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My sister hired a lawyer to send me a threatening letter that I wrongfully cut her out of my mother's healthcare and I have abused my powers as a Durable Power of Attorney. My sister is claiming my mother named her a Co-Agent in my mother's healthcare (which she did not). My sister was named an Alternate at one point, but she never had access to my mother's medical and financial records.

In my state, Massachusetts, I found out there is no such position as a "Co-Agent" in healthcare. I asked her lawyer for proof that she is the Co-Agent, and did not receive a response. I did however, receive a letter that they are prepared to file some sort of protection or relief in court. What grounds can they seek a protection on? Don't these things need proof? And isn't this defaming my character?

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I agree, as DPOA, you could have and should have reported the fraudulent signing over of her house, a formal complaint. Fact is if Mom needs Medicaid within five years, they won't pay unless there is a criminal complaint against your sister and an attempt to get the money back. Let her sue for Guardianship, no Judge will award it to her after she bought the house for a dollar and sold it for a profit. Tell her you'll see her in court.
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Defamation occurs when someone makes a false statement, written or spoken, that is designed to ruin someone's reputation. It's a civil matter, not criminal, and you would have to prove that what she said has damaged your reputation.

What did the letter from the attorney say? I know it said you were abusing your powers as DPOA but what did the letter say you had to do?

They're filing for some sort of protection? Or relief? What does that mean? Is your sister trying to get guardianship over your mom?

I think you need to get an attorney.
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You don't have to let anyone in your house. See her in court.
Get the medical records that prove mom was incompetent at the time of the signing. Get the house sale records. Get all Mom's bank records. Then ask the DA and not the police, to investigate a case of elder abuse, fraud and punish the offenders. Prosecutors don't cost you a dime.
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Sorry this is happening to you.

As others have said you and your other siblings need to see this sister facing charges. She committed fraud, IDK who you're talking to with this "the police won't do much", you need to pursue this, no one in their right mind sells their home for a $1.

If you keep going until you find someone who will handle this.

Get all the paperwork you can on this, the timeline, when you were forced out of the house, and go after her.

Forget about an apology, you won't get one. And you don't have to let her in YOUR HOME, I would call the police if she shows up and won't leave. Get a restraining order against her.

You need to stop handling this like you're dealing with a rational person, you're not.

Just from reading your comments I can tell(I know because it is normal and tried this mindset with my own brother until I realized I wasn't dealing with a logical person) you're looking at this as "why is she like this?", throw that out the window, accept she is a monster and act accordingly.

Good luck.
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Oo.

Going through lawyers sounds like a very expensive way of communicating. What, actually, is your sister's beef?
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It sounds to me as though your sister is preparing to file for guardianship. Is mom competent? Does Mom have a lawyer? Your sister's lawyer is not going to answer to your questions. Call your sister, nicely, and ask her what it is that she wants, how you guys can settle this amicably. Does she want to come to doc appointments, does she want to know how mom's money is being spent? Find out. From her.
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"Tell me what you want, and let's work this out. I'll be spending mom's money on my lawyers. You'll be spending your own. Is that really what you want to do? If you want to communicate with me directly, I'd be happy to hear from you. Tell your lawyer I want no further communiques from him, and, if that's what you want? I'll see him and you in court."

Return her attorney's letters "to sender" unopened.

If you've done something wrong with your mom's money yourself? Be worried. If not, call her bluff.
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"See ya in court, Sis."
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I think you should call the police, actually. Your sister has, essentially, stolen the price of the house from your mother. Why not give them a ring and ask whom you should speak to regarding fraud? - worst case scenario, they say it's a civil matter and you're no further forward; but if you explain that your mother lacked capacity at the time of this notional house 'sale' it could all take on a different complexion.

The thing is, I hugely respect the genuine efforts you have made to preserve what's left of your mother's relationship with her other daughter; but if the objective fact is that that daughter has stolen her money… I'm just not sure you can afford to ignore it. You have POA. You are obliged to protect your mother's interests. I hope that thought isn't making you feel worse.
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Another quick question: who is included in "your family" that your mother is now living with? Were you all living in your mother's house previously?

I'm sorry that you and your mother have all this conflict. Looking after someone with dementia is hard enough without it.
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