THERE GO THE DANCING DOGS!

MISTAKE # 7

Placing too much trust in your delegated financial decision maker

WE’LL ILLUSTRATE THE MISTAKE covered in this chapter with a shocking but true story, one that was well publicized by the media. Brooke Astor, the wealthy New York socialite who died at the age of 105 in 2007, loved her drawing, Dancing Dogs with Musicians and Bystanders, a $500,000 piece of art she proudly displayed in her apartment for many years. That is, until the Dancing Dogs scampered out the door under the arm of her son and financial caregiver, Anthony Marshall, who apparently decided that he liked dancing dogs too.

The theft of Mrs. Astor’s Dancing Dogs was one of fourteen charges of which Anthony Marshall was convicted in December 2009. Marshall stole other art, racked up huge personal expenses that he paid from Mrs. Astor’s accounts, and conspired with a lawyer to amend Mrs. Astor’s will to leave more of her estate to himself and receive a higher executor fee.

Now that an appeal is under way and Mr. Marshall is an elderly man, he may never serve the prison sentence of one to three years. But the five-month trial, with witnesses for the prosecution including Louis Auchincloss, Henry Kissinger and Barbara Walters, raised the shroud from the ugly secret of elder abuse, including the abuse of delegated financial management.

Tempting as it is to think that the “grand theft Astor,” as one prosecutor referred to it, doesn’t happen in Canada or in families of modest means, the abuse of powers of attorney is a growing topic of concern among a number of people from professions that serve the elderly: social workers, health care providers, lawyers, bankers. When some Canadians are at their most vulnerable, those closest to them are abusing their trust in a variety of ways.

Sometimes the people abusing their appointment under a power of attorney convince themselves that what they are doing is “what Dad would have wanted.” For example, they may say, “Dad would have wanted us to have our mortgage paid off by now.” Such situations are still abusive: as long as Dad is alive, the money can only be used for his benefit. Other situations are simply out and out fraudulent, where a caregiver, related to the incompetent person or not, freely takes the money or property because he or she can.

In 2003, the Alberta Law Reform Institute in Edmonton, Alberta, published a report called Enduring Powers of Attorney: Safeguards Against Abuse. Alberta lawyers were surveyed for their anecdotal observations of financial abuses of enduring powers of attorney (the terminology used in that province). They provided a laundry list, which is set out below. It seems eerily like the activities in the Astor case. In reviewing the list below, keep in mind that the term donor means the person who appointed the financial agent and the term attorney refers to that agent and not to a lawyer.

Alberta lawyers listed these abuses by attorneys under enduring powers of attorney:

• Use of donor’s money by attorney for any purpose at all other than the benefit of the donor

• Transfer of donor’s money or property to attorney

• Borrowing money on donor’s property for attorney

• Prevention of spending of donor’s money on donor’s maintenance

• Attempting to purchase donor’s land below market value

• Family agreement to distribute donor’s property while donor was still alive

• Failure to make payments to nursing homes for the maintenance of donor

• Failure to provide money for necessities and comforts

Rather than just wring our hands at the inappropriate use of powers of attorney, you can consider including some safeguards in your advance planning to minimize the chance of this happening to you. There is, however, no magic bullet. As the Law Reform Institute paper pointed out, the option of having a supervisory arm of the government to oversee the proper management of each and every power of attorney would be both costly to the taxpayer and highly onerous on the majority of people looking after someone else’s affairs in a prudent, honest and ethical manner.

safeguards to consider . . .

1. The Right Person

The best safeguard of all is perhaps the simplest—naming the right person to act on your behalf, or naming two people who you believe will work well together. The principle of “hire well and everything else will fall into place” is one that is followed by successful business people and it fits here too, when talking about choosing a person to look after your affairs if you cannot.

