Preventing financial abuse by power of attorney

The general public is gradually becoming aware that financial abuse of seniors is rampant, and growing. We'd like to think that it's as simple as guarding our parents from door-to-door scam artists, but it's not; much of the abuse happens at the hands of family members.

Front and centre in this whole debate is the Enduring Power of Attorney. While a useful tool for seniors, it can become the instrument of financial abuse in the hands of the wrong person. A pair of recent articles in www.advisor.ca address this situation. The article suggests that a trusted, long-term financial advisor can help prevent abuse of a senior by a family member mis-using a power of attorney. I tend to agree. It's an interesting read (and I don't just say that because I'm quoted in the articles!) so click on the links below if you'd like to check out the articles.

Click here for part I

Click here for part II

Should parents be forced to protect themselves against financial abuse by their kids?

A recent editorial in the Canadian Medical Association Journal has made some suggestions for changes they'd like to see implemented across the country to help combat elder abuse. Recently I read a very good article in www.50plus.com that discusses the suggested changes. Click here if you'd like to read that article.

One of the points made in the article is that locking up those who abuse seniors is not enough, and that the underlying causes of the abuse must be addressed. I agree with both parts of that statement, but my experience with elders who have been (or are currently being) financially abused makes me believe that there is still more to the puzzle of preventing elder financial abuse.

Here's the issue. Many older people either know or suspect that they are being financially abused by their kids who are acting under powers of attorney. But they wouldn't call the police or confront the child or in any other way even suggest that one of their own children could be doing such a terrible thing. They explain it away in terms of the child having lost everything in a divorce, or having lost his or her job, or simply being the baby of the family. In other words, they are so busy parenting this supposedly adult person that they put the child's welfare ahead of their own.

I have personally spoken with elderly persons whose children, grandchildren, nieces or nephews have drained the older person's accounts, leaving the older person with little or no resources to live on. Locking up abusers isn't an option because these abusers won't ever be accused; their parents, grandparents, aunt or uncle will never, ever, speak out publicly against them.

I'm a parent. I get the concept of parents helping out the kids. But parents who draw up legal documents placing the kids in charge of the money are simply not willing to include clauses in the documents to help reduce the possibility of financial abuse. They feel that including these clauses would insult the child or send a message of mistrust.

This seems overly selfless to me. I would not want to be 85 years old and living on public pensions because my child stole my life savings, and I didn't prevent it because I didn't want to insult her.

My perspective, not surprisingly, is about what the legal profession can do. I've had so many conversations where I've tried to introduce checks and balances into power of attorney documents, only to have the parent refuse to even consider the possibility that a child could misbehave.

My son/daughter would never do that, they say. Sometimes they're right. Other times they underestimate the lure of easy money when the child has lost a job, or has a gambling addiction, has a spouse applying pressure, or simply feels entitled.

I suggest to the parent that they include a clause compelling a child acting under a power of attorney to give a full financial accounting to the other kids once a year. I suggest that the document direct that anyone who acts as power of attorney and is found to have taken money should forfeit that amount of money from their inheritance. I suggest that they use a trust company as a co-power of attorney to provide expertise and a second set of eyes.

Once I say the clauses are optional, the parent opts out.

Perhaps we as lawyers need to build non-optional clauses into our power of attorney documents. Maybe we need to insist that clients protect themselves as best they can by refusing to prepare powers of attorney that don't contain safeguards. Can this be done? Should it be done? We as lawyers have to let the clients choose their own paths, but are we doing enough to make clients aware of the dangers of signing powers of attorney documents that don't contain any safeguards?

Insisting on preparing only those documents that contemplate a child committing elder financial abuse would be a major sea-change for the legal profession, but we all need to contribute what we can to the solution.

US targets financial abuse of elderly

The LA Times newspaper has a story about the US government cracking down on those who perpetrate financial abuse on seniors. Click here to read it. I'm very glad that the prevention of elder financial abuse has gained enough awareness to light a fire under legislators. Unfortunately so far nobody has come up with much in the way of preventing abuse by a senior's own family members, who are by far the most common perpetrators.

Here in Canada we already have laws in place that would deal with theft and fraud by family members (and others of course) but they are not widely used. This is partly because the crimes themselves are under-reported. Seniors are embarrassed by being fooled, and many hesitate to point the finger at one of their kids even when it's crystal clear that the child has stolen money.

There is also the fact that when children have been given power of attorney by their parents, and then take money for themselves, they usually defend themselves by saying their parent directed them to take the money as "thanks". It can be extremely difficult to determine whether that is true or not.

In any event, this move by the U.S. is a step in the right direction.

How does one report a suspected theft by power of attorney?

