How to Determine a Misuse of Power of Attorney

By John Cromwell

There is a significant danger to an agent misusing his power of attorney because it may be hard to observe. The power of attorney grants the agent power to act in a principal’s name in the principal’s absence. This means that the agent might be able to transfer the principal’s property and enter the principal into binding agreements with minimal oversight by the principal. Powers of attorney are subject to state law, so rules may vary. However there is a general process you can follow to determine whether a power of attorney has been misused.

There is a significant danger to an agent misusing his power of attorney because it may be hard to observe. The power of attorney grants the agent power to act in a principal’s name in the principal’s absence. This means that the agent might be able to transfer the principal’s property and enter the principal into binding agreements with minimal oversight by the principal. Powers of attorney are subject to state law, so rules may vary. However there is a general process you can follow to determine whether a power of attorney has been misused.

Original Power of Attorney

The beginning of any investigation into the misuse of a power of attorney is to check the original power of attorney. The original grant defines in what circumstances an agent can act on behalf of the principal. Normally, a power of attorney may grant an agent the ability to sell a principal’s assets, get loans under the principal’s name and manage a principal’s business. A power of attorney may explicitly state areas where an agent cannot act on behalf of the principal. If an agent has done something in the principal’s name that the power of attorney does not authorize, the power of attorney has been misused.

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Fiduciary Duty

An agent with a power of attorney is a fiduciary of the principal. This means the agent must meet a certain standard of care when carrying out his duties. The agent is required to take actions that comply with the principal’s wishes. If the principal is unclear regarding what he wants, the agent is supposed to act in a way that maximizes the benefit for the principal. But the agent needs to exercise “due care.” This means the agent should avoid overly risky investments, even if the agent would have taken the investment himself with his own funds. If the agent engages in overly risky actions on behalf of the principal or acts in a way that is not in the principal’s benefit, he is misusing his power of attorney.

Self-Enrichment

The most egregious and obvious misuse of a power of attorney is when the agent uses his position to enrich himself. Other than transferring the principal’s property to himself, an agent may enrich himself by taking opportunities from the principal for his own benefit or by transferring property to another and getting some sort of benefit from the recipient of the property.

Request an Accounting

If you suspect that an agent is abusing his power, you can go to a civil court and demand an accounting. When a court orders an accounting, the agent must report how he used the principal’s resources over a period of time. Once you receive this report, check its accuracy by contacting the other parties to the agent’s transaction. Confirm the details of the transaction, as reported by the agent, match the details as provided by the other party.

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References

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