Reforming Power of Attorney Law to Protect Alaskan Elders from Financial Exploitation

• Publication year: 2010

§ 27 Alaska L. Rev. 1. REFORMING POWER OF ATTORNEY LAW TO PROTECT ALASKAN ELDERS FROM FINANCIAL EXPLOITATION

Alaska Law Review
Volume 27
Cited: 27 Alaska L. Rev. 1

Reforming Power of Attorney Law to Protect Alaskan Elders from Financial Exploitation

KIM VU-DINH ^[*]

ABSTRACT

In this Article, the Author discusses the issues arising under the current power of attorney law in Alaska and the impact the law has on Alaskan elders. The Author surveys and summarizes preventative measures set out in the 2006 Uniform Power of Attorney Act (UPOAA), in addition to non-HP OAA reforms adopted in other jurisdictions or suggested by scholars. The Author analyzes the relevance and practicality of the various provisions as applied to Alaska and highlights the major themes that should be considered when reforming the current statute.

TABLE OF CONTENTS

INTRODUCTION....................................................................................................2

I. LEGAL ORIGINS OF THE POWER OF ATTORNEY DOCUMENT AS AN ESTATE PLANNING TOOL.........................................................................5

A. Background.....................................................................................5

1. Definition...................................................................................5

2. History.......................................................................................6

B. 2006 Uniform Power of Attorney Act and Other Reforms...........................................................................................8

II. KEY PROVISIONS OF AND PROBLEMS WITH POWER OF ATTORNEY LAW IN ALASKA.......................................................................................8

A. Provisions of the Alaska Power of Attorney Statute.................8

B. Modern Problems with the Alaska Statute.................................9

III. NATIONWIDE REFORM...........................................................................12

A. Reforms That Educate the Principal..........................................12

B. Reforms That Educate and Deter the Agent from Committing Fraud.......................................................................14

C. Reforms That Protect Third Parties and Mandate that They Prevent Fraud.....................................................................16

1. Lay Persons..............................................................................16

2. Financial Institutions...............................................................16

3. Healthcare Professionals...........................................................19

D. Reforms That Create Remedies for a Defrauded Victim........20

IV. STRENGTHS AND WEAKNESSES OF THE AVAILABLE REFORM PROVISIONS............................................................................................21

A. Virtues of the Power of Attorney...............................................21

B. Burdens Accompanying the Available Reform Options........22

1. Burden on the State to Monitor...............................................22

2. Burden on thePrincipal...........................................................22

3. Burden on the Agent................................................................23

4. Burden on Third Parties...........................................................23

CONCLUSION.....................................................................................................25

INTRODUCTION

"I know it when I see it." ^[1] This famous legal saying applies aptly to the offense of elder exploitation. Because of the vulnerabilities associated with aging, elders are prone to many levels of financial exploitation unique to their demographic. And because this exploitation does not fit squarely into conventional legal categories, many of these crimes go unreported and unprosecuted. ^[2] This is particularly evident when there is abuse of a power of attorney (POA).

Consider the following hypotheticals, A and B. In A, the elderly Jane is physically frail and requires assistance going to the bathroom at all hours of the daytime. Jennifer and her daughter, Jane, decide that Jennifer will move in to provide care when Jennifer is home and hire a personal care assistant to be there while Jennifer is at work. The two also agree that Jennifer will pay Jane's mortgage, utilities, health expenses, and sundries with money from Jane's life savings. To grant Jennifer access to Jane's funds, Jane appoints Jennifer her attorney-in-fact using a durable POA document, ^[3] but the two never sign a written contractual agreement that the funds will be used exclusively for paying Jane's living and health expenses. At the time Jane signs the POA form, she is mentally competent but increasingly forgetful, and she eventually loses competence as a result of Alzheimer's Disease. Shortly after Jennifer moves in with Jane, she uses Jane's funds to pay for the mortgage, utilities, and other necessary health supplies, as agreed. However, after Jane loses competence, Jennifer changes the beneficiaries on all of Jane's insurance and benefit policies, naming Jennifer's children as beneficiaries, replacing Jane's elderly sisters. Nothing in the statutory durable POA prohibits Jennifer from taking this action. ^[4]

In hypothetical B, the same facts apply as in hypothetical A, except that after a year, Jennifer stops using Jane's funds to pay Jane's mortgage and health expenses. Instead, Jennifer uses the funds for her own exclusive benefit, causing Jane to go six months in arrears on her mortgage. Jane finds out about this and revokes the POA with Jennifer's knowledge. On the same day Jane does this, Jennifer goes to Jane's bank and uses the now-revoked POA to transfer the remainder of Jane's funds to Jennifer's personal bank account. The bank teller is suspicious and considers reporting the transaction to the authorities but is hesitant for fear of violating privacy laws. He decides to review the notarized POA document presented to him by Jennifer, which he recognizes as a statutory form. The teller comes across the following text:

A third party who fails to honor a properly executed statutory form power of attorney may be liable to the principal, the attorney-in-fact, the principal's heirs, assigns, or estate for a civil penalty, plus damages, costs, and fees associated with the failure to comply with the statutory form power of attorney. ^[5]

After reading these words, the bank teller completes the transaction.

These two hypotheticals highlight problems inherent in the current law, or lack of law, governing power of attorney in Alaska. In hypothetical A, Jennifer acted entirely within the law. Although Jane did not contemplate Jennifer's actions when she signed the durable POA document, nothing in the document itself prohibited Jennifer from reassigning Jane's assets. ^[6] Case law in Alaska on the issue is scarce; at most, a court might find that Jennifer's duty as an agent is to act in Jane's "best interests" once Jane has become incompetent. ^[7] Although Jane made a clear decision to make her sisters the beneficiaries on her life insurance policy, Jennifer could claim that it actually was in Jane's best interests for Jennifer's children to become beneficiaries of the life insurance policies. Jennifer could argue that she would have left Jane entirely in the care of paid strangers without the incentive of funds for her children, that Jane was aware of this fact, and therefore that it was in Jane's best interests to have the beneficiaries changed.

In hypothetical B, Jennifer has clearly acted contrary to law by using an invalid POA. However, since Alaska does not require that the POA be recorded, ^[8] the bank teller had no way of determining that the validly issued POA was subsequently revoked. Additionally, despite his suspicions, the current state of the law creates a disincentive for the teller to prevent the transaction because of the foreboding statutory warning that penalties could be assessed against him and his workplace.

These two situations highlight the problems with the current power of attorney law in Alaska. Elder exploitation has recently gained attention in the media ^[9] and is increasingly recognized as a real and widespread problem. ^[10] As the prevalence of POAs in estate planning increases, so too will accompanying fraudulent behavior. This in turn will require increased formality in the procedures required when creating a POA. ^[11] Further, elder exploitation will only increase as the "baby boomer" generation ages. ^[12]

The problem with attempting to create legal recourse for elder fraud and exploitation is that both involve subtle types of theft. ^[13] The victimized elder often transfers property to an account shared with the perpetrator, who may use the account for her own purposes. ^[14] The POA is one of the tools used by those who prey on the elderly, ^[15] as the document enables a perpetrator to commit crimes under what appears to be the elder's consent. Alaska's small population often exacerbates the problems of unchecked and abused POAs.

Since the Alaska POA statute is similar to those in other jurisdictions, this Article will track the recommendations made nationwide in order to analyze the law governing powers of attorney and determine what can be done to protect elders from POA abuse in...