Bar News - September 8, 2006
Probate Law: Power of Attorney Accountability Thwarts ‘License to Steal’
By: Ralph F. Holmes
While presenting seminars, I sometimes refer to the durable power
of attorney as a “license to steal.” Although made part in jest, the comment can be all too true. Millions of elderly impaired Americans have delegated control over their finances by granting a power of attorney to a family member, usually a child. While in most instances, the child acts responsibly, the control over the parent’s wealth can trigger a temptation to steal. Typically, the child has no accountability to anyone other than the parent who may be too impaired or timid to monitor the child’s management of the finances. If the parent is incapacitated by dementia or some other disability, the child commonly answers only to his or her sense of honesty, which, if not high, can lead to embezzlement and theft. All too often, the rest of the family discovers the misappropriation when the parent dies and they learn that the estate, which should have been substantial, is paltry.
Ralph F. Holmes
RSA 506:7 permits the family to compel an accounting from the attorney-in-fact and is the most important remedy for power of attorney abuse under New Hampshire law. Accounting claims under the statute are the most common actions I file in my probate court practice. In some cases, the attorney-in-fact has misappropriated millions of dollars.
The remedy under RSA 506:7 is broad and flexible. Actions can be brought in superior or probate court. My bias is to bring them in probate court because that court rules on fiduciary obligation issues every day. Actions may be brought by: the principal; the agent; a spouse, child, or parent of the principal; the principal’s heirs; any person named in the principal’s will; a treating health care provider; the state Dept. of Health and Human Services; or anyone who demonstrates an interest in the welfare of the principal and lack of capacity of the principal to bring the action (RSA 506:7, I-II). Not surprisingly, actions are most commonly brought by a child of the principal to compel an accounting from a sibling.
Actions may be brought to determine whether a power of attorney continues in effect or should be terminated; to determine the legality of acts taken or proposed; and to compel an accounting (RSA 506:7, III). The same part of the statute requires that a written demand for an accounting be made 60 days before filing the petition; the time period can be reduced for “good cause.”
The court has broad powers in fashioning a remedy. The court “may . . . make orders and decrees, and take other actions that are necessary and proper in making determinations on matters presented . . . .” (RSA 506:7, IV.) Reasonable attorneys’ fees may be awarded “if the court determines that the agent has clearly violated his fiduciary duties . . . or has failed without reasonable cause or justification to submit accounts or reports after written request.” (RSA 506:7, V.)
A peculiar aspect of the statute is its requirement that hearings, “[u]nless good cause is shown, . . . shall be closed to the general public.” (RSA 506:7, VI.) The provision is of doubtful constitutionality because it reverses the First Amendment presumption “strongly in favor of open judicial proceedings.” (Keene Publishing Corp. v. Keene District Court, 117 N.H. 959, 962 .) Because hearings in these and other cases generally are attended only by those involved, this issue generally is of just academic interest. Only once in my practice did exclusion of the public become a dispute.
Power of attorney abuse cases often involve financial exploitation of the elderly. Counsel must be mindful of the strict obligation under RSA 161-F:46 to report to the Bureau of Elderly and Adult Services suspected elder abuse and neglect. In my experience, the Bureau takes such referrals seriously.
Durable powers of attorney are widely used for estate and financial planning. The instruments most often appoint as agent a child of the principal and provide for no oversight by anyone other than the parent. When the parent becomes incapacitated by dementia or other frailties of old age, the child may fail to resist the temptations of self-enrichment. RSA 506:7 offers a powerful and flexible remedy for family members and others with an interest in the parent’s welfare to compel the child to account for and redress any abuse of his or her authority.
Ralph F. Holmes is a partner at the McLane Law Firm. He handles medical malpractice, probate, and commercial litigation, and can be reached at email@example.com or 603-628-1409.