A power of attorney is a legal document that gives a person the ability to manage financial affairs on behalf of another. In legalese terms, we often say that the “principal” gives a power of attorney to the “attorney-in-fact,” who can then add themselves as a signor on the principal’s bank accounts. Minnesota has a form power of attorney known as the Statutory Short Form Power of Attorney, which is great because it’s easy to use and most banks in the state recognize and honor it. But it’s not without some serious pitfalls.
The ease with which someone can print and sign a power of attorney and the incredible breadth of powers this document gives the attorney-in-fact has made it the number one tool for financial exploitation. Most financial exploitation of vulnerable adults is perpetrated by family members, and most of them are doing it using a validly-executed power of attorney. In some cases, powers of attorney are obtained by fraud or duress, such as by misleading someone about the nature of the document they are signing, or by forcing a vulnerable adult to sign under the threat that their caregiver will cease taking care of them. And in some cases, I believe that the power of attorney was given voluntarily, but at some point in time the caregiver or family member began misusing the document for their own personal gain out of a sense of entitlement or because provisions were never made to appropriately compensate the caregiver.
Despite these pitfalls, I still recommend to my clients that they have a power of attorney. Why? Because the alternative is worse yet. If something happens to you and you have not given a power of attorney to anyone, the only alternative is to go to court and ask a judge to appoint a conservator for you, which is an expensive, time-consuming, and expensive process for you and your loved ones.
That said, there are ways to protect yourself and your loved ones from financial exploitation using a power of attorney. First, hang onto your original power of attorney. You can give your attorney-in-fact a photocopy initially and inform that person where they can obtain the original if they need it. Without an original, the attorney-in-fact cannot actually use the power of attorney, so this adds an extra barrier to accessing your accounts and assets.
Second, choose your attorney-in-fact very carefully. This should be someone you trust implicitly. When in doubt, you can always nominate two people and make them act together, this way there is a system of checks and balances in place.
Third, if your attorney-in-fact will also be providing care to you, make sure there is a plan in place for appropriate compensation for that individual. Voluntary caregivers provide a substantial economic benefit both to the person receiving care and to society as a whole. “In 2013, about 40 million family caregivers provided 37 billion hours of care worth an estimated $470 billion to their parents, spouses, partners and other adult loved ones.” (AARP.) Make sure you honor your caregiver by having a written agreement with them that clarifies the amount of compensation they will receive and how they will be reimbursed for out-of-pocket expenses. And make sure the agreement is communicated to other family members.