A “New” Power of Attorney on the Way
(Will it Save the Day?)
Financial exploitation stories appear all over the news. Money is swindled from an elderly or disabled person by a family member or professional they should have been able to trust. Often, the power to take the money was given freely to the offender by the victim in a Power of Attorney. The theft is still theft, but the Power of Attorney (sometimes dubbed a “license to steal”) made it easy.
A new Minnesota Law will make it a little harder for Attorneys-in-Fact (that’s what we call the person given the power on the Power of Attorney) to inadvertently or on purpose abuse their duties.
What is a Power of Attorney? | A Power of Attorney is a document where one person (called the “Principal”) gives another person the authority to manage some or all of the Principal’s financial affairs. It’s a way to have someone ready to pay bills, cancel cell phone service, adjust investments or sell the house when the Principal becomes mentally incapable of doing these things himself or herself. In many States, including here in Minnesota, a simplified version of the Power of Attorney is available. The “Statutory Short Form Power of Attorney” is the most common way to make a Power of Attorney and that’s where the changes will come starting January 1, 2014.
What are the duties of the Attorney-in-Fact? | The Attorney-in-Fact can only act in the best interests of the Principal; he or she cannot use the Power of Attorney for self-interests. But here’s the problem, the Attorney-in-Fact can write checks on the Principal’s account so it would be a simple thing for the Attorney-in-Fact to pay his own bills with the Principal’s money, or to move some of the money to his own account or to just confuse which checkbook is supposed to pay whose expenses. Whether on purpose or as a mistake, this “self-dealing” can violate the duties the Attorney-in-Fact is supposed to follow.
How will the new law help protect the Principal? | The new Statutory Short Form Power of Attorney does not change the duties of the Attorney-in-Fact; it just tells everyone more clearly what those duties are and it does this in three ways:
- Notice signed by the Principal | The new form requires the Principal to read and initial a Notice explaining the purpose of the document, the broad powers being given, the duties of the Attorney-in-Fact and how the Power of Attorney is terminated.
- Notice signed by the Attorney-in-Fact | The Attorney-in-Fact (and any substitutes) must read and sign a separate Notice explaining that he or she must (1) act in the best interests of the principal, (2) use the power of attorney like an ordinary and prudent person would do handling their own affairs, (3) give accounts when required, (4) stop acting if the power of attorney is canceled, (5) make it clear when signing as the attorney-in-fact and (6) acknowledge personal liability for misuse of the Power of Attorney.
- Self-Dealing Assumption is “Not Allowed” | The new form will say, “My attorney(s)-in-fact MAY NOT make gifts to the attorney(s)-in-fact, or anyone the attorney-in-fact is legally obligated to support, UNLESS I have made a check or an “x” on the line in front of the second statement below and I have written in the name(s) of the attorney(s)-in-fact you name in the statement.” This will force the Principal to consider more careful whether to allow the Attorney-in-Fact to make gifts to himself. And any self-dealing the Principal allows is limited to yearly amounts equal to the annual exclusion for federal gift taxes; currently $14,000.
What if you already have a Power of Attorney and it’s working just fine? | Powers of Attorney never get old. They are effective until the Principal dies or revokes it. The new law doesn’t change this. Powers of Attorney signed before January 1, 2014 will still be valid and effective after the first of the year. Using an “old” form after January 1, 2014 will still create a Power of Attorney; it just won’t have the extra protections of a Statutory Power of Attorney.
Summary | Powers of Attorney are helpful, powerful and sometimes necessary tools. But like all tools, they can be abused. Minnesota’s new Statutory Short Form will hopefully give Principals and Attorneys-in-Fact solid information to make good choices.
Jeffrey W. Schmidt
Attorney at Law
Schmitz & Schmidt PA
400 Robert Street North #1840
St Paul | Minnesota