacity. But your agent and their proclevities should be given prudent thought.
A recent case in Tennessee reveals the problems that can arise with Financial Durable Powers of Attorney (DPA). In that case, mom designated her daughter to be her financial agent in the DPA. The daughter and her husband moved in with the mother to care for her and take responsibilities for her monthly expenses. The husband prepared her tax returns. Basically, the daughter and step-son had total control of her finances.
Mom eventually moved into a nursing home and qualified for Medicaid (Medi-Cal in California). Subsequently, the State of Tennessee filed a claim for Medicaid reimbursement and determined that the daughter had misappropriated funds in the amount of $176,367 with the use of the DPA. The Court held that the daughter breached her fiduciary duty to the mother and sustained a judgment against the daughter of $176,367 plus attorney fees and costs of Court.
This is just one example of how a DPA can be utilized to misappropriate funds from the owner. It happens across the country and is rampant in its occurrence. So what must one consider in designating agents in a DPA?
1. Honesty and integrity of the agent;
2. Availability of the agent;
3. Is the designated agent financially needy?
4. If the agent is married, does his/her spouse exercise significant dominion over the agent?
5. Including a provision requiring accountability by the agent to other family members or the estate planning attorney.
If you do not have responsible children who can act for you as an agent, consider a private fiduciary who is licensed and bonded. Just because you have children doesn’t always mean they are going to act in your best interest. As a parent, you probably have a good idea about their tendencies and marital relationship. Use these issues as a guide if you are considering a child as your financial agent. It could become as problematic as voluntary identity theft!