Can you challenge transfers made under a power of attorney if you suspect the principal lacked capacity?

Short answer: Yes. Under New York law you can challenge transfers an agent made under a power of attorney (POA) if you reasonably believe the principal (for example, your grandfather) lacked the mental capacity to grant or authorize those transfers, or if the agent breached duties, used undue influence, or failed to follow the POA’s legal requirements. You should act promptly because rights and remedies can be time-sensitive.

Detailed Answer

1. What legal rules apply in New York?

New York’s statutory power-of-attorney framework governs how agents may act and the duties they owe. The General Obligations Law (Article 5-B) sets out the rules for execution, agent authority, and agent duties. See the statute for the power of attorney provisions: N.Y. Gen. Oblig. Law § 5-1501 et seq.. If a person lacks capacity and a POA was used to move assets, other state laws covering fiduciary duties, undue influence, conversion, and unjust enrichment can apply. If a person lacks capacity and is in need of a guardian, New York’s Mental Hygiene Law Article 81 describes guardianship procedures: N.Y. Mental Hygiene Law Art. 81.

2. Grounds you can use to challenge transfers

• Lack of capacity at the time the POA was signed: If the principal did not understand the nature and consequences of the POA, or could not appreciate the property or financial decisions being made, a court may find the POA invalid or limit what the agent did.
• Lack of capacity at the time of the transfers: Even with a valid POA, an agent cannot lawfully use the POA to carry out transfers when the principal no longer had the capacity to authorize the specific transaction, if the POA requires the principal’s contemporaneous assent for certain acts.
• Undue influence or fraud: If the agent coerced, deceived, or manipulated the principal into signing the POA or into authorizing particular transfers, a court may void transactions obtained through undue influence or fraud.
• Agent breach of fiduciary duties or self-dealing: Agents must act in the principal’s best interests and follow any limitations in the POA. Transfers that primarily benefit the agent or violate the agent’s duties can be overturned.
• Failure to meet formalities: If the POA or a particular transaction did not comply with required formalities (signatures, witnesses, notarization, or statutory language where required), a bank or a court may find the POA or the transfer invalid.

3. Types of legal actions and remedies

Possible routes to challenge questionable transfers include:

• Civil suits: Claims for breach of fiduciary duty, conversion, unjust enrichment, or fraud to recover money or property.
• Accounting and surcharge: Ask the court to require the agent to account for transactions and to repay improper transfers.
• Temporary relief: Emergency applications for a temporary restraining order or preliminary injunction to freeze assets or stop further transfers while the dispute is decided.
• Guardianship (MHL Article 81): If the principal lacks capacity now, a guardian can be appointed to protect the principal’s interests and pursue remedies.
• Criminal or protective reports: In cases of suspected elder financial abuse, you can report to Adult Protective Services or law enforcement; criminal charges may follow in extreme cases.

4. What evidence is important?

To have a strong challenge you will typically need:

• The POA document and any amendments.
• Bank records, canceled checks, wire transfers, and transaction histories tied to the transfers.
• Medical records or physician statements about the principal’s capacity at the time the POA was signed and at the time of the transfers.
• Witness statements (family, caretakers, attorneys, bank employees) who can describe the principal’s mental state, the circumstances of signing, or suspicious behavior by the agent.
• Correspondence, emails, or notes showing pressure, deception, or explanations the agent gave for transfers.

5. Practical steps to take right away

1. Preserve evidence: make copies of the POA, bank statements, and any communications. Do not destroy records.
2. Contact the bank or financial institution: tell them you suspect undue transactions and ask whether they can freeze or flag accounts. Banks have their own policies but can sometimes assist with holds while you seek court relief.
3. Get medical documentation: request medical records or a current assessment to establish the principal’s capacity timeline.
4. Consider emergency court action: if assets are being dissipated, an attorney can seek immediate relief such as a temporary restraining order.
5. Report to protective services if you suspect abuse: Adult Protective Services can investigate elder financial abuse.

6. Where to file and who handles these disputes

Litigation over misused POAs and disputes about transfers often occur in New York Supreme Court (civil branch) or Surrogate’s Court when estate issues are involved. Guardianship petitions under the Mental Hygiene Law are also handled through New York courts. Which court you use depends on the remedy you seek and local practice, so consult a lawyer who handles elder law, trusts and estates litigation, or civil fraud cases.

7. Timing and statute of limitations

Statutes of limitation and equitable doctrines can limit how long you have to bring claims. Some claims (like unjust enrichment or breach of fiduciary duty) have different deadlines. Because delays can make recovery harder and evidence may disappear, start the process promptly.

Helpful Hints

• Act quickly. Freeze requests and emergency motions are often essential if assets are being moved.
• Collect and preserve evidence before it disappears: copies of bank records, POA documents, medical records, and emails are crucial.
• Medical proof matters. A dated medical record or physician declaration about capacity is powerful evidence.
• Look for patterns. Repeated large transfers to the agent or sudden changes in the principal’s estate planning are red flags.
• A court may order an accounting even if it does not immediately void transfers; an accounting can reveal misuse and support further claims.
• Consider mediation or settlement if the facts allow; litigation can be slow and costly, but settlement may recover funds faster.
• Report elder financial abuse to Adult Protective Services (APS) in the county where the principal lives; APS can investigate and may coordinate with law enforcement.
• Ask an attorney about seeking a guardian under Mental Hygiene Law Article 81 if the principal currently lacks capacity and needs long-term protection: N.Y. Mental Hygiene Law Art. 81.

When to get an attorney

If you suspect incapacity or misuse of a POA, consult an attorney experienced in New York elder law, trusts and estates litigation, or civil fraud. An attorney can evaluate evidence, advise on the fastest path to freeze assets, prepare emergency motions, and identify the proper legal theories (lack of capacity, undue influence, breach of fiduciary duty, conversion, unjust enrichment).

Disclaimer: This article provides general information about New York law and does not constitute legal advice. It is not a substitute for an attorney’s review of your specific situation. Laws change and outcomes turn on facts. Talk to a licensed New York attorney as soon as possible to protect the principal’s interests.