In my view, a lot of public education is necessary to help all of us spot and deal with individuals who are abusing powers of attorney. Let's face it, most of us aren't sure what someone is allowed to do under a power of attorney so it isn't easy to know whether they are acting improperly. But assuming we are pretty sure there really was wrongdoing, what happens next? This question was recently asked me by a reader:

"Is it possible to report a suspected theft by power of attorney after the grantor has deceased? It appears that the value of the estate has been lessened by this suspected theft. Also, how does one report a suspected theft by power of attorney?"

Theft by someone acting under a power of attorney is a crime under section 331 of Canada's Criminal Code (click the link here and scroll down if you want to read it). Therefore, you report it like any other crime by calling the police. Yes, that does seem harsh when the perpetrator is a family member or friend, but stealing from someone he's supposed to protect is harsh too.

Before calling the police, try to make sure you have the facts, at least as many as are available to you. Talking to the attorney to find out his side of the story would be a good idea. An attorney who willingly answers questions and shows you the books of account might be able to clear up your suspicions. And wouldn't it be nice if only more attorneys actually WERE willing to tell others what's going on instead of becoming hostile every time someone asks a question?

Be aware that there are other reasons why the value of an estate could be lower than you thought it should be, such as a weak stock market, falling real estate prices, or debts that weren't known about by the family. This doesn't mean you have to be able to prove it completely on your own, after all the police will investigate after you make your complaint, but you should have something solid to go on.
Yes, you can report a theft after the grantor has passed away. If you're the executor of the estate and you believe money is missing because of the attorney's intentional actions, you are required by your duty to the estate to find out what happened. If that means calling the police, so be it.

Despicable son gets 10 years for ripping off Mom using Power of Attorney

Having just posted a story about how kids pay for the parents' lack of planning, I'm now going to share with you a story about how a parent paid for trusting her own son. Click here to read the story.

You wouldn't think trusting your own kids would be such a devastating mistake, would you?

In my seminars I always talk about true situations in which parents have appointed kids who never should have been allowed anywhere near Mom or Dad's finances. How do these kids get appointed in legal documents anyway? The parents sometimes don't want to hear or believe anything negative about their own children so they go ahead and appoint them anyway. Sometimes it's pressure from the kids. Sometimes parents think it's the law that they must appoint their children. And then there are those - and there are lots of them - who don't really want the kids in charge but are afraid of offending them if they choose someone else under their Power of Attorney.

I certainly don't mean that the poor mother in this story deserved what she got for appointing her son. It's never the parent's fault if a child steals them blind. That responsibility lies squarely on the child, and in this case I'm glad this horrendous man was sentenced to ten years in jail for what he did to his mom.

But do what you can to protect yourself! Any parent who is thinking of making a Power of Attorney and appointing one or more of the kids should think carefully before doing so. Try to assess your child as realistically as possible (I'm a parent too; I know that's hard to do). Try to put the "he'd never take my money; he's my son" thinking aside and assess the situation more like hiring a person for a job. For example, ask yourself some questions about the child you're thinking of appointing. How has the child dealt with money during his or her life? What is his or her current financial status, and how secure is that status? Is the child always asking you for money? Does he or she have a steady income? Has he or she ever been involved in fraud or shady deals? Is he or she a spendthrift?

Asking these questions won't protect every trusting parent, but I certainly hope reading this post will prevent even one person from finding himself or herself penniless at the hands of a greedy child.

Can Power of Attorney add himself to a bank account?

The scope of the powers of an attorney under an Enduring Power of Attorney, Continuing Power of Attorney, Durable Power of Attorney, or Power of Attorney for Property continues to be a mystery for many. This is why I'm always glad to receive questions about it.

Recently I was asked whether a person acting under a Power of Attorney can add himself to a bank account, presumably a bank account of the person he represents. The answer is both "yes" and "no", depending on what you mean by "add himself".

The idea of a Power of Attorney is to give someone else access to your money on your behalf. It's not in any way intended to give someone else ownership of your money or allow them to use it for themselves. So if "adding himself" to an account means that he becomes able to deposit your money, pay your bills, direct your investments, etc  then yes, he can add himself. This is what he is supposed to do for you.

As I said, Power of Attorney does not convey any ownership. Therefore if "adding himself" means putting his name on the account as a joint owner, then no he cannot add himself. Putting his name on as a joint owner means he has taken ownership of the money, as either owner of a joint account has the legal right to all of the money in the account.

In fact, it's possible that the Power of Attorney was made specifically to avoid anyone putting the assets into joint names.

