You already know how important it is to choose a trusted advisor for proper estate planning. But another critical part of the process is selecting an individual, such as a family member or friend, who abides by your wishes completely to ensure your future and that of your loved ones.
Sadly, in our vast experience as estate planning attorneys, we’ve encountered numerous circumstances where a loved one—usually an individual’s child—has been entrusted with power of attorney duties to care for someone but instead depleted the probate estate through transfers to themselves. This seems to frequently happen to people who are physically incapacitated and unable to defend their rights. What does the law have to say in such situations?
What Constitutes Fraud in Depletion of Accounts
When power of attorney (POA) is created, there are two parties:
- The grantor, who’s appointing another individual to oversee financial decisions
- The agent, who’s the individual with the power to execute those decisions
Generally speaking, a rebuttable presumption of fraud arises when an agent takes transfers for themselves from the grantor’s assets while standing in a confidential relationship with them. To a degree, this protects the estate from deprivations by third parties upon whom the grantor relied at the end of their life.
In Kentucky, a POA must specifically state that the agent can gift assets to themselves or whether this action isn’t allowed and thus, makes it illegal to do so. Even when the POA allows an agent to gift to themselves, fraud can still be committed if the agent takes advantage of an incapacitated grantor’s assets while they’re still alive, or depletes the estate upon the grantor’s death.
Protect Your Estate for the Future
When drafting your power of attorney, your estate planning legal team can help you consider the pros and cons of allowing your designated agent to make gifts to themselves. In some cases, it might be necessary for an agent to have access to a certain amount of funds to easily handle your expenses. But you still have to evaluate your potential agent's level of competency. Individuals with a history of financial mismanagement, for example, might not have your best interests at heart.
You should feel free to express your concerns with your estate planning attorney so they can suggest other potential solutions, such as choosing a bank agent that accepts the terms of your POA, or another viable avenue.