COLUMNS

Beware: Avoid Set-up for Exploitation

Staff Writer
Glen Rose Reporter
Sandra W. Reed Life Care Planning

When Elvis Presley let Colonel Tom Parker manage his career, the Colonel exploited him. He took up to 50% of his earnings instead of the customary 10% earned by other mangers. Among other abuses, Colonel Parker, driven by an obsession for money fueled by his own gambling addiction, often ignored Elvis’ mental and physical health when booking him.

The recent film, Love and Mercy, depicts how psychotherapist, Dr. Eugune Landy manipulated Brian Wilson, singer/songwriter of the Beach Boys. Landy kept Wilson over-medicated, refused to let him see his own brothers and children. Landry even moved into Wilson’s mansion and relegated Wilson to a small apartment under the pretense that the smaller space would help Wilson function better. Ultimately, he took control over every aspect of Wilson’s life.

These celebrities’ experiences have become the subject of movies, documentaries and books. But ordinary people similarly can be beguiled by those taking advantage of them. Often exploitation is carried out through a Statutory Durable Power of Attorney, an essential tool every adult needs to have executed, which allows someone to take over one’s financial affairs if a mental or physical disability intervenes. But, if the wrong person is designated as the agent to handle one’s affairs, the results can be financially, and even mentally, devastating.

Exercise Great Care Choosing the Agent in a Statutory Durable Power of Attorney

The Statutory Durable Power of Attorney (POA) allows the principal executing it to give broad powers to the agent named. The principal can select all or all of the following transaction his or her agent named can handle: (1) real estate transactions; (2) tangible personal property transactions; (3) stock and bond transactions; (4) commodity and option transactions; (5) banking and other financial institution transactions; (6) business operating transactions; (7) insurance and annuity transactions; (8) estate, trust and other beneficiary transactions; (9) claims and litigation; (10) personal and family maintenance; (11) benefits from Social Security, Medicare, Medicaid or other governmental programs of civil or military service programs; (12) retirement plan transactions; and (13) tax matters. The principal can even grant the agent the power to give gifts of his or her property to others. The principal might even allow the agent to make gifts to the agent himself.

Since the powers under a POA are typically broad, this can lead to abuse if the person chosen is not capable and trustworthy. It is imperative, therefore, for the principal to discuss with a competent attorney what character traits and expertise the agent should possess. Before choosing someone to act on the principal’s behalf, the principal should be certain that person has the knowledge, experience and virtue to act only in the principal’s best interest.

Protections Designed to Protect the Principal Granting a POA

1. Record-Keeping Duties of the Agent

The Texas Estates Code imposes record-keeping duties designed to protect the principal. The agent must make records of each action taken or decision made on behalf of the principal and must retain all these records until delivered to the principal, released by the principal, or discharged by a court. If the principal requests an accounting, the agent must provide it, unless the principal has relieved the agent of that duty through special instructions in the POA.

The accounting entails significant work for the agent because it must include: (1) records identifying the property belonging to the principal that has come to agent’s knowledge or possession; (2) each action taken or decision made by the agent or attorney in fact; (3) a complete account of receipts taken, disbursements given, and other actions performed as agent, including the source and nature of each; (4) a listing of all property over which the agent has exercised control that includes an adequate description of each asset and the asset's current value; (5) the cash balance on hand and the name and location of the depository at which the cash balance is kept; (6) each known liability; (7) any other information and facts known to the agent as necessary for a full and definite understanding of the exact condition of the property belonging to the principal; and (8) all documentation regarding the principal's property.

2. Fiduciary Responsibility of the Agent

The Texas Estates Code requires the person who accepts the role of an agent under a POA, first of all, to act within the limits of the authority given in the instrument. In carrying out these duties, the agent has a special responsibility to the principal called a fiduciary duty. This fiduciary obligation demands the agent avoid conflicts of interest in handling the principal’s financial affairs. The agent must always act in good faith, with the care, competence and diligence that a prudent person would exercise in managing the finances of another person rather than those of his or her own. For instance, the agent cannot engage in speculative investments with the principal’s money, even if the agent might do so with his or her own money.

The agent, as a fiduciary, must keep the principal’s money and property separate from his or her own property, using that property only for the principal’s benefit. That money and property cannot be co-mingled with the agent’s money and property.

The agent who violates a fiduciary duty may be held liable for any damages caused by the violation. The agent can be sued in civil court for the any violation and may even be subject to criminal prosecution for misapplication of the principal’s property under the Texas Penal Code.

Both Elvis Presley and Brian Wilson eventually freed themselves from the clutches of their unscrupulous agents but not before suffering substantial financial and emotional damage. Better to avoid that fate by choosing wisely the agent to handle your financial affairs when you cannot.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is in Fort Worth. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at swreed2@yahoo.com or by phone at 254.797.0211.