Recognizing and Stopping Power of Attorney Abuse

May 7, 2024

A Financial Power of Attorney is a Valuable Tool that Enables a Trusted Individual to Handle Your Financial Matters During Times Of Incapacity. However, What Happens When this Trust is Violated?

Recognizing and Stopping Power of Attorney Abuse in New Jersey A power of attorney is essential for those unable or unwilling to handle their financial, medical, or other affairs due to temporary or permanent disability. It is a document that enables the person granting powers, the principal, to authorize someone, the agent or attorney-in-fact, to act for the principal. For example, an individual may give their adult child a power of attorney after major surgery so that the agent can pay bills, talk to accountants, and deal with banks while they, the principal, recover. The object is for the agent to act on behalf of the principal to further the principal’s best interests.

Choosing the Right Power of Attorney

Which type of power of attorney out of the many is suitable depends on the principal’s needs and situation. A general power of attorney is the broadest authority, allowing the attorney-in-fact to step into the principal’s shoes. On the other hand, a limited power of attorney authorizes the agent to handle specific acts, such as a real estate transaction, bank transfer, or financial transactions for a limited time when someone is in the hospital or away on a trip.

A durable power of attorney is typically included in estate planning. It allows the agent to handle the principal’s financial affairs once the principal is legally declared incapacitated, which can happen after a lengthy court process. Another power of attorney typically included in estate plans is the healthcare power of attorney, which allows the agent to make healthcare decisions for the principal.

Power of Attorney: A Tool for Good, But Beware of Abuse

While a power of attorney is a valuable tool crucial in urgent circumstances, it can be an instrument of abuse and criminal activity in the wrong hands. For example, the agent may transfer money or tax-deductible gifts from the principal’s bank account to their own bank account. Other types of abuses occur when an agent changes beneficiary designations to financial accounts or other provisions of the principal’s trust, making the agent the largest or sole beneficiary. These changes may occur with a general, durable, or limited power of attorney that specifically allows them. However, undue influence and duress may be why a power of attorney exists in the first place.

Recognizing the Signs of Power of Attorney Abuse in NJ

Signs that abuse has or is occurring through a power of attorney may be the unusual changes in beneficiary designations, diminishing bank account funds, real estate property transfers to the agent or their affiliates, or other discoveries during a principal’s lifetime or after their death. For example, probate creditors may reveal that the agent ran up bills personal to them and not for the principal.

A typical scenario may involve an adult child of an elderly parent moving to another state to care for their mother or father. They sell their house and move in with their parent, taking care of the food, shopping, cooking, banking, bills, and other routine chores. With a general power of attorney, the adult child can access their parent’s savings, checking accounts, and retirement benefits via mail or online. They can also handle real estate holdings, including making mortgage payments or signing loan documents on behalf of the principal.

So, when the parent’s other children discover that the power of attorney holder purchased real property jointly with the parent and took out loans against the property to buy a second property in the agent’s name, they may have grounds for civil and criminal actions against their sibling. Spouses of dementia patients may also take advantage of a power of attorney by changing title to real estate or funneling joint holdings, like stocks or retirement accounts, into separate accounts.

How Families Can Safeguard Vulnerable Relatives from Abuse

Family members must be vigilant regarding vulnerable relatives, such as the elderly and the ill. Senior citizens with dementia or painful conditions that leave them needy and dependent on others to care for their daily necessities are common victims of unscrupulous spouses, children, or other caretakers. Dependent spouses or parents are especially vulnerable because they trust their loved ones to take care of them, and they rely on the care. The abused may be reluctant to come forward about suspected abuse for fear of losing the care. For this reason, other family members should be aware of their loved one’s situation with a caretaker.

Legal Limits of Power of Attorney

Spouses and parents are not the only relatives who fall prey to wrongdoers with a power of attorney. In Sikorski vs. Sikorski (N.J. Super. Ct. Law Div., No. L-91-5174), a sister-in-law held a power of attorney she obtained on her brother-in-law’s hospital deathbed. She then used the power of attorney to gift herself and her husband money in the brother-in-law’s bank accounts and liquidated certificates of deposit that were transferred to their bank account before the brother-in-law died.

The estate and remaining beneficiaries sued the sister-in-law for the money. Despite her testimony that the decedent wanted all his assets to go to her husband, the court ruled that power of attorney holders cannot gift themselves the principal’s property without explicit, written permission. The court further clarified that the fiduciary duty of an attorney-in-fact requires the highest standard of good faith and loyalty to the principal and the ability to deal fairly with them. The temptation for self-dealing in gifting the principal’s property or money to the agent is too great, and the appearance of impropriety justifies the general rule that an agent may not make such gifts without the most precise written intent of the principal authorizing such a gift.

Holding Power of Attorney Abusers Accountable under NJ Law

Ensuring Accountability for Power of Attorney Abusers in Long Branch, NJNew Jersey law explicitly prohibits holders of powers of attorney from gifting themselves assets of their principals without written authorization in the power of attorney to make such gifts. Otherwise, those with legal rights to the principal’s property may demand an accounting from the attorney-in-fact or file suit in probate court to retrieve wrongly transferred assets of the principal. The lawsuit typically arises in a will or intestate probate after the principal’s death but can occur before then in a challenge to the power of attorney as obtained because of undue influence or the principal’s incapacitation.

The challenge to proving misuse of a power of attorney is proving that the behavior of the attorney-in-fact was abuse, such as the agent used the principal’s assets for personal gain, used the principal’s credit cards to purchase personal items, or otherwise acted against the principal’s best interests. The grey areas arise when the agent is the sole caretaker and spends the principal’s money for the benefit of both the principal and agent, for example, buying a house that accommodates the agent’s caretaking of the principal.

Get Help from Our Attorneys if Facing Power of Attorney Abuse in New Jersey

The question of abuse is a legal and factual question that an experienced estate law attorney at Chamlin, Uliano  & Walsh can evaluate and advise you about your options when you suspect abuse of your loved one or lost inheritance as a beneficiary. Once we determine you have grounds for an accounting or court action for fraud, undue influence, or breach of fiduciary duty, you can rely on our estate litigation lawyers to file the appropriate paperwork to initiate a lawsuit.

We have vast experience handling cases that involve power of attorney abuse in New Jersey, and we can draw up papers, appear in court, and represent you in these high-stakes legal proceedings. If you have concerns about power of attorney abuse in Eatontown, Long Branch, Neptune, Belmar, Manasquan, Holmdel, Middletown, Red Bank, and throughout Ocean and Monmouth County and Southern New Jersey, contact us for a consultation. Do not hesitate to call (732) 440-3950 for a review of your case today.