Power of Attorney
- Introduction
- "Durable" and "Springing" Powers of Attorney defined
- Choosing an Agent
- Healthcare Agent and Guardian for Children
- Mental Health Treatment Decisions
- Certain financial powers must be specifically mentioned
- Why an attorney should draft your Durable Power of Attorney
Introduction
A Power of Attorney is an extremely important estate planning document. It grants a third party (the "Agent" or "Attorney-in-Fact") the legal authority to make decisions for, or act on behalf of, the person signing the Power of Attorney (the "Principal").
The specific powers granted will vary depending on the needs of the Principal. Powers of Attorney executed for estate planning purposes usually grant rather broad powers over the Principal’s affairs, in anticipation of the possibility that the Principal may become permanently incapacitated at some point in the future.
"Durable" and "Springing" Powers of Attorney defined
A "Durable" Power of Attorney simply means the Agent’s authority to act is or remains exercisable despite any future disability or incapacity of the Principal, or uncertainty as to whether the Principal is dead or alive. For a Power of Attorney to be "durable", it only needs to state that it shall not be affected by the future disability or incapacity of the Principal, or that it shall become effective upon the Principal’s incapacity. The vast majority of Powers of Attorney executed for estate planning purposes use the latter language, and are considered "springing" Durable Powers of Attorney, because the Agent is only authorized to act upon the occurrence of some future event (the Principal’s incapacity). In that case, it is important to spell out in the Durable Power of Attorney how the Principal’s incapacity may be established.
A Principal may opt to make the Durable Power of Attorney effective upon signing. This can be particularly helpful to someone who is not incapacitated but has health problems making it difficult to manage his or her own affairs.
Choosing an Agent
A Durable Power of Attorney may give the Agent the authority to make medical decisions for the Principal; it may grant the authority to make financial decisions; or it may grant the authority to do both. From an estate planning standpoint, separate healthcare and financial Durable Powers of Attorney permit the Principal to name one person to handle medical decisions and another to handle finances.
Healthcare Agent and Guardian for Children
A parent or legal guardian may include a provision in his or her Power of Attorney, authorizing his or her Agent to make healthcare decisions for one or more minor children, or children for whom he or she is legal guardian, if the child has no other parent or legal representative readily available and authorized to give such consent.
A Principal may further nominate a guardian or guardians for any minor child of the Principal, whether born at the time of signing the Power of Attorney or afterward; the Principal may nominate separate guardians to make personal and healthcare decisions (referred to as a guardian of the person) and to manage the child’s income and assets (referred to as guardian of the estate). The appointment of a guardian of the person for a minor child supersedes the authority of the Principal’s healthcare Agent to make medical decisions for that child.
Mental Health Treatment Decisions
A typical healthcare Power of Attorney does not grant the Agent the authority to involuntarily commit the Principal or consent to other types of mental health treatment. Therefore, a Principal facing actual or potential mental health issues may wish to incorporate a Mental Health Advance Directive into their Healthcare Durable Power of Attorney. (This Directive may also be executed as a separate, stand–alone document). The Directive may include the Principal’s preferences and instructions for mental health treatment, advance consent or refusal to specific types of mental health treatment (including advance consent to inpatient mental health treatment for up to fourteen days), and the appointment of an Agent to make treatment decisions on the Principal’s behalf.
Certain financial powers must be specifically mentioned
If the Power of Attorney contains language to the effect that the Agent has all the powers of absolute ownership over the Principal’s assets, or has all the powers the Principal would have if competent, this is sufficient to grant the Agent authority to do many things, such as make payments from any account in the name of the Principal at any financial institution, and to enter any safe deposit box to which the Principal has the right of access. However, this broad, but general, grant of authority is not sufficient to convey certain powers, which must be specifically mentioned in the Power of Attorney for the Agent to have them. This includes the authority:
- To make, alter or amend the Principal’s life insurance, annuity, or similar contract beneficiary designations.
- To make, alter or amend any provision for the nonprobate transfer of the Principal’s property at death, including any "payable on death" or "transfer on death" beneficiary designations, and Community Property Agreements;
- To make any gifts of property owned by the Principal.
- To transfer any of the Principal’s property to any trust (whether or not created by the Principal) unless the trust benefits the Principal alone and does not have dispositive provisions which are different from those which would have governed the property had it not been transferred into the trust.
- To disclaim Property.
Use of these powers could obviously have a profound impact on the Principal’s estate and be used to the detriment of the Principal and his or her heirs. On the other hand, if the Principal becomes incapacitated, these powers could be useful tools for the proper management of the Principal’s estate. For example, they could be used to continue making gifts of the Principal’s property to charities, family members, or religious organizations, consistent with the Principal’s prior gifting activity; to make gifts designed to reduce estate taxes; to transfer assets to the Principal’s spouse, and possibly others, to accelerate the Principal’s eligibility for Medicaid nursing home benefits; and to correct defects in contractual beneficiary designations. Whether or not to grant these powers depends on several factors, including the Principal’s level of trust in the persons nominated to serve as Agent or alternate Agent.
Why an attorney should draft your Durable Power of Attorney
If these powers are to be included in a Durable Power of Attorney, careful drafting is required to include limits and conditions on the exercise of these powers for the protection of the Principal, and to provide guidance to the Agent to ensure these powers are exercised as the Principal intended.
Forms for creating your own Durable Power of Attorney are available from many sources; however, these pre-paid or computer generated forms are frequently inadequate because they fail to provide for gifting or other powers that must be specifically mentioned in order for the Agent to exercise them, or blindly grant these powers, without any qualification or limits on their use.
This often leads to conflict between family members over whether the Agent is exercising his or her powers as the Principal intended, and can lead to litigation over whether the Agent has breached his or her fiduciary duties. (The problem being, of course, that by this time, the Principal is incapacitated and therefore usually not able to clarify his or her intent).
Long–standing conflicts between family members increase the likelihood that a dispute will develop over implementation and use of a poorly worded or vague Durable Power of Attorney. (Our article, Managing Someone’s Affairs under a Power of Attorney, includes an explanation of the court procedure available if a dispute erupts over the management of a Principal’s affairs under a Durable Power of Attorney).
The money spent to have an attorney draft your Durable Powers of Attorney can substantially reduce the potential for conflict and ensure that your Durable Powers of Attorney are well coordinated with other estate planning documents.
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At the Law Office of John S. Palmer, we have extensive experience drafting Durable Powers of Attorney and can tailor any estate planning document to meet your needs.
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