Power of attorney can be valuable and dangerous tool

— -- You love your kids. You would lay down your life for them. But would you give them unfettered access to your bank account, your retirement savings, even your home?

That's essentially what happens when you give an adult child — or anyone else — durable power of attorney for finances. The power-of-attorney document is a powerful estate-planning tool that can be used to protect your interests if you become incapacitated.

But in the hands of someone who is dishonest or desperate, it can also create a powerful incentive to steal, advocates for the elderly say.

AARP is urging states to adopt legislation that would make individuals who abuse power of attorney liable for damages.

The legislation would also require that a power-of-attorney document state the agent's duties, including the individual's responsibility to act in good faith.

Two states — New Mexico and Idaho — have adopted the law, and 12 are considering adopting it in 2009. But you don't have to wait for your state to adopt tougher safeguards to protect yourself. Some tips:

• Understand what you're giving away. In most cases, power of attorney gives the person you designate — known as your agent — broad control of your finances. For example, an agent may have the power to write checks against your bank account, buy and sell securities on your behalf, and collect your Social Security payments.

"What I tell my clients is, it's like a second set of keys to the car," says Stephen J. Silverberg, president-elect of the National Academy of Elder Law Attorneys.

You can draft a power-of-attorney document to exclude certain accounts, or even certain powers, but that could limit your agent's ability to act in your best interests, says Lori Stiegel, associate staff director for the American Bar Association's Commission on Law and Aging.

"We caution people against tying the hands of their agent," says Shae Irving, co-author of Quicken WillMaker Plus estate-planning software. "You can never anticipate all of the things that may come up."