Attorneys and Daily Money Managers (DMMs) encourage individuals (principals) to prepare estate plans. This process includes appointing an agent under Power of Attorney, well in advance of a possible loss of legal competency. The appointed POA will have the legal authority to take full responsibility for the principal’s financial affairs.
One goal of this process is to avoid the principal ending up in guardianship. However, principals sometimes object to an agent’s actions, even though they’re performed in good faith for the principal’s benefit. Undermining the POA’s efforts makes avoiding guardianship more difficult.
How POAs are Undermined
Conflicts may arise when the agent needs to start managing finances for the principal. Although the principal empowered the agent to make decisions for them, the principal may make matters difficult in an attempt to maintain independence.
A principal’s lack of cooperation could stem from a variety of reasons, including:
- Reluctance to have someone limit their financial flexibility.
- Poor decision-making regarding their financial and/or physical well-being.
- Mistrust of the POA when no longer capable of appointing someone else.
- Influence of someone who raises doubts and suspicions about the POA’s motives.
Being befriended by people running “romance” scams.
How POAs Might Function in an Adverse Environment
When POAs are undermined by the principal, creative solutions are necessary to protect the principal’s financial security and well-being.
The agent should keep the principal’s engaged professionals and trusted figures (such as relatives, friends, clergy, etc.) apprised of the situation. Enlisting their support is often beneficial.
Allowing the principal some independence when their capacity is diminished is often an effective remedy. The POA can use some of the following techniques while maintaining control of the majority of the funds.
- Provide the principal with a checking account containing limited funds. They can maintain some control while most of the income is diverted to a separate account, perhaps even at a different bank.
- Furnish the principal with a prepaid debit card, such as one offered by True Link Financial, in lieu of a credit card. While allowing the principal to charge purchases, the agent can set limits for the magnitude of spending, accepted vendors, online shopping, access to cash, etc.
- Remind the principal of the amount of their monthly income committed to mandatory expenses and the amount that is spendable via cash, debit, or check.
- Advise all members of the principal’s support team to deliver a consistent message regarding financial prudence and fraud prevention.
How Agent-Principal Relationships Break Down
A POA depends on the principal’s finance professionals recognizing the POA’s authority. When a principal interacts with these professionals on their own with conflicting instructions from those of the POA, this sets up a problem for everyone involved.
The professional needs to protect their company and what they perceive as their duty of care for their client. The POA needs to adhere to their fiduciary responsibility to protect the client’s finances. And the principal is vulnerable to their own bad judgment that may result in financial harm.
When the professionals and/or the principal repeatedly question the POA’s authority, the constraints on the POA may compel them to step down. If the principal no longer has capacity, a guardianship proceeding would need to be initiated.
If a guardian is appointed, the principal may lose all control of their finances to someone chosen for them instead of the POA they initially trusted and appointed.
While we see the many drawbacks of guardianship, we recognize there are circumstances when it cannot be avoided. Read our article Pre-Planning – How to Avoid Guardianship to learn more. And more information about problems in guardianship can be found in this Washington Post article.