One of the most critical decisions you can make when establishing an estate plan is who you will entrust with your power of attorney. Power of attorney is a legal document that authorizes a specific person to act on another’s behalf. This person, generally known as an agent or attorney-in-fact, can make decisions regarding that person’s finances, properties, investments, medical care, and medical decisions.
Assigning someone power of attorney means that you are potentially handing over critical life decisions to that person. You need to have complete trust that this person has your best interests at heart. Because if they don’t, they could do immense damage to your health, your future, and your family.
Unfortunately, abuse of the power of attorney privilege is not uncommon. In order to protect yourself and your family and prevent abuse, Mullen Holland & Cooper P.A. urges you to consider these five strategies.
Appoint Someone You Trust
The person you grant power of attorney will be able to make incredibly important decisions on your behalf, so it’s important that you select someone you would trust with your life – because, in effect, that’s exactly what you’re doing. This may be someone close to you, or it could be a neutral third party like a professional fiduciary, who is held to the strictest professional standards. Regardless of which route you take, you should consider a background screen and other forms of due diligence.
Clearly Define the Agent’s Power
You can reduce the chances that your agent abuses their power of attorney by very clearly specifying what powers and responsibilities they have. For example, you may empower the individual to pay your bills, but not to alter your will. It also helps to put strict limits on things like gifting.
Assign Co-Agents or Second Signatures
You don’t have to leave all the decision-making to one person. To combat abuse, you may want to consider assigning a co-agent, who must agree to any major decisions that the other agent wants to make. If having two co-agents isn’t feasible, you could also consider requiring two signatures for sizable transactions. The agent still retains responsibility for your interests, but a second signature confirming certain transactions is needed. The second person can review major transactions and watch for potential red flags.
Use Third-Party Accounting
Third-party accounting is a way for an outside or neutral party to review the financials and transactions of the agent granted power of attorney. You could assign an accounting firm to handle this task, or a close friend or relative. Using third-party accounting ensures that another set of eyes is always looking at the books and monitoring where money is going.
Limit Changes that Can Be Made to Beneficiaries
Do not give broad power to the agent to change your listed beneficiaries. If, for example, you designate your spouse as the beneficiary to your life insurance policy, you could specify that the agent cannot undo this designation. Again, this goes hand in hand with limiting the overall mandate given to your chosen agent.
It is also important that you take the time every few years to review your power of attorney document. Things change, people grow closer or further apart, and individuals’ financial circumstances fluctuate. Review who you have designated to serve as your agent and determine if they are still a good fit.
If you have questions about power of attorney or need help establishing a solid estate plan, reach out to the experienced team of North Carolina estate planning attorneys at Mullen Holland & Cooper P.A. today. We want to help you plan ahead, and to protect your future and the future of your loved ones.