Power of Attorney Is Not Always a Solution
August 22, 2014
FOR millions of people over the decades, the power of attorney has been an inexpensive way to give someone the right to act on another person’s behalf. But its power is not always absolute and when it fails, the consequences can be nothing short of disastrous.
Take the cautionary case of Christine, a 62-year-old Connecticut woman, who agreed to tell us her story so others might learn from it, but asked that her last name be withheld to protect her and her family’s privacy.
After a difficult time sorting out their parents’ estate, Christine’s older brother promised his sisters he would set his own affairs in order so they would not face the same messy process.
He drafted a will, titled accounts to transfer to them on death, listed where everything was and drew up a health care proxy and a power of attorney should he become incapacitated. He used an experienced lawyer and sent copies of what he had done to his sisters. In other words, he did everything right. Almost.
That was in 2010, and Christine did not think about it again until she received a call this spring from Greenwich Hospital in Connecticut, saying her brother had been taken there after being pulled over for driving the wrong way on a street. A day later, she learned that her brother, who is 73, had severe dementia.
“He thinks he’s in 1964 and he just got out of the Air Force,” she said. “The last 50 years have disappeared pretty much.”
Her brother, who never married or had children, had done well financially, so unlike many people there would be no problem paying for his care indefinitely. But when she looked at the power of attorney, she noticed that he had used her legal first name, Carol, which she had all but abandoned in childhood, not the middle name she had used instead.
She didn’t think much of it until she went to the first of the many banks he used. She presented the power of attorney, explained the situation and waited. Instead of getting access to his accounts to pay for his care, she was told the bank would not honor her power of attorney because the name was wrong.
“They said ‘Go get your marriage certificate,’ ” she said, but that didn’t have her legal first name on it either. So she returned with a host of forms to prove her identity. “I had my birth certificate, passports, a driver’s license. But they did not have the name my brother had on that form.”
Lawyers, advisers and estate planners said her experience was not at all uncommon: A power of attorney is not as powerful as many people think, and banks routinely try to deny the appointed person any right to have access to accounts.
“They can say it’s not written on blue paper, or it’s not written on our paper, or it’s more than five years old,” said Michael Delgass, an attorney and managing director at Sontag Advisory, which manages $4.2 billion.
There is a valid reason for banks’ hesitancy: A power of attorney can be used to commit elder fraud. And banks have been sued for giving someone access to accounts without properly checking the person named in the power of attorney. On the other hand, there’s nothing really in it for them to let the money go.
For someone like Christine, who has a legitimate power of attorney that a bank is rejecting, pleading and meeting the bank’s demands is about all she can do, short of a full-blown and expensive legal proceeding, advisers said.
“You have no stick,” Mr. Delgass said. “All you have is carrot, but you don’t really have the carrot either because the bank won’t let you move the assets. If you say ‘I’ll move my assets elsewhere,’ they’ll say ‘You and whose army? We don’t recognize you.’ ”
In an odd twist, problems with banks’ and other financial institutions’ accepting of a power of attorney is a product of the instrument’s popularity. Heather Flanagan, a lawyer and senior wealth planner at PNC Wealth Management, said powers of attorney were initially a basic, low-cost way for someone without a lot of money to do some planning.
“It’s become quite a standard document, " she said, far less expensive and onerous than another alternative, guardianship, which requires a court appointment.
Yet the very ubiquity of powers of attorney has led to fears of fraud. Anthony D. Marshall, son of Brooke Astor, was convicted in 2009 of misusing the power of attorney granted by his mother to give himself an extra $1 million. Mr. Marshall was 85 at the time of his conviction. Mrs. Astor died in 2007 at the age of 105.
One type of power of attorneypeople might be tempted to set up if they are worried about being defrauded is a “springing” power of attorney. It can be drafted to spring into effect when a doctor determines a person is incapacitated.
However, Mr. Delgass said, getting a doctor to sign off on someone’s incapacity can be difficult. “Once you get really sick you have a million specialists, but no generalist,” he said. “You have a neurologist saying, ‘I’m responsible for this part of the stroke.’ And the internist is saying, ‘I’m doing this.’ But the generalist is saying, ‘This guy isn’t under my care.’ ”
With either one, Ms. Flanagan said, people can always make a video when they’re healthy to show that they understand the powers that they’re giving to someone else. And those powers can be tightly defined, she said.
