Power of Attorney Abuse in Texas

Estate, Trust & Fiduciary Litigation | Langley & Banack | San Antonio, Texas

A power of attorney lets one person act on another’s behalf. In the wrong hands, it can also be used to move money and change an estate plan before a loved one dies, often without the family knowing. Below, Langley & Banack shareholders Chris Hodge and Jobe Jackson explain what a power of attorney is, how it gets abused, and what can be done about it.

On this page

• What is a power of attorney?
• What is the difference between a medical and a financial power of attorney?
• What happens when someone abuses a power of attorney?
• Can someone use a power of attorney to change who gets the money?
• Can you investigate what an agent did under a power of attorney?
• Can you undo transfers made under a power of attorney before someone died?

What is a power of attorney?

A power of attorney is a legal document that lets one person, called the agent, act on behalf of another person, called the principal. A durable power of attorney can allow the agent to make financial decisions and sell property. It can take effect immediately, or only if the principal loses capacity.

Usually, you are going to be looking at a durable power of attorney situation, which is a legal document executed by a person that allows, in certain circumstances, another person to act on their behalf. For instance, a durable power of attorney might say, I appoint my daughter as my agent, and she can make financial decisions on my behalf and sell my property on my behalf. Sometimes these are drafted so that they only go into effect when the principal, the person signing it, loses capacity. They can also be drafted so that they are effective immediately. There can also be provisions that limit the agent’s ability to make gifts of the principal’s property. It depends on the document itself.

What is the difference between a medical and a financial power of attorney?

A medical power of attorney lets the agent make medical decisions for the principal. A statutory durable power of attorney is the financial version, and Texas has broadly expanded what it can authorize, including changing beneficiary designations on accounts, creating trusts, and gifting property.

There are two different kinds. There is the medical power of attorney, which allows the agent in fact to make medical decisions. But the main one we are talking about here is the statutory durable power of attorney, which the legislature has enacted forms for. More recently, the legislature has broadly expanded the possible powers that can be granted to an agent in fact, so that the agent can change beneficiary designations on accounts, can create trusts for the principal, and can gift property. So you have got to be cautious about the nature of these documents. What do they say? What power did they confer on the agent?

What happens when someone abuses a power of attorney?

Power of attorney abuse usually means the agent uses their authority to move or dispose of the principal’s property before death, often without the principal’s knowledge. If the agent acts outside the scope of what the document allows, they have breached their duty to the principal.

This is where it can get dangerous. If you have someone exercising a power of attorney and disposing of a person’s property before their death, without that person’s knowledge, that is a problem. Generally, if someone is going to take advantage of a person and try to influence their estate plan, and they have an active power of attorney, they can get to the money and assets they are trying to reach while the person is still alive. And if the agent acted outside the scope of their authority, then they breached their duty to the principal.

Can someone use a power of attorney to change who gets the money?

Potentially, yes. If the document grants those powers, an agent may be able to change beneficiary designations on accounts or gift property, which can redirect who ends up with the money. But if the agent does this outside the scope of the document, it is a breach of their duty and may be challenged.

Because the legislature broadly expanded these powers, an agent under a statutory durable power of attorney can, if the document allows it, change beneficiary designations on accounts and gift the principal’s property. That is why the specific document matters so much. You have to be cautious about who you allow to be an agent, and about what they are doing with that authority, because those powers can be used to move assets away from where the estate plan intended them to go.

Can you investigate what an agent did under a power of attorney?

Yes. Texas law allows a broad range of people, including someone named to receive property on the principal’s death, to ask a court to review an agent’s conduct under a durable power of attorney. This can be done even before the principal has passed away.

What we typically see is that we are in a will contest, and in that process we are investigating what happened with the person’s assets before their death. You may see unusual activity, money and assets being transferred before death, and realize someone was doing it under a power of attorney. That is where you start investigating whether someone abused that power of attorney position. The legislature has updated the law to allow a broad range of people to question and investigate an agent’s conduct, and this can be done even before a loved one has passed away. The law allows a person named to receive property, a benefit, or a contractual right on the principal’s death to bring an action to review the agent’s conduct and ask a court to grant appropriate relief.

Can you undo transfers made under a power of attorney before someone died?

Often, yes. Transfers made before death can be challenged and set aside using the same grounds as a will contest, such as lack of capacity, undue influence, fraud, or mistake. This matters because winning a will contest means little if the property was already moved out of the estate.

If you win a will contest but there is no property left in the estate, you have not won anything. So you need to go back in and set aside those transfers that happened before the person’s death. Many of the same causes of action that apply to a will contest, lack of capacity, undue influence, fraud, and mistake, can play into an action to set aside these transfers. Very often the will contest and these claims go hand in hand in the same case, because if there is malfeasance with the will, you have to pay attention to what happened to the accounts too.

Related: Bank Accounts and Assets That Pass Outside the Will