A “doer” who will attend to the management of your money and property with diligence and intelligence, is hard-working, discreet and able to keep your affairs confidential, and is absolutely trustworthy is hallmarks of the person you want. Don’t know anybody like that? Consider naming a couple of people to act together, or appointing a trust company (particularly if it is named as one or the sole executor in your will) to either act on its own or with a person from your family or close circle.

2. Clarity In The Document

The law is crystal clear that if Jake is looking after Sally’s property, he can only use such property for the sole benefit of Sally, in the absence of stated advance directions from her.

But a common misuse of funds occurs when the attorney under a power of attorney starts to hand out generous gifts and payments from the funds on the pretence that such gifts would have been “what Sally wanted,” as we mentioned above. It doesn’t matter if the payment or gift is or is not what Sally would have wanted—that becomes irrelevant if and when she becomes incompetent. Upon Sally becoming unable to look after her own affairs, her property can be used only for her care unless she prepared a valid enduring power of attorney allowing specific gifts or payments to be made.

In Mistake #5 we discussed thinking carefully about people who may be affected financially if you become incompetent, for example, siblings whom you are assisting financially even though they are adults. To ensure they continue to be looked after, we said in Mistake #5 that you need to state this. Now, note, however, that another reason for being so clear is that it emphasizes to everyone involved that payments other than those provided for are not to be made.

3. A Requirement Of Transparency

Lawyers and governments in various parts of the world have looked at the problem of the abusive use of powers of attorney. One idea that comes up often is to have a person named to be on the sideline, supervising what the substitute decision maker is doing.

The province you live in may have included some aspect of this idea in its legislation, but even if you live in a province where the “monitor” idea is not found in the relevant statute, you could provide in your document that you want your nephew, Bob, to review annually the accounting prepared by your daughter, Carol, who is your named decision maker if you ever become unable to manage your own financial affairs.

Whether your provincial legislation provides a mechanism like this is less important than whether the people named in your document will co-operate. We have laws telling us not to drink and drive, but some people do. Restraining orders can be issued preventing people from being in certain places, but some people under restraining orders will go to those places anyway. You get the idea: while setting up a process for a second review in your power of attorney is something to think about, you also need to be realistic about whether it will work.

The Alberta Law Reform Institute’s paper, after discussing several ideas for preventing fraud such as the idea of a supervisory role, puts it this way:

[Such] requirements would not prevent a dishonest attorney from looting the donor’s property and making off with the proceeds. That is something that no legal safeguards that did not involve state administration could do. They would, however, put an attorney on notice that their activities could be scrutinized at any time.

In other words, often just the awareness that someone may be watching, asking questions, even just thinking about what you are doing, may be enough to prevent a substitute decision maker from acting on an idea about an inappropriate use of the money he or she has been asked to safeguard.

4. Advance Communication

Somewhat tied to the discussion above is the suggestion to communicate what you have done to the people directly involved in your power of attorney (the people you have named to act) as well as others who may be affected by your incompetency.

If you are young and healthy, these conversations can be matter of fact and brief. If you are getting on in years and slowing down a little, you perhaps want to spend more time talking to your loved ones about how you see things unfolding, from a financial perspective, as you get older and may be not able to handle things.

Some families seem to operate at two levels: what is said out in the open around the dinner table and then what is said among the adult children and grandchildren, or perhaps among different “factions” of the younger generations. Starting early in your middle years to let your children know that your estate planning is important to you and what you have done will mean that the subject is not taboo and an inappropriate handling of your affairs may be less likely to occur.

points to take away

• The fraudulent use of a vulnerable person’s money is found in every echelon of society.

• There is no governmental watchdog in any part of the world that can effectively protect against such fraud.

• Safeguards to prevent your money being used in an inappropriate or even fraudulent manner include:

• spending time thinking about your choice of substitute decision maker for financial matters;

• perhaps having more than one person named to act together in the role, working together;

• naming someone to assume an oversight role; and

• communicating early and often among your close circle of friends and family about your plans and intentions.