Powers of Attorney are used very frequently in order to do good. They can help a person who, because of physical or mental disabilities, is unable to handle their own business. But Powers of Attorney can be abused and in many cases result in financial abuse of an elderly or disabled person.
First, what is a Power of Attorney? It is an instrument, signed before a notary public by the person making it, that gives someone else (the “agent”) the right to handle financial or medical matters. Powers of Attorney can be “durable,” which means that the authority given in them will survive the disability or incapacity (but not the death) of the person making the POA. Powers of Attorney can also be “limited,” in which case the authority granted is limited to whatever specific use is recited in the document. Limited POA’s are often granted for one-time use in handling a real estate transaction, for example. In Tennessee, financial and medical powers of attorney are usually given in two separate documents, since one relates to money and property and the other to the care of the physical person.
The person signing the Power of Attorney must be mentally competent to understand the purpose of the instrument and the power being granted at the time they sign it. So, someone who is already in the throes of dementia, for example, may no longer be able to sign a valid POA. (In that case it may be necessary to obtain a Conservatorship for them, which is the subject of a previous blog we posted. See https://phillipsandingrum.com/2015/01/07/1st-blog-post/)
Most importantly, the person being granted the Power of Attorney for another has what is known as a “fiduciary duty” to the person giving them Power of Attorney. This means they must act using the POA in the best interests of the person giving them POA and may not use the Power of Attorney to further their own self-interest. A child taking money from an elderly parent’s account to buy themselves fancy jewelry is generally not a proper use of a Power of Attorney.
Tennessee law does not provide any safeguards for persons who have given Power of Attorney to another person – no court is going to monitor the use of a Power of Attorney and there is no entity that supervises whether Powers of Attorney are used properly. Banks and financial institutions have very limited liability in such cases. It is up to the person who signed the POA to make sure it is used for their benefit and not in any way that deprives them of money or property wrongfully. If the person who signed the POA is not able to monitor the agent’s use of the document, then an agent who misuses the POA can often get away with a lot of wrongdoing. If the agent spends all the money and doesn’t have any assets of their own from which a judgment could be recovered, then the agent who mis-spent money may end up getting off scot free.
For this reason, giving someone a Power of Attorney should be done with extreme caution. It’s best not to give Powers of Attorney to persons who have a history of poor money management or a history of dishonest conduct. If possible, the POA should be limited to whatever specific transaction the document is needed for. Before signing a Power of Attorney, be sure to get legal advice about its effect. Call us if you have questions or need us to review a legal document for you!