Chapter 22 - § 22.3 • FIDUCIARY MISCONDUCT
| Jurisdiction | Colorado |
A person who is already in a position of trust might financially abuse the elder. The following discussion concerns methods of managing possible financial exploitation by a fiduciary.
§ 22.3.1—Who Is a Fiduciary?
The Colorado Probate Code (Code) defines a fiduciary as a guardian, conservator, personal representative, or trustee.51 The statute also holds agents to fiduciary standards under the Code.52
§ 22.3.2—Agents
The power of attorney is a double-edged sword. The durable financial power of attorney can be of great benefit to the principal both because it avoids court supervision or bond and because it can be used during the principal's disability. On the other hand, because an agent can use the power of attorney without the scrutiny of the court and can therefore keep his or her activities secret from other persons, the agent may use the power of attorney to exploit the elder.
Drafting Powers of Attorney to Prevent Abuse by the Agent
The attorney should take into consideration the possible misuse of the power of attorney when drafting a power of attorney. The following is a discussion of some ways to draft a power of attorney to prevent agency abuse. The drafting suggestions are only some possible ways of providing safeguards against abuse. No doubt an attorney may think of other viable methods. Other drafting solutions may be apparent based on the client's financial and family situation.
The attorney should consider a "sunshine" provision that would require the agent to account to another person when the agent acts for the client. The attorney or client should give a copy of the power of attorney to the person to whom accountings should be made. In this way, the third person will know that he or she can demand an accounting when the agent acts for the client.
Naming co-agents can be an effective way to prevent financial abuse by an agent since both agents may be required to carry out financial transactions. Each co-agent should have complete knowledge of the performance of the agency. The theory is, of course, that if one person seeks to misuse his or her powers as agent, the other co-agent would prevent that abuse.
In addition, the attorney should consider recommending an independent agent if one can be found. An independent agent could include an individual who performs the duties as agent for a fee. The attorney should inquire about security for the faithful performance as agent. Additionally, corporate agents are well informed and skilled about the fiduciary duties of an agent. To facilitate the use of a corporate fiduciary, the attorney should consider adding a provision to the power of attorney that allows an agent to create a trust for the benefit of the principal.
A "springing power" in the power of attorney can also prevent misuse of the power of attorney by the agent. With this provision, the agent's powers would arise upon the principal's disability instead of arising immediately and continuing despite the principal's disability. The latter is a "standing power." The attorney should draft the power of attorney to provide a definition of disability. The language used in the power of attorney should identify the medical information needed to trigger the principal's authority to act and describe how a third party, such as a bank, can determine that the information provided by the agent is reliable. Perhaps an affidavit process could be followed. While this procedure is more cumbersome and could result in the need for a court order approving the appointment of the agent, the cost of this procedure may well outweigh the possibility of the agent's misuse of the power of attorney.
The client could also use an escrow method to discourage misuse of a power of attorney. The client could leave the power of attorney with his or her lawyer or other trusted person who is not the agent. When the agent wants to use the power of attorney, the agent would have to retrieve it from the third party. In this way, the third party would know that the agent will use the power of attorney. Because so many financial powers of attorney are written with standing powers, other family members or trusted persons may be unaware that the agent is using the power of attorney.
When drafting gifting powers in a power of attorney, the attorney should consider limiting the persons to whom the agent can make gifts, such as to the spouse but not to the children. The power of attorney could also require the written consent of another person before the agent may make any gifts. Of course, without some method for the other person to learn of the gifting restriction, the agent may not follow the restriction. Consequently, the client should consider naming a co-agent.
The language of the power of attorney could require that a court must appoint the agent after notice to designated persons. In this way, the agent would have to notify the persons who could monitor the agent's use of the power of attorney. While the procedure will delay the use of the power of attorney by the agent, its use may be appropriate in cases where the client and attorney anticipate a higher risk of abuse by the proposed agent.
Finally, the attorney could recommend to the client that he or she not sign a power of attorney. The client has the right to...
To continue reading
Request your trial