Is there a down side to having the same person as executor and power of attorney?

The question of who to appoint to the important jobs of executor of your Will and attorney under your Power of Attorney can take some real time to answer. As well it should, given the responsibilities and work you're putting on someone's shoulders and the potential for things to go badly off the rails. In my view, those who take the time to really think this out - as opposed to those who seem to do no more than rock-paper-scissors to make a decision - are much more likely to end up with things running smoothly.

Typically, a married couple will name each other as their first choice of executor and attorney. Their alternate choice for both of these jobs is frequently one of the children. That way, should one of the couple become widowed or incapacitated, their spouse still has someone to make decisions.

Typical, yes, but is it a good idea?

The potential for financial disaster is actually very large when you have one of your children in charge of your finances under a Power of Attorney while you're alive, and also have that same child in charge of your estate after you pass away. It's traditionally done this way, but the world is changing and it's time to re-think the old methods.

The problem arises because the Power of Attorney gives enormous power to the person you've named. It has to do so, in order for the person to step into your shoes and make decisions for you. Unfortunately, this power is abused by a shockingly large number of children. At this point, you are thinking that it would never happen in your family. But please keep in mind that the majority of financial abusers of seniors - some studies show as many as 3/4 of them - are the senior's own children. All of those people trusted their children too.

How does it happen? The person you've appointed might be having financial troubles of his own, or his marriage might be on the rocks and he needs to make a settlement. Maybe he sees a great investment opportunity but doesn't have the funds right now so he "borrows" it from the estate. Maybe he figures he's going to inherit some of it one day so what the heck, he'll just take some of it early. And in some blatant cases the child is simply greedy. No, we don't want to think of our children this way, but clearly it happens time and time again.

The common thread that runs through all of these scenarios is that the person is pretty sure that he isn't going to get caught. After all, nobody else has access to the accounts and the property. The crime is invisible.

There are some things you can do with a Power of Attorney to protect yourself and your estate, many of which have been the subject of previous blog posts. One of the most obvious steps is naming a different person as executor under your Will. Why does this help? Because the executor has the right to demand a full accounting from the attorney under the Power of Attorney, once you have passed away. If money is missing, the executor will find out about it. After that, the attorney under the Power of Attorney might have to repay the money, might lose some or all of his inheritance, or in extreme cases he might go to jail.

In other words, knowing that one day someone is going to see what you've done can be a powerful deterrent.

But if the executor is the same person as the Power of Attorney, obviously he isn't going to demand any accounting from himself. If there is pressure from the beneficiaries of the estate, he can delay and obfuscate and generally prevent anything from happening for a very long time.

Think of your appointment of executors and attorneys as business decisions and make the careful choice to protect yourself, your estate and your family.

How to cause a trainwreck

Today I had a conversation with a woman who is acting as a joint attorney, along with her brother, under their father's Enduring Power of Attorney. Things appear to be unravelling, as she and her brother are not able to agree on many of the decisions they have to make. The woman called me to confirm that the loophole she thought she'd found in the document was in fact going to allow her to just go ahead on her own when agreement was impossible.

The clause in question was one that is found in most Powers of Attorney of the enduring or continuing type. It says that two people are appointed as attorneys, but if one of them is not able or available to act as attorney, then the other one may carry on alone.

The woman who called me wondered whether "not available to act as attorney" meant that if her brother was sick, at work, busy with the kids or just didn't feel like taking care of attorney business that day, she could carry on without him on that particular day. Unfortunately, this is not what the clause means.

I ran into a similar issue a couple of years ago with a man who was trying to buy a house from an estate. His offer had not been accepted by the deceased's wife, who was acting as executor. However, the man told me, the deceased's son who was appointed as alternate executor was willing to accept the offer. The question was whether he could deal with the alternate executor instead. The answer was "of course not".

I know it's human nature to try to get your own way, but twisting the words of someone who left clear instructions is not going to work. Saying that the brother and sister must work together as attorneys doesn't mean that if one is busy the other can make unilateral decisions. Saying that a wife is in charge of the estate doesn't mean that if you don't get the answer you want you can ask someone else for a different one.

In both of these cases, the people making the documents left a back-up plan in place in case the first plan didn't work out. The person making the joint Enduring Power of Attorney wanted both of his children to work together, but left the option that one could work alone if the other had passed away, was seriously ill or had moved out of the country. The person making the Will wanted his wife to be his executor, but his back-up plan was that if his wife died first or had lost mental capacity, his son would be his executor.

When an attorney or an executor is "unable or unavailable" to take on the job, it refers to a permanent situation. It means the first choice person has died or turned down the job. A joint arrangement can't be joint one day, then unilateral one day, then back to joint. An executor is either in or out; you can't deal with the wife one day and the son the next. The potential for chaotic administration, acrimony and taking the fall for something another person did without your concurrence, is huge. Accountability and liability are compromised.

What did please me about both of these clients is that they called a lawyer and asked before taking any steps. They each probably avoided a trainwreck by finding out the facts before going ahead.