According to the Consumer Financial Protection Bureau, a power of attorney is a document that permits another person to act on your behalf. If you can no longer make decisions for yourself, you can choose someone that you trust to make financial decisions.
A power of attorney or POA is a great tool, but because it gives your agent authority, you need to understand the risks too. POA abuse is possible.
Understanding POA abuse
POA abuse has many forms. It could come in the form of pressure from the agent or your agent could spend money on him or herself instead of on you. Your agent should act in your best interests but he or she should not do anything that you did not authorize. For instance, your agent should never change beneficiaries on your retirement plans.
Protecting against POA abuse
To protect against POA abuse, you must trust the person you choose as the agent. State all your wishes clearly, without the chance of confusion. You do not have to let your agent go unchecked. You can require your agent to report to another person when he or she makes financial transactions. Also, let others know about your POA so that they can watch out for your best interests.
Do not trust someone too eager to help you with your finances. If your agent suddenly wants to become close friends, be wary. None of your POA designations must remain permanent. If something happens where you no longer trust your agent, you can cancel your POA.
Ultimately, POAs are helpful documents worth considering. Understanding the risks, however, can prepare you in case of abuse.