A power of attorney is a legal arrangement where one person – the Principal – authorizes another person – the Agent – to “stand in their shoes” and act on their behalf. The relationship of Principal and Agent has been around a very, very long time. The best way that I’ve found to explain this with clients is to use a hypothetical example.
Pretend that I’m interested in buying a condo on the beach in North Carolina. Unfortunately, I’m just too busy to get down there for the closing right now. But, I know your heading down there for vacation. So I sign a power of attorney authorizing you to sign the closing documents for me. The power of attorney will be filed in the land record in North Carolina in front of the deed to show you had the authority to sign for me.
Let’s say that while you’re on your way, I’m in an accident that causes me to be unconscious. At that point, you can no longer act as my Agent. Because you are merely “standing in my shoes” doing what I am capable of doing, you can’t act for me if I’m not capable. An ordinary “common law” power of attorney is terminated when the Principal becomes incapacitated.
Obviously, this makes a power of attorney a poor incapacity planning tool. To create an incapacity planning tool for people, state legislatures across the country have enacted laws that allow for what are known as a “durable powers of attorney”. This is done by allowing you to add these “magic words” to the power of attorney, “this power of attorney shall not lapse upon the subsequent incapacity or disability of the Principal”.
Probably the single most important document you could have, a durable power of attorney can provide the security of knowing that in a crisis situation, a family member or a trusted friend will have the legal authority to carry out your wishes if you can no longer speak or act for yourself. Without a durable power of attorney, if something happens to you that results in your incapacity or inability to make decisions, your family may face costly and time consuming court proceedings and even ongoing court supervision.
Who you select as the person to be your durable power of attorney requires careful consideration. The person selected not only has authority to act when you become incapacitated, but also immediately upon the execution of the document as well. And, they can essentially do anything that you could do yourself.
Many people ask if they need a lawyer to draft the durable power of attorney for them. The easy answer is “no”. The better answer is “it depends”. The most important consideration is the complexity someone’s financial affairs.
Many clients come to my office with “power of attorney forms” purchased at an office supply store or downloaded off the Internet. Those “statutory short forms” may be fine to transfer real estate or apply for Medicaid. But, many financial institutions are afraid of liability unless the Agent has specific authority to take certain actions for the Principal.
Let me share with you a couple of examples that might surprise you.
Helen came into my office to talk about applying for Medicaid for her mother, Eleanor. Eleanor was in a nursing home under private pay. Eleanor was now incapacitated, but Helen had her sign a “statutory short form durable power of attorney” that she found online some time ago.
Helen knew her mother was nearly out of money and had to make a Medicaid application. When we submitted the application, the Medicaid eligibility worker wanted bank statements going back three years. Helen went to the bank where her mother had one active account and two accounts that were closed a year ago.
The bank manager told Helen he could give her the statements for the open account, but her power of attorney did not authorize her to get the statements from the closed accounts. We ended up having to go to probate court for a conservatorship over Eleanor to access the closed accounts
Let me give you another example.
John bought a “statutory short form durable power of attorney” at Staple’s where he named his son, Tom, as power of attorney. John had an IRA that named his wife, Ann, as the beneficiary when he died. Sadly, Ann was living in a nursing home incapacitated with Alzheimer’s.
John had always told Tom that he wanted his IRA to pass to his five grandchildren if he should die. But, John never changed the beneficiary designation on his IRA. Before he could make the changes, John suffered a severe stroke and became incapacitated himself.
Tom contacted the IRA plan administrator about using his power of attorney to change the beneficiary designations. The administrator refused to accept the power of attorney because Tom did not have specific authority to change IRA beneficiaries. When John later passed away because of medical complications from his stroke, all of his IRA went to Ann and she lost Medicaid because she was over assets.
Now you can see what I mean by “it depends”. Unfortunately, these situations are not unique. Many people feel their power of attorney allows their agent to do anything and everything. Bottom line: the advice and counsel of an experienced elder law attorney should be sought to properly draft a power of attorney.
By: Mark Connell
Posts Tagged ‘Incapacity’
Durable Power of Attorney – "Scope of the Agency"
December 19th, 2009
A durable power of attorney is given by a person to another person to act in their place given a specific set of circumstances or activating condition. If you must have a real-estate deal go through on time and you are concerned that you may not be in the area, you could give another person power to close the deal in your absence. The person who gets the power is called the agent, which is a term not unfamiliar to those who do business, and the person who gives it is called the principle. The problem is that in a normal principle/agent relationship, the agent’s power ends when the principle becomes incapacitated. This is because the principle is responsible for the agent’s actions and normally wants to reserve the right to stop the agent from doing outrageous things with their assets while they are unconscious.
However, the rise of medical technologies that can cause a person to be unconscious for extended periods of time have caused many principles to want to have agents who can act in their place while they are alive and unconscious. So, many states have created the durable power of attorney to overcome this problem. The agent’s power survives incapacity if it is “durable” and is terminated by recovery or death.
A durable power of attorney is created immediately or upon some event that causes it to become effective. Usually, the durable power of attorney becomes effective when the principle becomes incapacitated.
The power that exists in any principle/agent relationship is what is referred to in law as the “scope of the agency.” The scope of the agency defines what powers the agent has or, in other words, what decisions the principle is turning over to them. Can the agent sell the principle’s property (as in the first example), withdraw money from the principle’s accounts or pay the principle’s bills? Because many principle/agent relationships are revocable by the principle, sometimes banks will not loan money to the principle at the agent’s request, because they are worried that the principle will wake up and say that the power was never intended. So, if you want your agent to have a durable power of any kind, it is important to be specific about that power or what is again called the scope of the agency.
However, the more power the agent is given, the more like a trustee they seem to be. So there is a Goldie Locks problem of giving the durable power of agency enough express power to do what needs to be done, without giving them too much power of attorney. But, the primary reason for the creation of a durable power of attorney is to give the agent the power to make health care decisions. For many other kinds of decisions a trust is the better instrument, but again it is important to stress that you have options when you plan your estate.
Typically, the agent with the durable power of attorney is created to be able to be an advocate for the decisions that the principle has already made in the form of the advanced directive or the living will. It is vital that the person you choose to have your durable power of attorney must be someone who you feel will be able to honor your wishes about very serious matters of life and death. Moreover, it might be better to have several people who are able to do this because the hardship of following through on some of the more life and death aspects of a living will make it easier to have a group of people do it, because they will be able to give each other support.
By: Ronald Hudkins