A better option all around might be a revocable trust. It allows people to put their property in a trust while they’re still alive and use it as they normally would. Mr. Delgass said people who set them up can be their own trustees and designate co-trustees like a spouse and other trustees — like financial advisers and lawyers —for when they’re gone.
“Banks are more comfortable with this because you’re funding it now while you’re competent,” he said. “What you’re doing is getting a jump on the legal system designed to handle these things.”
Provisions can also be written into revocable trust documents that allow future trustees to put in assets that were forgotten when the trust was set up, he said.
Nina P. Silfen, an estate and trust lawyer, said a revocable trust was particularly useful for a single person who might not have a spouse to review what is happening. “If one day I’m incompetent, my co-trustee will notice that someone is writing $20,000 checks to the hairdresser,” she said.
Even a revocable trust is not foolproof in the face of financial institutions fearing a lawsuit. “If my wife goes to the bank and says I’m disabled, the bank says, ‘Prove it,’ ” Mr. Delgass said. Still, he added, these trusts tend to be more detailed and better drafted. In addition, the person setting up a revocable trust notifies financial institutions in advance that accounts or other property are held in a trust. That advance notice does not occur with a power of attorney.
For someone like Christine and her brother, who has been in a full-pay skilled nursing facility for five months, these aren’t options.
“I feel like an Airbus 380 crashed into my life,” she said. “I tell everyone the good news is he has lots of money; the bad news is he had it in 25 different accounts.”
She said she has lost countless hours from work and her own family sorting out payment for his care. After supplying a pile of documents, the two that seemed to have helped were an affidavit from her brother’s lawyer saying that Christine is the person he wanted to have control over this affairs and a document from the Social Security Administration that was the missing link for the various iterations of her name.
She has been able to move some of his assets into a trust for his care, yet she remains baffled by a process that is far from over. “It’s insane,” she said. “He was all buttoned up with all the documents you needed. But he could outlive me, which is going to be interesting. Then what happens?”
Take the cautionary case of Christine, a 62-year-old Connecticut woman, who agreed to tell us her story so others might learn from it, but asked that her last name be withheld to protect her and her family’s privacy.
After a difficult time sorting out their parents’ estate, Christine’s older brother promised his sisters he would set his own affairs in order so they would not face the same messy process.
He drafted a will, titled accounts to transfer to them on death, listed where everything was and drew up a health care proxy and a power of attorney should he become incapacitated. He used an experienced lawyer and sent copies of what he had done to his sisters. In other words, he did everything right. Almost.
That was in 2010, and Christine did not think about it again until she received a call this spring from Greenwich Hospital in Connecticut, saying her brother had been taken there after being pulled over for driving the wrong way on a street. A day later, she learned that her brother, who is 73, had severe dementia.
“He thinks he’s in 1964 and he just got out of the Air Force,” she said. “The last 50 years have disappeared pretty much.”
Her brother, who never married or had children, had done well financially, so unlike many people there would be no problem paying for his care indefinitely. But when she looked at the power of attorney, she noticed that he had used her legal first name, Carol, which she had all but abandoned in childhood, not the middle name she had used instead.
She didn’t think much of it until she went to the first of the many banks he used. She presented the power of attorney, explained the situation and waited. Instead of getting access to his accounts to pay for his care, she was told the bank would not honor her power of attorney because the name was wrong.
“They said ‘Go get your marriage certificate,’ ” she said, but that didn’t have her legal first name on it either. So she returned with a host of forms to prove her identity. “I had my birth certificate, passports, a driver’s license. But they did not have the name my brother had on that form.”
Lawyers, advisers and estate planners said her experience was not at all uncommon: A power of attorney is not as powerful as many people think, and banks routinely try to deny the appointed person any right to have access to accounts.
“They can say it’s not written on blue paper, or it’s not written on our paper, or it’s more than five years old,” said Michael Delgass, an attorney and managing director at Sontag Advisory, which manages $4.2 billion.
