The director of a non-profit organization that wants to end financial exploitation of the elderly when wills, trusts or powers of attorney are executed asked why powers of attorney are contracts. She said her organization would like the law to ensure that principals understand what they are signing. She would like the legislature to pass a law to require agents to tell principals everything they do or propose to do and to provide an accounting to the principal.
Asking why a power of attorney is a contract is like asking why water is wet. A power of attorney is based on the law of agency, which is a part of the law of contract. Wills and trusts are also contracts. A contract is basically an agreement between or among two or more people that is intended to bind them to do or not do certain things.
Michigan and Pennsylvania, as do other states, require a principal to sign an acknowledgment that they understand that they are empowering the agent to act outside of the principal’s supervision. Agents are also required to sign an acknowledgment that they are bound to act in the principal’s best interests, to keep the principal’s property separate from the agent’s property, and to do what the principal wants done. This does not prevent financial abuse, but it does put agents on notice that they may be held accountable for misdeeds.
The best assurance that the principal knows what he or she is signing and is appointing the right person is to have an attorney draw up the document and supervise the execution. Before I prepare a power of attorney, I talk to the principal one-on-one and assure myself as well as I can that he or she knows what he or she is signing. An attorney is ethically obligated to protect the client and a conscientious attorney will establish an attorney-client relationship with the principal. I also interview the prospective agents and other family members to assure myself that they will act in the principal’s best interests. I have drafted over 1,000 powers of attorney for clients and I am not aware of any cases of financial abuse of my clients. More often, the problems I see reflect weaknesses in powers of attorney.
It is difficult to regulate powers of attorney without infringing on the principal’s right to contract. A main objective of signing a power of attorney is to ensure that the court stays out of the person’s life and that the principal’s affairs remain private. The Pennsylvania Supreme Court Elder Law Task Force and the State Bar of Michigan Elder Law and Disability Rights Section Council, on both of which I sit as a member, have been trying to find ways to protect principals without depriving them of their rights. Requiring registration or formal accounting might offer protection, but either of those raise questions about who will oversee the agent, restrict privacy, and inflict court supervision similar to guardianship. This is not a simple problem.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
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