Powers of Attorney - 4/25/08
Intro: Millions of people have powers of attorney. Yet, in a recent case, an elderly woman's neighbor used her power of attorney to steal money from the elderly woman's bank accounts. Are you opening yourself up to problems if you make this common estate planning document? Here to explain the power of a power of attorney is Attorney Michael Solomon.
Jeff: Mike, what's a power of attorney?
Mike: A power of attorney is a simple legal document that authorizes someone you name, typically a trusted family member, to handle your legal or financial affairs. With this document, your agent, the person you give it to, can step in to help when you become incapacitated.
Jeff: What are the dangers?
Mike: When you give someone a power of attorney, you're giving them the power to go to the bank and take your money, or to sell the house. That's a lot of power. And that can lead to problems. In the case you mentioned a moment ago, we saw how a person befriended an elderly neighbor, got her power of attorney, and used it to steal from her accounts.
Jeff: So why would anyone make a power of attorney?
Mike: It's a very important document. Let's say you don't have one, and your spouse becomes incapacitated, incompetent. You won't be able to take money from his IRA's, even to pay his bills. You won't be able to sell or refinance the house. You won't be able to sell stocks. You'll be looking at a disaster. The only way around these problems is either to go to court, which is often costly and time consuming, or to get a power of attorney.
Jeff: So if a power of attorney is important, but it's so dangerous, what should we do?
Mike: Most people should have a power of attorney. But you need to take precautions.
First, and most important, only give it to someone you trust. REALLY TRUST. Usually, that's a spouse or child. Even if the person lives out of town, so using it will be less convenient, trust is the most important factor in deciding who should get it.
You can also build in precautions. For example, you can give it to two of your children, and require they both have to use it together. So one can't steal you blind unless the other participates. Or, you could make one child the agent, but give it to another child to hold. Again, they'd have to work together to steal your money.
And you can make a "springing" power of attorney, that can't be used at all unless the agent gets a doctor's statement that you are incompetent.