A power of attorney is a basic estate planning tool, allowing someone to make financial decisions on your behalf if you're no longer able to do so.
But in the hands of the wrong person, it can turn into what advocates for seniors call a "license to steal."
The power of attorney gives your "agent," the person acting on your behalf, broad authority over your finances with little or no monitoring, according to AARP, the advocacy group for those 50 and older.
Theft often starts out when the agent "borrows" money from your account, intending to repay it later, lawyers say. But when he's not caught, he continues to dip into the assets until little or none is left in the estate.
Or, sometimes an agent uses money set aside for your nursing home care to pay her own bills.
How often this happens is unknown. But there's growing anecdotal evidence from lawyers, protective services and law enforcement that relatives and others are abusing the power of attorney to deplete the savings of the elderly, AARP says.
"It is not uncommon, but it is also quiet," says Michael W. Davis, an elder-law attorney in Columbia. "Most of it is unreported."
Even when family members discover that an estate was raided by the agent, they often do nothing because the agent is a relative, he says.
This doesn't mean you shouldn't set up a power of attorney. In fact, the need for this tool will only grow as we live longer and need to rely on someone to help manage our finances. But greater protections are needed, particularly in Maryland.
State law regulates powers of attorney, and protections can range widely depending on where you live. In Maryland if you suspect that power of attorney has been abused, your options are generally limited to contacting adult protective services or filing an expensive lawsuit, Davis says.
AARP is urging states to adopt the Uniform Power of Attorney Act that increases protections.
This model law spells out the obligations of the agent. It also prevents agents from making moves that would deplete an estate, such as changing the beneficiary on an insurance policy, unless you explicitly authorize it, says Naomi Karp, a strategic policy adviser for AARP Public Policy Institute.
Additionally, the law allows banks, brokers and other third parties to refuse to accept the power of attorney if they suspect something fishy is going on, such as a strange pattern of withdrawals or the agent cashing in all your stock, Karp says. And agents will have to repay any money they wrongfully pocketed, she says.
In a study late last year, AARP compared the 21 protections under the model law against current state laws. Many states offered only a few similar safeguards. Maryland didn't have any of them.
Maryland's General Assembly is taking up legislation this year to beef up power-of-attorney protections. Such efforts have failed in the past, though.
If you are setting up a power of attorney, take steps to protect yourself. The best way is to choose your agent carefully.
"People focus on the will and who will be in their will. It's probably more important who you choose to be your power of attorney while you are alive," said Karren Pope-Onwukwe, chairwoman of the elder-law section of Maryland State Bar Association.
Parents often choose the eldest child, but that isn't necessarily the best choice if that adult child has a drug problem or is going through an expensive divorce, Davis says. The temptation to dip into your assets may be irresistible, he says.
"You need to pick a person you know well and trust," and who knows your wishes and preferences, Karp says.
Bank trust departments can also serve as an agent, although they are better at paying bills than knowing your wishes, Davis says.
As part of your document, Karp says, you can put a provision in the power-of-attorney document that requires your agent to share your financial records with a third party, such as another family member, a friend or lawyer.
"It doesn't mean you do not trust your agent. This is a heavy responsibility and complicated. It's a good idea to share your records," Karp says.
Also, once someone agrees to be your agent, make sure he or she knows what's expected. AARP found that in some cases of financial abuse, agents didn't understand their role.
Being an agent can be time-consuming and complicated. Pope-Onwukwe suggests you can set up the document to provide compensation for the agent.
Again, this is one of the most important financial decisions you'll make. Choose wisely.