EDITOR'S NOTE: This article was originally published in the June 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.
You may think you have nothing in common with the late Manhattan philanthropist Brooke Astor. Her son, Anthony Marshall, is on trial on criminal charges, accused of abusing the power of attorney his mother gave him to control her financial affairs.
But power-of-attorney abuse doesn't happen only to the fabulously wealthy. Estate-planning lawyers and prosecutors are noting a rise in abuse, which usually is committed by a relative, friend or caretaker. "If the wrong person has the power of attorney, you can end up with a disastrous result," says Jeffrey Skatoff, a lawyer with Clark Skatoff, in Palm Beach Gardens, Fla.
Even when older clients swear that their children or friends are above reproach, lawyers are recommending provisions to power-of-attorney documents to safeguard assets. These measures attempt to prevent designated agents from spending money on themselves or changing beneficiaries on estate plans.
A power of attorney authorizes an agent to take over financial matters if the person becomes incapacitated. The agent can pay bills, open and close bank accounts, trade securities and make gifts.
Because the document grants so much discretion to someone else, select an agent while you're healthy and can make sound choices. Older people who have doubts about the capability of a possible agent -- perhaps, a son who is in serious debt -- should choose someone else. "They should name someone who's good with money and someone they trust beyond belief," says Jason Coomer, a lawyer in Austin, Tex. Courts do not supervise agents.
You're not locked in to your decision. "If you no longer think you made a good choice, you can revoke the power of attorney and give it to someone else," says Naomi Karp, strategic policy adviser with AARP Public Policy Institute. Power-of-attorney laws vary from state to state.
You can set up a power of attorney to take effect immediately. If you're still capable of handling your own affairs, you can build in protection by placing it "in escrow" with your lawyer. "We hold on to it until we can verify that the client is incapacitated," says Skatoff.
Another approach is a "springing" power of attorney, which springs into effect after you can no longer handle your affairs. Make it clear in the document how incapacitation should be determined, perhaps by getting the sign-off of two doctors.
To prevent abuse, states are considering adopting the Uniform Power of Attorney Act, a model legislation approved by the National Conference of Commissioners on Uniform State Laws. The proposed law would prohibit an agent from changing an estate plan and from making gifts, says Lori Stiegel, senior attorney with the American Bar Association. New Mexico, Idaho and Colorado have approved the measure. Until your state passes its own law, you can take these precautions:
Build in oversight. You could note in the document that the agent must answer to a third party. For example, if your daughter has the power of attorney, she would have to provide a written summary of her financial actions, such as check writing, to your son, best friend or a lawyer.
Notify others. Tell other family members and financial institutions that you're granting someone power of attorney. They can then watch out for unusual activity, such as large withdrawals from a bank account.
Assign co-agents. Consider granting power of attorney to more than one person, perhaps two of your children, or a child and a trusted friend. "They can discuss the issues between the two of them, and each one can look over the other's shoulder," says Deborah Corlett, a lawyer with O'Brien Watters & Davis, in Santa Rosa, Cal.
Limit the powers. For instance, you could allow your agent to pay bills and manage brokerage accounts, but not to change a will or the beneficiary designations on life insurance.
For more authoritative guidance on retirement investing, slashing taxes and getting the best health care, click here for a FREE sample issue of Kiplinger's Retirement Report.
Holiday Shopping? Here’s Why Some Stores May Let You Keep Your Returns
With the holiday shopping season in full swing, you're likely to find more stores shunning returns in favor of a 'keep-it' policy, study finds.
By Jamie Feldman Published
Stock Market Today: Stocks Swing Higher After Powell Speech
Fed Chair Powell poured cold water on potential rate cuts, but stocks jumped anyway.
By Karee Venema Published
Is a Medicare Advantage Plan Right for You?
Medicare Advantage plans can provide additional benefits beneficiaries can't get through original Medicare for no or a low monthly premium. But there are downsides to this insurance too.
By Jackie Stewart Published
What You Must Know About the Different Parts of Medicare
Medicare Medicare can be complicated but we've got you covered. Here is a quick guide to the different benefits provided through each part.
By Jackie Stewart Last updated
Retirees, It's Not Too Late to Buy Life Insurance
life insurance Improvements in underwriting have made it easier to qualify for life insurance, which can be a useful estate-planning tool.
By David Rodeck Published
Best Banks for Retirees
banking Kiplinger's 2023 list of the best banks for retirees.
By Lisa Gerstner Published
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck Published
Retirees: Your Next Companion May Be a Robot
happy retirement Robots may help fill the gap left by a shortage of humans to help older adults live independently.
By Alina Tugend Published
Using Your 401(k) to Delay Getting Social Security and Increase Payments
retirement Your 401(k) can be a bridge from retirement to higher monthly income.
By Elaine Silvestrini Published
How Do I Stop Robocalls From Scamming Me?
retirement The scammers have automated their efforts to separate you from your money. We have ways to make it stop.
By Elaine Silvestrini Published