The Power of a Power of Attorney

The Power of a Power of Attorney

August 14, 2024

No one likes to think about having someone else act on their behalf, but there may come a time when, due to illness or other incapacity, you cannot act for yourself. That is why it is important to have powers of attorney in place, one for general and financial concerns and another for medical and health care matters.

A POA gives one person, termed the agent, the legal power to act for another, termed the principal, when making decisions about the principal's property, finances or medical care.

POAs are legal documents that may be drafted in one of two ways:

• General or durable. Both general and durable POAs expire upon the principal's death, and both can limit the agent's decision-making powers. The critical difference between them is that general POAs expire if/when the principal becomes incapacitated, while durable POAs remain in effect until the principal's death. Many states do not consider POAs to be durable unless they specifically state that they are.
• Immediate or springing. Immediate POAs become enforceable the moment they are signed. Springing POAs do not become enforceable until/unless the principal becomes incapacitated.

It's important to remember that for a POA to be valid, the parties must comply with the resident state's requirements for signatories. Some states require the document to be notarized, some require witnesses and others require both.

Health care POAs

All 50 states allow living wills (aka medical directives, health care proxies or advance health care directives) that allow you to appoint someone to make medical decisions for you in the event you cannot make them for yourself. However, these documents cannot possibly envision all potential scenarios. In addition, some states limit the extent to which they will honor health care directives from other states; that is, they will accept documents only as far as they comply with their own laws. Having a health care POA in addition to a living will is one way to bridge these gaps. The person with the health care POA will be able to act in circumstances that the living will does not cover and in situations when the living will may not be honored.

Financial POAs

A financial POA has some limitations, especially when it comes to the agent gaining access to bank accounts. Because of the prevalence of fraud and elder abuse, many banks, especially those in states that do not have statutory forms, are hesitant to recognize durable POAs without having them reviewed by the bank's legal department.

Another issue is "stale" documents. Some banks are unilaterally declaring that documents more than 10 years old are void. While this is not backed by law and in fact runs counter to the purpose of a durable POA, nothing has yet stopped the practice. One way to avoid the problem is to put the POA on file with the bank or other financial institution while the principal is healthy. That way, all parties can be sure the document complies with the bank's requirements.

Digital assets

Many existing POAs were created before the reach and value of digital assets were understood. As a result, because these assets are not specifically named in the POA, the agent may not be able to access them. Given the prevalence of digital assets, it is a good idea to update your POA. Keep in mind that any updates must be made according to state law.

What if a POA is not accepted?

If a bank or other financial institution refuses to accept a POA, taking the institution to court may be the best option. Alternatively, the agent can ask the court to declare the principal legally incapacitated. However, if the court agrees to do so, the principal's affairs would be put into court-ordered conservatorship, which would entail lifetime probate; in other words, court conservatorship is exactly what a POA is meant to avoid.

Uniform Power of Attorney Act

POAs are governed by state law. To standardize these laws across the U.S., more than half the states have enacted the UPOAA. The laws in UPOAA states will match each other in specific areas, including compensation for the services an agent provides and how the agent-principal relationship can be terminated. This is only true, however, if all jurisdictions involved have adopted the UPOAA.

POAs are an important part of comprehensive estate planning. The best solution to the potential risks inherent to POAs is prevention. Consult an estate planning professional who understands the nuances of drafting a POA that is compliant with the laws of the state(s) where the principal resides and with the banks and other financial institutions where the principal transacts business.

Source:  Industry Newsletters ©2024