Did you know that a survey cited by the AARP found that just 40% of U.S. adults have basic estate planning documents? Every adult in Massachusetts should have a comprehensive estate plan that is properly tailored to their needs. It may include documents such as a will, a trust, health directives, and a power of attorney (POA).
Many people have questions about how exactly a power of attorney works. You may be wondering: Can a Power of Attorney Transfer Money to Themselves? The answer is generally ‘no’—the POA holder must act in the best interest of the principal. and our state has laws that prohibit improper self dealing. In this article, our Massachusetts estate planning lawyer provides a more detailed explanation of what you should know about POA and self transfers.
What is the Power of Attorney (POA)?
As described by the American Bar Association (ABA), power of attorney is a legal document that “gives one or more persons the power to act on your behalf as your agent.” Depending on the language and structure of the document, power of attorney can be used to give another person the authority to handle your financial affairs, legal affairs, health care decisions, or any combination of them. A POA is generally regarded as a core part of a comprehensive estate plan.
Understanding the Relationship Between the Principal and the Agent
There are some terms you need to know to understand how power of attorney works in Massachusetts. Specifically, you should understand the relationship between the principal and the agent. In this context, the principal is a term for the person who has given their POA to another party. The agent is the person who received the power of attorney from the principal.
Imagine that a man in his late 70’s wants to give his power of attorney to his adult son for help with certain financial affairs. In this situation, the elderly father would be the principal and his adult son would be the agent. Under Massachusetts POA laws, the agent has certain legal responsibilities to protect the interests of the principal.
An Overview of the Different Types of POAs in Massachusetts
Not all POAs are created equal. Quite the contrary, there are actually several different types of powers of attorney in Massachusetts. In determining what the agent is authorized to do—including if, where, when, and to whom they can transfer money—it is important to understand what type of power of attorney they hold. Here are four common types of POA in our state:
- General Power of Attorney (POA): General POA is a broad but basic type of power of attorney. It provides full authority to the agent and can take immediate effect. However, it does not last through the incapacity of the principal. It can be useful in some circumstances, but is not always the best estate planning tool.
- Durable Power of Attorney (POA): A durable POA is still valid even if the principal becomes incapacitated. Under Massachusetts law (Section 5-501), durable power of attorney is specially designed for this situation. It can be an effective estate planning tool because it can still be used on behalf of a principal who can no longer manage their own affairs.
- Limited Power of Attorney (POA): A limited POA, as the name suggests, is restricted in its scope. The limits will depend largely on the terms and conditions within the power of attorney documents. In some cases, limited POA is limited in its actual power. In other cases, it is limited in its duration. It could also be a combination of both types of limits.
- Springing Power of Attorney (POA): A springing power of attorney is a type of POA that only takes effect when a specific condition is met. Most often, the condition is the incapacity of the principal. With a springing POA, the agent does not have any power of act until the condition in question has occurred.
If you are considering setting up a POA for the first time, it is important that you select the proper type of power of attorney for your specific situation. If you believe that you currently have the wrong POA in place, an experienced lawyer can help you update your estate plan.
Are There Limits on a POA’s Ability to Make Asset Transfers?
Yes. A person who has power of attorney has discretion to carry out their duties. That being said, this owes certain responsibilities to the principal. Not only do they need to act in the best interest of the principal, but there are limits on what an agent can and cannot do with POA, including the transfers that they can make. Technically, the statutes in the Commonwealth do not speak directly to this matter. However, Massachusetts courts have ruled that “self-dealing” by an agent who holds power of attorney is an impermissible use of their authority.
An instructive example comes from the 1995 Massachusetts appeals court case of Gagnon v. Coombs. In the case, the Massachusetts appeals court ruled that the agent who held power of attorney “violated her fiduciary duty of loyalty”due to self-dealing conduct. The person who held POA, Ms. Coombs, effectively made a conveyance to herself. She transferred real estate held by Mr. Gagnon, who, at the time of the transaction, was incapacitated. The transaction was deemed void, revocable, and the property was recovered by the principal.
Can a POA Pay Themselves a Salary in Massachusetts?
Yes. While there are rules on self-transfers and restrictions on self-dealing, the person who holds power of attorney does have the right to pay themselves an hourly rate if that arrangement has been agreed to by all parties—including the principal. In practice, this means that the POA holder cannot simply decide to pay themselves an hourly rate. They can only get paid an hourly rate by the principal if the arrangement is strictly instructed within the actual power of attorney documents.
