Preventing Power of Attorney Abuse, 0314 ALBJ, 75 The Alabama Lawyer 117 (2014)
| Author | John C. Craft, J. |
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 A LAWYER'S ROLE
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\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Story of Virginia Freck1
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0At a young age, 98-year-old Virginia Freck learned to be frugal. She was given one quarter a week in allowance. If she spent the entire quarter that same week, she would owe her parents 50 cents the next week.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Freck would build a nice nest egg over her life. She graduated from Duke University and moved to New York City. There, she became a success and a bit of a New York socialite. Freck was a member of the Rockettes, modeled for Macy's department store, worked for CBS and volunteered for both the USO and Coast Guard. She was known to socialize with CBS and RCA executives.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Freck married late in life, but never had any children. When her husband died, she was living alone in Florida. Apparently, Freck needed some assistance and, at some point, started showing signs of dementia. Her husband's great-nephew, Joe, offered to assist, and Freck moved to Alabama where Joe had family.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In 2006, Joe had Freck sign a power of attorney form appointing him as her agent. The power of attorney was not prepared with the assistance of an attorney, but rather, was drafted by Joe's girlfriend. Joe proceeded to exploit Freck at the rate of $53,000 per month. He spent Freck's money on casino gambling, alcohol, motorcycles, a house for himself, a convenience store, a bulldozer, and other property. The abuse did not come to light until one of Freck's bank accounts was overdrawn, and she was in danger of being evicted from her apartment. In 2012, a judgment was entered against Joe in a civil lawsuit, and he was convicted of criminal elder financial exploitation. All told, Joe exploited Freck for more than $2.5 million dollars.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Prevention Is Key
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Because civil remedies are inadequate and criminal prosecutions are rare, prevention is critical. Virginia Freck eventually received a measure of justice-a remedy-in the form of a civil judgment against and criminal conviction of her abuser. The unfortunate truth, however, is that for every Virginia Freck, there are dozens of seniors who live silently with the injustice of financial exploitation or never recover any of the money stolen from them. Remedies are often difficult to obtain and rarely fully compensate the victim in financial exploitation cases.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0As an initial matter, elderly victims are not likely to report financial exploitation. Numerous studies have been conducted attempting to estimate the number of cases never reported to authorities. In 2005, the National Center on Elder Abuse (NCEA) estimated that only one out of every 25 financial exploitation cases was being reported, suggesting at least 5,000,000 victims of financial abuse each year.2The number of victims could be even higher if a 2011 New York report is accurate. In that study, 4,156 older New Yorkers or their proxies were interviewed, and 292 agencies reported on documented cases of elder abuse.3The findings suggest that a mere one out of 42 cases of elder financial exploitation is reported to authorities.4Victims of elder abuse or financial exploitation may not report the abuse for several reasons. They may desire to keep the abuse or exploitation private to avoid embarrassment, especially if they have been betrayed by those persons who are closest to them.5Also, victims who are suffering from memory loss or deteriorating mental capacity are less likely to come forward and report abuse.6
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Civil remedies available for victims of financial exploitation include traditional tort theories such as conversion, fraud and breach of fiduciary duty7Also, in Alabama, the Alabama Uniform Power of Attorney Act (UPOAA) includes statutory remedies for breach of duty to a principal. Under the UPOAA, an agent owes certain mandatory and default duties to the principal.8An agent found liable for breach of duty is required to "restore the value of the principal's property to what it would have been had the violation not occurred" and must reimburse the principal for the attorney's fees and costs paid on the agent's behalf9The remedies provided under the UPOAA are not exclusive.10
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Despite the availability of civil remedies, the civil justice system will rarely hold agents fully accountable for abusing their authority under powers of attorney. There are several practical and circumstantial reasons for this. A victim of power of attorney abuse may lack the capacity to pursue civil litigation.11 He or she may not have the financial resources to fund the often-costly litigation, perhaps because the agent has spent or dissipated the principal's assets.12 And, if litigation is ultimately pursued, efforts at restitution are likely to result in only partial recovery13
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Neither may criminal penalties be sufficient to fully curb power of attorney abuse. Some states distinctly criminalize power of attorney misuse.14 Alabama became one of those states with last year's enactment of the Protecting Alabama's Elders Act. That act penalizes elder financial exploitation up to a class B felony15 Criminal power of attorney abuse, as a type of financial exploitation, is defined as "the breach of a fiduciary duty to an elderly person by the person's guardian, conservator, or agent under a power of attorney which results in an unauthorized appropriation, sale, or transfer of the elderly person's property."16
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Power of attorney abuse, though properly criminal, may not ultimately be prosecuted. Investigators, law enforcement officers and other authorities may not know that power of attorney abuse can be a crime, may fail to investigate the allegations or may ultimately advise the complainant or those concerned that "it's a civil problem."17 As a result, prosecutors may not receive case referrals. And, as one study has shown, of cases that are referred, only one-seventh are actually prosecuted.18
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Several factors contribute to low rates of prosecution. Prosecutors may not have expertise in power of attorney abuse or the resources to prosecute these cases, which can be demanding and labor intensive.19 A prosecutor may not move forward with a case in which the principal granted broad authority to the agent, including the authority to make gifts with the principal's property20 Such an extensive grant of authority could create a reasonable doubt that the agent acted beyond his or her authority.21
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Prosecution may also be hindered due to the victim's circumstances. Victims often are unwilling to prosecute immediate family members or close friends who are commonly appointed as their agents.22 In addition, an elderly victim may be viewed as an unreliable witness because of mental capacity impaired by old age, leading courts to be skeptical of accusations by "demented persons" because "paranoid suspicions are a common incident of dementia."23 An elderly victim suffering from mental deficiencies may not know or understand that abuse has occurred, and, thus, will be unable to testify in court.24 Finally, the principal may have signed the power of attorney document of his or her own volition and in accordance with the jurisdiction's proper procedures.25 That fact likely strengthens a defendant's case even if the principal was unaware of what he or she was signing, or completely trusted the agent he or she was appointing only to be victimized later.26
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Given the insufficiency of remedies for power of attorney abuse, prevention is crucial. Ask yourself: If Virginia Freckhad come to your office to complete a power of attorney, what could you have done to prevent the abuse that occurred? Anything? What can lawyers do to prevent power of attorney abuse when drafting and executing powers of attorney? The remainder of this article provides concrete suggestions on how lawyers can prevent power of attorney abuse. Lawyers who draft powers of attorney for elderly clients help prevent financial abuse in several ways. First, lawyers have certain ethical duties that reduce the risk of exploitation. Second, a power of attorney document can be drafted with built-in safeguards to avert abuse. Third, attorneys can counsel their clients on options the client might choose to reduce the risk of abuse.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Be the Professional
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Virginia Frecks power of attorney was not completed with the assistance of a lawyer. Rather, it seems to have been downloaded from the Internet or obtained from some other source of do-it-yourself legal forms. Yes, a power of attorney is a form. The UPOAA contains an optional statutory power of attorney form for use by attorneys and the public alike.27 It is also a potent and risky legal document that can be abused, as it was in Virginia Frecks case to the tune of $2.5 million dollars. Had Virginia Freck gone to a lawyer, that lawyer may have been able to avert the abuse simply by following the standards of professional conduct.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Attorneys who regularly deal with elderly clients are familiar with what are referred to as the "Four C's" of elder law ethics.28 They are: client identification, conflicts of interest, confidentiality and competency.29 Each of these C's represents an ethical duty owed by an attorney to his or her client. By adhering to these duties, attorneys can help protect their clients...
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