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Disputes Arising Over a Power of Attorney

As members of the Baby Boomer generation continue to age, many of them are making sure that their estate plans are in order. One important document that fits into an estate plan is a power of attorney. However, while creating a power of attorney for someone to act on your behalf is generally a good idea, it can lead to complications if you become incapacitated and the designated person abuses the power. This can result in disputes both during your lifetime — and after your death.

What are these disputes? How do they occur? What are the procedures to address them? This article addresses these questions and provides some guidance for those who find themselves in this uncomfortable situation.

What is a Power of Attorney?

A power of attorney is a statutory document in which an individual appoints a person (or persons) to act on his or her behalf during the individual’s lifetime. The person who has the power to act is sometimes called the “attorney-in-fact.” This person doesn’t have to be an attorney, and in fact usually isn’t, but is permitted to make financial decisions on the individual’s behalf, as outlined in the power of attorney document.

In order to be valid, the power of attorney must be properly executed and generally requires witnesses. Most importantly, the individual must have the capacity to execute the power of attorney. In other words, the person must have to ability to make reasonable decisions and to understand the implications.

The powers delineated in the power of attorney can be narrow or broad. For instance, a power of attorney may allow the attorney-in-fact to make banking decisions, real estate decisions and even gift-making decisions. These powers must be expressly allowed in the power of attorney document, especially as they pertain to gift-giving, which can require additional witnesses and signatures to ensure that an individual is fully aware that he or she is giving this right to the attorney-in-fact.

Usually, a power of attorney is “durable,” meaning that it is valid while you are alive and healthy and in the event you become incapacitated. Another type of power of attorney, sometimes called a “springing” power of attorney, only takes effect when a person becomes incapacitated. Some practitioners believe a springing power of attorney can cause difficulties because a court order may be needed to designate the individual as being incapacitated prior to its use.

When Can Problems Arise?

Disputes often occur if the attorney-in-fact acts outside the parameters of what is permitted in the power of attorney. This invariably happens when the attorney-in-fact is accused of “self-dealing” (in other words, using the individual’s money for the attorney-in-fact’s own purposes rather than for the benefit of the individual). Other disputes may arise when there is a claim that the individual lacks capacity to execute the power of attorney.

Who Might Claim that Power Was Abused?

In some cases, family members claim that an attorney-in-fact has abused power when they believe that the individual who provided the power of attorney was incapacitated at the time of signing and didn’t know what was occurring.

During the lifetime of an individual who executes a power of attorney, the individual can revoke the power. He or she can also make a claim against the attorney-in-fact if there is an alleged abuse of power. Unfortunately, what often happens is the individual becomes incapacitated and cannot make the claim.

Family members may want to make the claim on the individual’s behalf, but they may not have the legal standing to do so while the person is still alive. In order to receive standing, a family member would have to begin a proceeding to become the guardian or conservator of the individual. If a guardianship is approved by the court, the power of attorney ceases to exist, and if the facts support it, the guardian or conservator can make a claim against the attorney-in-fact.

If the individual who executed the power of attorney is deceased and family members believe there was an abuse of power, the personal representative of the estate can make a claim against the former attorney-in-fact. Frequently, the attorney-in-fact is the same person as the personal representative. So it’s highly unlikely that a personal representative of an estate would make a claim against himself or herself in the role as attorney-in-fact. In this case, other family members can petition the court to remove the personal representative because of a conflict of interest and have the court appoint a successor representative to make a claim should the facts support one.

What Should You Do?

  • If you want to create a power of attorney, consult with your attorney. It should be carefully structured to meet your objectives. Be sure to pick a trustworthy person to act as your attorney-in-fact.
  • If you are an attorney-in-fact yourself, keep proper records of all activities and act only within the terms of the power of attorney document.
  • Finally, if you’re an heir who wants to dispute the use of the power of attorney because of an alleged abuse, seek guidance from your attorney on the proper procedures.