There is a valid reason for banks’ hesitancy: A power of attorney can be used to commit elder fraud. And banks have been sued for giving someone access to accounts without properly checking the person named in the power of attorney. On the other hand, there’s nothing really in it for them to let the money go.
For someone like Christine, who has a legitimate power of attorney that a bank is rejecting, pleading and meeting the bank’s demands is about all she can do, short of a full-blown and expensive legal proceeding, advisers said.
“You have no stick,” Mr. Delgass said. “All you have is carrot, but you don’t really have the carrot either because the bank won’t let you move the assets. If you say ‘I’ll move my assets elsewhere,’ they’ll say ‘You and whose army? We don’t recognize you.’ ”
In an odd twist, problems with banks’ and other financial institutions’ accepting of a power of attorney is a product of the instrument’s popularity. Heather Flanagan, a lawyer and senior wealth planner at PNC Wealth Management, said powers of attorney were initially a basic, low-cost way for someone without a lot of money to do some planning.
“It’s become quite a standard document, " she said, far less expensive and onerous than another alternative, guardianship, which requires a court appointment.
Yet the very ubiquity of powers of attorney has led to fears of fraud. Anthony D. Marshall, son of Brooke Astor, was convicted in 2009 of misusing the power of attorney granted by his mother to give himself an extra $1 million. Mr. Marshall was 85 at the time of his conviction. Mrs. Astor died in 2007 at the age of 105.
One type of power of attorneypeople might be tempted to set up if they are worried about being defrauded is a “springing” power of attorney. It can be drafted to spring into effect when a doctor determines a person is incapacitated.
However, Mr. Delgass said, getting a doctor to sign off on someone’s incapacity can be difficult. “Once you get really sick you have a million specialists, but no generalist,” he said. “You have a neurologist saying, ‘I’m responsible for this part of the stroke.’ And the internist is saying, ‘I’m doing this.’ But the generalist is saying, ‘This guy isn’t under my care.’ ”
With either one, Ms. Flanagan said, people can always make a video when they’re healthy to show that they understand the powers that they’re giving to someone else. And those powers can be tightly defined, she said.
A better option all around might be a revocable trust. It allows people to put their property in a trust while they’re still alive and use it as they normally would. Mr. Delgass said people who set them up can be their own trustees and designate co-trustees like a spouse and other trustees — like financial advisers and lawyers —for when they’re gone.
“Banks are more comfortable with this because you’re funding it now while you’re competent,” he said. “What you’re doing is getting a jump on the legal system designed to handle these things.”
Provisions can also be written into revocable trust documents that allow future trustees to put in assets that were forgotten when the trust was set up, he said.
Nina P. Silfen, an estate and trust lawyer, said a revocable trust was particularly useful for a single person who might not have a spouse to review what is happening. “If one day I’m incompetent, my co-trustee will notice that someone is writing $20,000 checks to the hairdresser,” she said.
Even a revocable trust is not foolproof in the face of financial institutions fearing a lawsuit. “If my wife goes to the bank and says I’m disabled, the bank says, ‘Prove it,’ ” Mr. Delgass said. Still, he added, these trusts tend to be more detailed and better drafted. In addition, the person setting up a revocable trust notifies financial institutions in advance that accounts or other property are held in a trust. That advance notice does not occur with a power of attorney.
For someone like Christine and her brother, who has been in a full-pay skilled nursing facility for five months, these aren’t options.
“I feel like an Airbus 380 crashed into my life,” she said. “I tell everyone the good news is he has lots of money; the bad news is he had it in 25 different accounts.”
She said she has lost countless hours from work and her own family sorting out payment for his care. After supplying a pile of documents, the two that seemed to have helped were an affidavit from her brother’s lawyer saying that Christine is the person he wanted to have control over this affairs and a document from the Social Security Administration that was the missing link for the various iterations of her name.
She has been able to move some of his assets into a trust for his care, yet she remains baffled by a process that is far from over. “It’s insane,” she said. “He was all buttoned up with all the documents you needed. But he could outlive me, which is going to be interesting. Then what happens?”
No comments:
Post a Comment
Thank you for commenting.
Your comment will be held for approval by the blog owner.