Can an Agent Use POA to Transfer Funds to Themselves if Directed by the Principal?
Yes—but only if they are explicitly instructed by a principal who has the legal capacity to give such an instruction. As noted previously, Massachusetts has strict laws prohibiting improper self-dealing by agents using another person’s POA. In general, they should only transfer funds or property to themselves or to an entity that they are connected with if one of following three criteria are met:
- They are paying themselves a fair market value hourly rate in accordance with the POA documents;
- They are making a transfer that is explicitly instructed by the POA document; or
- The principal still has legal capacity and told them to make the transfer.
The safest way and best practice for the handling of POA and self-transfers is to get everything in writing. Generally, the agent with POA should not be making self transfers. If they fall within one of the limited exceptions where it is allowed—required by POA documents or instructed by a competent principal—everything should be in writing.
What is an Abuse of Power of Attorney by an Agent?
Abuse of power of attorney by an agent can occur in a wide range of different circumstances. Some of the most notable examples of conduct that could constitute abuse by the agent who holds power of attorney include:
- Self Transfer or Self Dealing: Self transfers and other forms of self dealing is one of the most common forms of abuse. It happens when the agent uses their position to transfer money or property from the principal to themselves for their own benefit without the proper authorization. The agent should be doing what is best for the principal. They should not be taking advantage of the principal’s assets for themselves.
- Forgery: Forging of documents and signatures is another example of abuse by an agent. An agent should never sign the principal’s name on anything. They must use their own position as POA to handle any transactions or legal affairs. When documents are being forged by the POA holder, it is often a sign that there are deeper problems that may not have been discovered yet.
- Gross Negligence: Not all abuse of power of attorney by an agent involves actions. In some cases, it could involve inaction. Gross negligence could be grounds to get someone’s POA removed. For example, imagine that an agent has POA for an elderly person. They are supposed to ensure that mortgage payments are made. Suddenly, a notice arrives stating the lender’s intent to foreclose. An investigation reveals that the agent simply forgot to send the payments. That type of negligence is a form of abuse that requires action.
What are the Steps to Take if I Suspect Abuse by a POA?
Do you believe that someone is abusing power of attorney? Whether it is you who is the principal—meaning you granted the POA—or it is another loved one who is the principal, it is imperative that you take immediate action to address the issue. Abuse of POA is a very serious elder law matter that should always be dealt with proactively. Here are five steps to take if you believe power of attorney is being abused in Massachusetts:
- Document the Abuse: Why do you think abuse of power of attorney is occurring? You should write that down and save any information or evidence that supports your position. By carefully and thoroughly documenting the abuse, you will be in the best possible position to address the problem.
- Revoke POA (if Possible): A POA can be revoked in Massachusetts at any time—assuming that the principal has legal capacity. If it is your POA and you are mentally competent, revoke it. That will stop the abuse. If it is your loved one’s POA and they are competent, talk to them about revoking the POA.
- Try to Protect Funds: There may be options for protecting certain funds, property, and assets, from the person (agent) who is abusing their POA. This can help to stop further damage. An experienced legal professional can help you determine the proper course of action.
- Consider Reporting the Abuse to Legal Authorities: Depending on the nature of the allegations and the extent of the abuse, you may need to get legal authorities involved. It could be a case that should go to a regulator that protects senior citizens or other vulnerable people.
- Consult With a Massachusetts Estate Planning Attorney: If you suspect serious abuse of POA, you need to call a lawyer—especially if you believe that your vulnerable family member is having their POA abused by another party. A Massachusetts estate planning attorney who has experience with POA cases can help you take immediate action.
Why Rely on the Massachusetts POA Lawyers at BK Estate Planning Attorneys?
Estate planning is complicated. If you have questions about how the power of attorney works, you are far from alone. At BK Estate Planning Attorneys, we help clients navigate a wide array of issues—including questions and legal disputes over the use of POA. When you call our estate planning firm, you will have opportunity to consult with a Massachusetts POA lawyer who can:
- Conduct a comprehensive review and evaluation of your case;
- Answer questions about POA duties and explain your options;
- Investigate the matter, gathering all relevant information;
- Handle legal paperwork and offer general guidance/advice; and
- Take whatever action is needed to protect your best interests.
Call us now or connect with us online to request a confidential case review. From our law offices in Boston, Plymouth, and Gloucester, our firm is well-positioned to provide estate planning and estate administration services throughout the area.