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Thursday, July 21, 2011

Power of Attorney shouldn't be a leap of faith

Not long ago, as I picked up my lunch from a drive-thru, I paid for the food being bought by the people in the car behind mine. When I mentioned this to a friend, she said "but what's stopping the clerk from pocketing the money and still charging the next car for their meal?". I suppose nothing is stopping him from doing that, but I was (and still am) prepared to take the chance.

All I stood to lose in this transaction was less than $10. I would certainly have a different attitude if the potential loss was greater. Can you imagine taking this kind of unprotected leap of faith if the money you handed to the clerk was every cent you own?

And yet, this is done every day. People carelessly hand over access to everything they own and will ever own by signing Powers of Attorney. Not enough importance is placed on the fact that this extremely powerful document is often abused, causing losses that can be anywhere from inconvenient to catastrophic.

I know what you're thinking. You're thinking that the risk is greater when you put a stranger (such as the clerk) in charge of your money than it is when you put a family member in charge. Well, unfortunately you're wrong about that. The majority of financial abuse of seniors is perpetrated by family members.

It's not my intent here to dissuade anyone from having a Power of Attorney document prepared. In fact I am constantly involved in the process of helping my clients get these documents in place. What I have a problem with is the Power of Attorney document that puts no guidelines in place, allows for no accountability to anyone and gives too much power to someone who doesn't know how to handle it.

Part of the blame for the existence of these dangerously powerful documents belongs to the lawyers and planners who don't take the time to talk the customers through the potential pitfalls and then draft strong provisions in the document to head off problems. But I would say that a huge part of the problem lies squarely in the laps of those parents who refuse to acknowledge that anyone related to them could possibly do anything dishonest or negligent.

Last week I spoke with an older, widowed woman whose children are already starting to quarrel over her money even though she expects to live for many years yet. She said to me, very sadly, "I thought my family would be different. I thought we'd rise above this kind of thing." Why did she think this? Her children hadn't shown any signs of being any different from the rest of us humans on the planet. Her unsupported belief in the superiority of her children is shared by many mothers - and fathers - the world over.

If clients turn an intentionally blind eye to an issue and refuse to deal with it, there isn't much any lawyer can do for them.

Lawyers who specialize in estate planning can draft documents that, say, allow for annual accounting to other family members. They can provide that any person acting under a Power of Attorney who takes money or who can't account for missing money will lose that amount from his or her inheritance. However, when clients refuse to even entertain the idea that a child of theirs could give in to temptation or pressure or financial problems, the lawyer's hands are tied.

A client who is wilfully blind to the possibilities and won't protect himself is in the same position as I was going through that drive-thru lane - handing over the money and just hoping it will all be ok.

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