Using a Power of Attorney to gain ownership of some or all of someone's else's money is fraud or theft, depending on the circumstances. There is a special crime in Canada's Criminal Code called Theft by Person With Power of Attorney. The only reason more people don't blow the whistle on the activity of fraudulent use of Power of Attorney is that, as I said earlier, most people don't really understand the nuances of how it works.

What if the executor sees fraud by power of attorney?

This is another reader question. I seem to be starting most of my posts this way lately (which is great, keep 'em coming). Someone asked about an executor who believes that the person who had been acting under a Power of Attorney has perpetrated a fraud against the deceased. Specifically, the reader wanted to know whether the executor has the right to look at the Power of Attorney's records.

Yes, he does. When the deceased died, his or her Enduring/Continuing Power of Attorney came to an end. The attorney acting under the Power of Attorney was then under a legal duty to account to the executor for his or her care and management of the deceased's financial affairs. An astonishingly high number of people acting under Powers of Attorney seem to think that they are entitled to do whatever they want with someone else's money, including taking it for themselves, and the accounting to the executor is often where they get caught out.

If I were an executor in this position, I would consider the fact that one day soon I would have to divide the estate among the beneficiaries and explain to them why the estate is smaller than everyone thought. Are they going to believe me when I say the loss was not my fault but that of the attorney, when I made absolutely no attempt to make the attorney explain the loss? I doubt it.

An executor is in a legal position to demand an accounting, and may request additional back-up evidence such as bank statements, receipts, cancelled cheques etc. If the attorney refuses to co-operate, the executor may end up asking the court for help. Fraud is fraud. The fact that a person was appointed attorney under a Power of Attorney makes a theft worse, in my view, because it involved taking advantage of someone who trusted him.

A Stitch in Time Saves Time

This is a thought-provoking article from All About Estates on the Criminal Code section that creates the offence of theft by a person holding a power of attorney. There are also some ideas for pre-empting abuse by certain clauses to be included. Click here to read the article.

Dundas senior jailed for defrauding parents

The Hamilton Spectator reports on a case in which a 64-year-old man from Dundas, Ontario was recently jailed when he was convicted of defrauding his elderly parents of hundreds of thousands of dollars using a Power of Attorney. This is one of the worst cases of elder financial abuse I've seen in a while. Incredible! Click here to read the story.

Top ten posts about Enduring Power of Attorney

Although Enduring Powers of Attorney go by different names in different places - such as Durable Power of Attorney, Continuing Power of Attorney, and Power of Attorney for Property - the general concepts are the same. I find that they are much less well known than Wills, likely because they haven't been around as long. I'm attaching a list of the top ten posts on my blog about P of A's, for people who are trying to learn more about them.

Click on the titles below to go directly to the posts:

1. Can an attorney under a Power of Attorney change a beneficiary designation?

2. Jail term for person convicted of abuse of Power of Attorney

3. Clarifying the roles of joint attorneys and alternate attorneys

4. In the parents' best interests

5. Can an attorney under an Enduring Power of Attorney be forced to resign?

6. What happens to an Enduring Power of Attorney when the person who gave it dies?

7. How do I revoke my Enduring Power of Attorney?

8. Can a person acting under an Enduring Power of Attorney make a new Will for the person he is acting for?

9. Can I direct that my attorney under Enduring Power of Attorney keep on using my favourite financial advisor?

10. Can an Attorney under Enduring Power of Attorney sell an asset that is specifically left to an individual?

Jail term for theft by person holding power of attorney

Not long ago I mentioned in this blog that a person who was acting under an Enduring Power of Attorney could go to jail for theft of the property of the person he or she was supposedly representing. That post has led to several questions about how harshly the law might deal with a thieving Attorney under a Power of Attorney.

First of all, the crime of "Theft by a person holding power of attorney" is a specific crime under section 331 of the Canada Criminal Code. It is considered a specialized form of theft, which is a crime against property. The attorney can be found to have committed this crime if he or she sells, mortgages, pledges or in any other way disposes of some or all of the person's real or personal property. It is also theft if the attorney sold or mortgaged the property legitimately but then kept the proceeds, or did anything at all with the proceeds that he or she was not authorized to do by the Power of Attorney document. So you can see that it's a pretty broad definition.

The thieving Attorney can do jail time, as the punishment is the same as any other kind of theft. If the value of the property stolen is under $5,000, the jail term can be up to two years. If the property is worth more than $5,000, or if the property stolen is a testamentary instrument (e.g. a Will or Codicil), the jail time can be up to 10 years.

The reason many dishonest attorneys get away with abusing their position under the Enduring Power of Attorney is that nobody notices what's going on. And if anyone does notice, they tend not to say anything because they are too polite or feel they don't know enough about it, or they simply don't want to look greedy or nosy.