The Importance of Caution in Drafting and Using Powers of Attorney
Last month, this office commented on financial abuse of the elderly and recommended a few common sense steps to combat that threat, including financial powers of attorney [POA’s] so long as “well-drafted and responsibly used.” Last week, the Mississippi Court of Appeals rendered an opinion underscoring both the inherent risks and potential usefulness of POA’s, which it commented are “nothing more than [instruments] that allow a principal to convey to an agent the authority to act on [his or her] behalf in identified matters.” Styled In the Matter of Estate of Elva Mae Hemphill (Miss. Ct. App. February 9, 2016), the case involved an agent (or “attorney in fact”) who used Elva Mae Hemphill’s POA to convert her certificates of deposit into new CD’s naming the attorneys in fact as joint owners. Such misuse of POA’s is not uncommon and is not illegal in all instances. Indeed, courts have long recognized that broadly worded POA’s “carry an inherent potential for fraud and abuse.” Estate of Elva Mae Hemphill, at ¶ 57. “This is not only because of the broad authority such powers confer but also because in many cases the power is granted precisely because the principal is vulnerable or dependent on others.”
Even in those cases, POA’s can serve a useful purpose. Well-drafted and left in the hands of an ethical person, they allow attorneys-in-fact to carry on the business and financial affairs of an incapacitated principal, to execute certain legal documents when a principal (incapacitated or not) is unavailable, and to take other proper actions.
Mindful of its benefits but also aware of the potential for its abuse, Ms. Hemphill and her attorney wisely included in her POA certain protections. Her power of attorney disallowed attorneys in fact from personally gaining from any transaction completed on behalf of Ms. Hemphill, prohibited mixing any funds owned by the attorney in fact with Ms. Hemphill’s funds, and prohibited the attorney in fact from receiving any compensation except for reimbursement of out of pocket expenses. Because of these crucial provisions, the liquidation of the CD’s in the Hemphill case was voided by the Court of Appeals and the money was returned to her Estate.
The lessons from Hemphill and other cases are clear. First, be careful who you trust with a power of attorney. Second, when you do vest someone with such power, include careful limitations, such as those in Hemphill.