Financial scams targeting seniors are common. But not all scams are committed by strangers. Disturbingly, a growing number of elder scams involve family members or friends who steal money from an elder when the elder grants them a financial power of attorney.
In these power of attorney scams, the family member or friend steals money from the elder but claims the money was taken for safekeeping because the elder was senile or needed to be protected from making bad financial decisions. Elders can lose their home, nest egg, or other money and property through these power of attorney scams.
Older Americans tend to be more vulnerable to fraud and financial abuse because they commonly experience some degree of cognitive decline—through natural causes or from medications—and can have difficulty understanding our changing world. The internet, personal computers, appliances with complex controls, and other aspects of contemporary life can accelerate disorientation of an aging mind, and seniors who spend most of their time at home can feel isolated and alone. (To learn more about financial scams targeting seniors in general, see Nolo's article on financial scams against seniors.)
As the number of seniors in the general population rapidly increases, there's been a corresponding increase in financial scams involving the unauthorized use of powers of attorney. People with elderly loved ones, caregivers of seniors, and elders themselves can prevent or remedy power of attorney abuse by learning:
A power of attorney is a written authorization giving one person the legal authority to act for another person, typically regarding financial affairs like bank accounts and investments. (To learn more about powers of attorney, including the different types and how to make one, see Nolo's articles on financial powers of attorney.)
In the hands of someone trustworthy, a power of attorney can be an important tool to manage the finances of an elder who has become permanently or temporarily unable to handle financial affairs. But, in the hands of a financial predator or a greedy family member, a power of attorney can be used to secretly steal money and assets, readily bypassing the normal safeguards that financial institutions use.
A case I handled years ago demonstrates how a typical power of attorney abuse scam works. My client, an elderly retired gentleman, lived alone with no immediate family. One day he suffered an injury that required his hospitalization. He knew he would be away from home for weeks and was worried about paying his bills. His nephew arrived at the hospital with flowers and an offer to help.
The next day the nephew showed up with a power of attorney, which his uncle signed. By the time the elderly man had returned home, his nephew had robbed him blind, using the power of attorney to close bank and investment accounts. Assuring his uncle he was merely keeping the money safe, the nephew had instead transferred the money to an accomplice, who in turn invested it in a mobile home development in South Carolina.
When the uncle sued, the nephew maintained that his uncle had gifted him the money out of love and affection as an early inheritance, and the power of attorney was evidence of the trust his uncle placed in him.
If you or a loved one is the victim of fraud or elder abuse involving the unauthorized or unreasonable use of a power of attorney, it's important to act quickly. Usually, the best course of action is to contact a lawyer. The lawyer can assist you in:
The most common legal claims in a case involving the abuse of a power of attorney are:
Both of these claims are based upon a legal concept known as "fiduciary duty." When an elder signs a power of attorney document, it creates a fiduciary relationship between the elder (called the "principal") and the person who is authorized to act on behalf of the elder (called the "agent"). Under this fiduciary duty, the agent owes the elder a duty to act with the utmost good faith and loyalty when using the power of attorney to act on behalf of the elder.
When an elder signs a power of attorney, the fiduciary duty created by the document imposes certain duties on the agent. These duties include:
If the agent fails to act in accordance with these fiduciary duties of fidelity and good faith, the agent may be liable for "breaching" (that is, breaking) the fiduciary duty. The elder may then file a claim based on fiduciary abuse.
An agent who uses an elder's assets for his or her own benefit may also be liable for conversion of the elder's property. In order to establish conversion of property, the elder (or the elder's lawyer) must show that the agent managed or used the elder's property in a way that was inconsistent with the elder's rights of ownership. When the agent has used a power of attorney to convert the property, the elder must also show that:
If the elder is successful in a lawsuit for breach of fiduciary duty or conversion, the court will order the defendant to return the stolen property. The court or jury may also require that the defendant pay the plaintiff's attorneys' fees.
If the defendant's conduct was particularly egregious or involved elements of fraud, the court may award punitive damages to the elder. For example, in the case discussed above (about the uncle and nephew), the jury awarded the uncle the full amount of money that his nephew stole, along with attorneys' fees, punitive damages, and interest. Happily, the uncle was eventually able to collect every penny of the judgment.
Not all elder victims of power of attorney scams are as lucky as the uncle in the example case. Tracing how the stolen money goes from A to Z is not easy, nor is pursuing these kinds of lawsuits. If you or a loved one plans to use a power of attorney, take steps to protect against scams. Or, if you or a loved one is scammed, act quickly to remedy the situation. Here's how:
In addition to hiring a lawyer, you may need to contact the elder's bank as well as the institutions that hold the elder's retirement and brokerage accounts. For more information, see Nolo's article on reporting elder financial abuse.
By: Craig T. Matthews, a business, employment, and litigation lawyer from the Dayton, OH area.