Why Regular Reporting by the Agent Under a Power of Attorney Is the Best Practice

*By: Anthony J. Enea, Esq.

At least three to four times per month I receive a phone call from a client who is distraught and angered about the behavior of a sibling or family member toward their mom or dad. The caller’s primary complaint is that their family member has a Power of Attorney (POA) from their parent and is not keeping them informed as to what they are doing with the parent’s finances and/or they believe the family member is taking advantage of their parent financially and misappropriating the parent’s assets for their own personal use.

The allegations are often serious, however, whether or not they are true is another matter. While it may be valuable for an agent under a POA to keep immediate family members informed as to what financial actions they are undertaking, Section 5-1505 of the New York General Obligations Law (GOL) enumerates the individuals and/or entities entitled to receive said information and records. For example, the agent only has a fiduciary relationship with the principal under the POA, an acting co-agent or successor agent under the POA, or a Court Evaluator or Guardian Ad Litem appointed by a Court for the principal. A government entity or official investigating a report that the principal may be in need of protective services resulting from alleged fraud, abuse or neglect is also entitled to such information and records, as is the personal representative of a deceased principal’s estate (executor/trustee), who may receive the principal’s bank records and information regarding the agent’s actions taken pursuant to the POA.

In addition to making the financial records of the principal and an accounting of the agent’s actions available to the above-stated individuals or entities within 15 days of a demand, under Section 5-1505 of the GOL, the agent has the obligation to act in accordance with any instructions from the principal and, where there are no instructions, in the best interest of the principal. Thus, the principal can request that the agent provide the information and records to the principal’s children and other family members. Additionally, the agent must at all times keep their personal finances separate and apart from those of the principal. The agent must not comingle the principal’s finances with the agent’s own personal finances. It is advisable that the agent keep records of all bank and investment accounts of the principal and a spreadsheet showing all transactions (bills paid, checks issued, deposits and withdrawals made, as well as all credit card charges and payments) so as to document all of their actions as agent. If the principal has investment accounts in addition to real property, the agent’s retention of a financial advisor, as well as a CPA and attorney, should be strongly considered provided that it is permitted by the POA. Acting under the advice and counsel of a professional can be invaluable.

Furthermore, it should be noted that authorizations given to the agent to make gifts of the principal’s assets and income to such agent and others must be specifically stated in the POA. The agent may not make gifts of the principal’s assets to themself or others without express authorization in the POA. To this end, the gifting of assets must also be in the best interest of the principal.

Although the agent is not required to provide an accounting to all who ask, their failure to do so often results in the principal’s children or other family members with concerns taking steps such as seeking the appointment of a Guardian for the principal under Article 81 of the New York Mental Hygiene Law (MHL). In this proceeding, the Court has the authority to appoint a Court Evaluator to review the financial records of the alleged incapacitated person (AIP) to determine whether or not the agent has betrayed their fiduciary duty to the principal and engaged in any behavior that calls for their removal as agent under the POA. Because an Article 81 Guardianship is a special proceeding, it is an expedited proceeding wherein the hearing for the appointment of a Guardian is to be scheduled within 28 days of the Court signing the Order to Show Cause.

The failure of the agent to make the records available to an individual or entity entitled to receive them can also result in the commencement of a special proceeding against such agent pursuant to Section 5-1510 of the GOL–for example, if the agent has failed to make available a copy of the POA and records of all receipts, disbursements and transactions to those authorized to make the request under Section 5-1505 of the GOL. A proceeding in accordance with Section 5-1510 of the GOL can delve into the validity of the POA, the capacity of the principal at the time the POA was executed, and whether the POA is the product of undue influence, duress or fraud. The agent can be forced to account. The Court can review the accounting and any objections thereto, and determine whether it should be approved. The Court can also remove the agent. Unfortunately, this proceeding does not address whom is to be appointed as agent under the POA if the acting agent is removed, no successor agent is named in the POA, and the principal lacks capacity to appoint another agent. In my opinion, a proceeding under Section 5-1510 of the GOL fails to meet the comprehensive needs of an incapacitated principal as does the commencement of an Article 81 Guardianship proceeding.

In conclusion, if the agent has been acting in accordance with their fiduciary duties they would be well served by regularly keeping the principal’s family informed of their doings. It is not worth the ramifications of family members becoming suspicious about the agent’s activities, which can result in possible litigation against the agent and potentially the agent’s removal as agent under the POA.

* Anthony J. Enea is the managing attorney of Enea, Scanlan and Sirignano, LLP of White Plains, New York. He focuses his practice on Wills, Trusts, Estates and Elder Law.  Anthony is the Past Chair of the Elder Law and Special Needs Section of the New York State Bar Association (NYSBA), and is the past Chair of the 50+ Section of the NYSBA.  He is a Past President and Founding member of the New York Chapter of the National Academy of Elder Law Attorneys (NAELA).  Anthony is also the Immediate Past President of the Westchester County Bar Foundation and a Past President of the Westchester County Bar Association.  He can be reached at (914) 948-1500 or at www.esslawfirm.com