Attorneys will advise you that you should have a power of attorney. A Power of Attorney is an important document that allows someone else to handle your affairs if you have difficulty or are unable to do so. With age and illness, a Power of Attorney often becomes necessary. Usually the person who is given the authority to act will do so with the best of intentions. What happens, however, if the person you trust misuses the Power of Attorney for personal gain or benefit? A Power of Attorney may seem like a simple document, but it can have far-reaching and unintended consequences. A Power of Attorney can be very tempting to the person who has it.
A Power of Attorney is a legal document by which a person (the “Principal”) gives someone else (the “Agent” or “Attorney-in-fact”) the authority to act on the Principal’s behalf. If the Principal becomes ill, incapacitated or otherwise unable to handle her financial affairs, or simply chooses to let someone else do it for her, the person or persons she designated in the Power of Attorney can pay bills, deal with banks, lawyers and other professionals, and do other things that are in the best interest of the Principal.
A Power of Attorney can be general, meaning that it gives the Attorney-in-fact the authority to do whatever the Principal might do for herself, or limited, meaning that it is limited in scope and/or time. For example, a Power of Attorney may be limited to one specified act or type of act, such as a limited Power of Attorney to attend a real estate closing and sign the closing documents on behalf of a buyer or seller, or it may be limited in time, such as a Power of Attorney that is effective only during the time that someone is out of the country on a trip. A Power of Attorney also may be durable, meaning that it takes effect upon its execution (or a specified date) and continues in effect even if the Principal becomes incapacitated, or springing, meaning that it only takes effect after the Principal is incapacitated (or some other definite future act or circumstance). The problem with a springing Power of Attorney is that it requires a judicial determination of incapacity for the power to take effect. This can take a considerable amount of time – plus the initiation of legal proceedings, the hiring by the Court of an independent person to interview and investigate the circumstances of the alleged incompetent, and a hearing in Court – often exactly at a most trying time when there is a need for prompt or immediate action.
In New Jersey, a Power of Attorney can include provisions with respect to making health care decisions, including the power to consent to any medical care, treatment, service or procedure. A health care power of attorney is different than a “Living Will”, which is a written statement of a person’s health care and medical wishes, but does not appoint another person to make health care decisions.
A Power of Attorney is a useful and powerful tool. Unfortunately, as with many things, something with a good purpose still can be used for improper purposes. A general Power of Attorney allows the Agent or Attorney-in-fact to do almost anything the Principal could or might do herself. As a result, it can be an invitation to abuse and self-dealing.
The victim of Power of Attorney abuse often may not be aware of what is happening, or even if she is may feel powerless to say or do anything because she is dependent on the abuser for care and companionship. The nature and extent of the abuse may not come to light until after the person has died and someone else is able to obtain access to her banking and other financial records.
Disputes can arise when the Agent or Attorney-in-fact has used the Power of Attorney to transfer the Principal’s assets to himself or his family members. This may be done as an estate planning technique, such as making gifts to take advantage of the annual exclusion from gift taxes. On the other hand, it may be done to deprive other family members of a share of the Principal’s assets that they otherwise might eventually inherit. For example, a person may wrongfully use a Power of Attorney to withdraw money from the Principal’s bank accounts and deposit the money in his or own bank account. We have seen this and been involved in litigation to get the money back.
Under New Jersey law, the traditional rule was that a power of attorney should not be construed to allow the Agent or Attorney-in-fact to give the Principal’s assets to himself or others without clear language in the power authorizing such gifts. See Manna v. Pirozzi, 44 N.J. Super. 227 (App. Div. 1957). In 2004 in New Jersey a law was passed stating that a Power of Attorney shall not be construed to authorize the Attorney-in-fact to gratuitously transfer property of the Principal to the Attorney-in-fact or any one else except to the extent that the Power of Attorney expressly and specifically so authorizes. N.J.S.A 46:2B-8.13a. If this happens, the Superior Court, upon application of any heir or other next friend of the Principal, may require the Attorney-in-fact to render an accounting (i.e. an explanation of when and for what the money was used) if there is doubt or concern whether the Attorney-in-fact has acted within the powers delegated by the Power of Attorney for the benefit of the Principal. N.J.S.A. 46:2B-8.13(b).
A Power of Attorney also may be attacked as having been procured by undue influence, or when the Principal already was incompetent and therefore legally unable to execute a Power of Attorney. This type of action is similar to a will contest in which a will is claimed to have been procured by undue influence, or in which it is claimed that the testator was of unsound mind and unable legally to make a will.