January 14, 2009 (Original publish date) • By Dennis Beaver
“My daughter wants me to sign a general power of attorney for a house we are buying together back east,” Maggie, a reader in Stratford, explained in an e-mail. “It will be in both of our names and I am sending her the money.”
She tells me that a power of attorney — from me to her — is required for this transaction to go through. A friend reads your column religiously and told me to ask you for some advice. Should I sign a power of attorney or is there any other way the home can be purchased?”
A power of attorney is potentially one of the most dangerous documents you could ever sign. After receiving Maggie’s e-mail, I called her. It was immediately clear from the sound of her voice that I was speaking with a poorly educated, elderly woman with little or no understanding of what this legal instrument can do. The longer we spoke, the more concerned I was about this being a classic case of financial elder abuse — by a daughter Maggie admitted hung out with “the wrong crowd.”
A written legal document in which you name a person — or institution, such as a bank — to act on your behalf — that’s a power of attorney. When you’re out of town and unable to handle your financial affairs, a POA is a useful legal instrument — if it’s given to the right person. Whoever has your power of attorney becomes you in a legal sense. The holder of that POA is your agent, referred to as your “attorney in fact.” (Not to be confused with an attorney at law.)
There are different types of powers of attorney, but the ones which would apply to Maggie’s situation are referred to as general or special. The differences are important to understand, and here’s is a brief description of how they work.
By giving someone your general power of attorney, you are allowing that person to act for you — as your agent — in any way that you could do yourself if you were present. He or she steps into your shoes and can make decisions which are legally binding.
This includes, paying your bills, borrowing money in your name, accessing your bank accounts, going into your safe deposit box, buying and selling real property, purchasing life insurance, settling claims, entering into contracts, filing tax returns, obtaining personal health or employment information, selling your house, car, first born, and on it goes.
There is an old saying about the general power of attorney; “If you do not trust the person receiving that POA 10,000 percent, do not sign the document.” In my law practice, I have seen far too many examples of financial train wrecks caused by giving a general POA to the wrong person.
Let’s assume that some kind of POA is necessary, as you’ll be away for a while and a friend or family member has agreed to handle your financial affairs during that time. If we’re talking about making your house payments and related obligations, then a “special” POA is probably all that you need.
The “special” part of this type of POA is the language used to narrow the scope of what can be done with it. For example, in my reader’s case, it would be titled special power of attorney, and would then describe its purpose — buying a home to be in her name and that of her daughter.
This is not to say that Maggie needs to give her daughter a POA in the first place. In most states, she could simply sign those purchase documents in front of a notary, in her own hometown. Generally, as long as the documents are notarized according to state law where signed, they should be acceptable in another state.
Therefore, if at all possible, you want the notary to also comply with state law where the house is located. This can be tricky, which brings us right back to the special power of attorney, as the notary issue would be completely avoided.
What bothered me about Maggie’s situation was her daughter’s insistence on a general POA, combined with the fact that all the money is coming from Momma.
Red flags were fluttering in the wind, the longer we spoke. “Is there a real estate broker involved? An attorney in that state? An escrow agency?” I asked.
“I don’t know about those things, all I want is to buy that house for us, and you’re making this seem very complicated, and it seems that you don’t trust my daughter, Mr. Beaver,” she quietly commented.
“You’re absolutely right,” I replied. “Maggie, all of this scares me. Perhaps your daughter doesn’t really know what is necessary for the deal to go through, or she could have theft of your money on her mind. Yes, that sounds harsh, but what she wants puts your money at risk, with no assurance of getting it returned if the transaction does not go through. There is no guarantee your name would wind up on the deed. You should consider finding an attorney in that town and pay for legal supervision of the entire matter,” I told her, forcefully, hoping to get her attention.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.