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."

• Choose your agent carefully. Don't let close relationships cloud your judgment. The majority of crimes involving power of attorney are perpetuated by family members, close friends or caregivers, says Ricker Hamilton, program administrator for the Maine office of Adult Protective Service.

Even when abuses are discovered, AARP says, most victims lack the resources to pursue civil action against the agent.

"Only appoint someone as your agent if you can thoroughly trust them, and make sure they know what your wishes are," says Naomi Karp, strategic policy adviser for AARP Public Policy Institute.

• Once you've selected an agent, consider establishing some kind of oversight. For example, you could instruct your agent to periodically report on your finances to a third party, such as an attorney.

A reporting plan "doesn't mean you're showing distrust," Karp says. "You're just saying, 'This is a hard job, and we want you to keep good records and share them with someone else.' "

Karp also recommends sharing information about your power-of-attorney arrangements with other family members and professionals you deal with, such as your financial adviser. "That puts other people in a position to be vigilant for misconduct," she says.

• onsider getting legal advice. You can arrange for power of attorney without a lawyer, but if your finances are complex, you should probably consult with one. Consult with your own attorney — not one representing the person who will have your power of attorney, Hamilton says. An attorney representing your agent may not have your best interests in mind, he says.

• Understand that your power-of-attorney document can be changed. The document "is not written in stone," Karp says. "If you decide later that your agent isn't the best person to act for you, you can revoke the power of attorney, as long as you're mentally capable of understanding the transaction."

In the majority of cases, Irving says, power of attorney works the way it's supposed to. Doing without a power of attorney creates its own risks, she says.

If you become incapacitated, your family will probably have to go to court to get authority to manage your affairs, she says. The process is time-consuming and expensive, and the person the court assigns to handle your finances may not be your first choice, Irving says.

By giving someone power of attorney, she says, "You're the one who is deciding who is going to represent you."

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.