Powers of Attorney

A principal can grant an agent the authority to do virtually anything the principal could do on his or her own. A durable power of attorney that grants broad powers to an agent is often referred to as a “general durable power of attorney.” A durable power of attorney that grants only limited or specific powers is referred to as a “special durable power of attorney.”

Unless the power of attorney is to be used immediately, the original should always be retained by the principal in a safe place. The agent should be advised that he or she has been named as an agent and should also be advised as to the location of the original. If the principal stores the original of the power of attorney in a safe-deposit box, the principal should authorize the bank to allow the agent access to it and should also give the agent a key. If the principal stores the original of the power of attorney at home, the agent should also have access to the home.

Yes. There are three different kinds in common use today: a Regular power of attorney, a durable power of attorney, and a Springing power of attorney.

Under common law, a power of attorney became effective as soon as it was signed by the principal, and it remained in effect until the principal revoked it or the principal became incompetent or died. Because a power of attorney terminated upon the principal’s incompetency, it was virtually useless as a tool to manage the affairs of the principal during incompetency. For estate planning purposes, this is precisely when a power of attorney was needed most.

Later, the law was changed to provide that a power of attorney would remain in effect after a principal became incompetent, but only if the instrument specifically said so. Today, a power of attorney that survives the incompetency of the principal is referred to as a “durable power of attorney.”

A “springing power of attorney” is a power of attorney that does not become effective as soon as it is signed by the principal. Instead, it becomes effective upon the happening of a specific future event, such as the incompetency of the principal. Many institutions have difficulty accepting a springing power of attorney because it is often difficult to determine if the specific future event has actually occurred. Incompetency, for example, often occurs over a long period of time and it is difficult to determine when someone crosses over the line.

For this reason, most professionals will provide in a springing power of attorney that a physician must certify that the principal is incompetent in order for the power of attorney to “spring” into effect. A power of attorney that is neither a durable power of attorney nor a springing power of attorney is called a regular power of attorney. Some will call it a “non-durable power of attorney.”

When should a Durable POA be used? For the most part, a durable power of attorney is intended to be used in the event the principal is unable to make decisions on his or her own. It is generally thought to be a much better solution than having the courts appoint a guardian or conservator for the principal. Many professionals also prefer to use a durable power of attorney even if the power is to be used immediately for a specific purpose, such as for a real estate transfer. There is no real danger in having it survive incompetency; whereas, if the principal should become incompetent prior to the occurrence of the specific purpose, then the agent could still complete the transaction. Consider the following hypothetical: Assume that a principal wants to close on the sale of real property on Friday but can’t be at the closing. On the preceding Monday, he gives his wife a durable power of attorney to act on his behalf. On the following day, the principal is injured in a car accident and is unconscious in a hospital when Friday arrives. On Friday the principal’s wife completes the transfer on his behalf using the durable power of attorney. If the power of attorney wasn’t durable, the transfer would have been delayed or possibly lost forever.

Like the durable power of attorney, a springing power of attorney is intended to be used in the event the principal is unable to make decisions on his or her own. It is generally thought to be a much better solution than having the courts appoint a guardian or a conservator for the principal. The difference is that a durable power of attorney becomes effective as soon as it is signed by the principal whereas the springing power of attorney is intended to become effective only if – and when – the principal becomes incompetent. In a perfect world, the springing power of attorney would be far preferable to the durable power of attorney because it becomes effective only when it’s actually needed. The durable power of attorney presents a little bit of a problem because it could be used immediately, even though the principal is fully capable of taking care of his or her own affairs. The problem with the springing power of attorney is that it’s very difficult to say when the triggering event occurs. If the triggering event is the principal’s incompetency, how do you know when that occurs? You might require that a physician certifies to the principal’s incompetency but, in practice, it becomes a rather messy affair. For this reason, many estate planning attorneys prefer to use the durable power of attorney and have the principal keep all the originals until it’s time for the agent to act.

A power of attorney conveys broad powers to an agent to act on behalf of the principal. In most cases, a durable or springing power of attorney will authorize the agent to perform virtually all acts that the principal could perform on his or her own. Obviously, there is plenty of room for abuse by an agent. While there is some legal recourse against the abusive actions of an agent, the best protection is to ensure that a prospective agent has the proper qualifications for the job. The proper qualifications are honesty, integrity, and common sense. To be sure that a prospective agent has these qualifications, the principal should have known the prospective agent for a long period of time and should have had regular dealing with this person. A spouse, a trusted family member, a proven friend, or a professional with an outstanding reputation for honesty and integrity are good candidates. A person with known financial difficulties should not be considered, nor should anyone who is unknown to the principal regardless of reputation.

Yes. You can appoint multiple agents if you wish. If you appoint two or more agents, you must decide whether each agent can act separately in managing your affairs or whether they both must act together. Requiring both agents to act together can help protect against abuse, but it also makes it more difficult for the agents to get things done. This is especially true if one agent is local and the other is out of state.

Yes. The agent named in a power of attorney is only the representative of the principal. As long as the principal is capable of making his or her own decisions, then the principal is free to carry on as though the power of attorney didn’t exist.

Yes, an agent is required to act in the best interests of the principal. An agent is a fiduciary, which means that the law demands a strict adherence to standards of honesty and loyalty to the principal. An agent must account to the principal for all of his or her transactions on behalf of the principal. The agent must keep the principal’s property separate and apart from his or her own, and the agent must keep a separate checking account on behalf of the principal.

There is no official monitoring of an agent under a power of attorney, at least not by any government agency. That is deemed to be the principal’s responsibility. It is important, therefore, that an agent be monitored by the principal or, if the principal is incompetent, by a close family member. Either the principal or a close family member should insist on regular accountings and notice of any major transactions. If there are grounds to believe that an agent is misusing a power of attorney, it should be reported to the police or other law enforcement authority. In most jurisdictions, the abuse of a fiduciary relationship is a criminal offense.

A revocable living trust is, by far, the very best vehicle that you can have to manage your financial affairs during periods of incompetency. The reason is twofold: First, the law of trusts is much better defined than the laws governing powers of attorney; there is much better accountability by a trustee than there is by an agent; and, there is much better recourse for a principal or other family members over mismanagement by a trustee. However, trustees have no authority over property that is not in a living trust and very few people transfer all of their property to a living trust. So, a durable power of attorney can play a very valuable role in your overall estate planning even though you already have a living trust. First and foremost, your agent will be able to transfer all remaining property to your living trust so that it can be administered under the terms of the trust instrument. Second, your agent may have to file personal tax returns on your behalf or handle certain issues regarding past tax returns. There may also be other things that your successor trustee cannot handle, such as having access to your safe deposit box, dealing with motor vehicles, etc. For all of these reasons and more, a durable power of attorney is a necessary component to a living trust under almost all estate plans.

You should know, however, that many of the powers discussed above are not automatically given to your agent under a power of attorney. Instead, they must be specifically included in the power of attorney document. As a minimum, your power of attorney should give your agent specific power to transfer property to your revocable living trust.