Powers of Attorney Help You in Many Ways

A power of attorney is a useful, flexible tool. It can help you in small matters (avoid going to a real estate closing by designating someone to act for you) and large ones (enable someone to manage your property and even make health care decisions should you become ill).

Whatever the scope of the power of attorney, two terms are important:

  • The person creating the power of attorney is called the principal.
  • The person appointed by the principal is called the agent or attorney-in-fact.

Don’t confuse attorney-in-fact with an attorney-at-law. The agent does not have to be a lawyer, though of course he or she can be. However, you’ll want your lawyer to be involved in drafting the document so that you can be sure it does what you want it to, with a minimum of risk.

How Much Power Does an Agent Have? A special or limited power of attorney grants the agent only specific powers designated in the document. For example, a special power of attorney might state:

“I authorize my agent to sell my property located at (such and such address),” or “I authorize my agent to endorse checks on my bank account No. 12345 at First National Bank, for the period of Jan. 1 to Feb. 15 of this year”.

A general power of attorney grants the agent very broad powers. However, a few state laws restrict what an agent can do, especially with respect to real estate transactions.

It is important to be as specific as possible in describing the powers delegated in any kind of power of attorney. Courts tend to interpret powers of attorney quite narrowly, so it’s best to clearly spell out the authority to manage financial affairs, including powers to:

  • Make gifts.
  • Give loans or support to others.
  • Sign IRS forms and tax returns.
  • Open safe deposit boxes.
  • Fund a revocable trust.
  • Change beneficiaries under a pension or life insurance policy.
  • Compensate oneself as agent.
  • Make health care decisions (usually handled through a special Health Care Advance Directive).

No matter what power you delegate, you do not forfeit any control while still mentally competent. You can still make or direct any decision you choose, and your agent cannot legally override you or act against your wishes. You can also revoke the power at any time (while still mentally capable).

Powers of Attorney and Incapacity. A special kind of power of attorney is designed to be durable so that it continues to operate and be legally valid even after the disability or incapacity of the principal. Historically, a power of attorney automatically terminated upon the incompetency of the principal. But, of course, this is precisely the opposite of what we want today. We most need the power of attorney when we become incompetent.

Consequently, every state has passed legislation providing for powers of attorney that are durable, that continue to be valid even when the principal becomes incapacitated. In most states, the durable power of attorney (DPA) document must state that it continues to be valid even after incapacity. Otherwise, it may not be considered durable.

Another type of DPA, recognized in most states, is the springing power of attorney. A standard durable power of attorney is normally effective at the time it is signed. However, a springing power is a durable power that does not become operative unless and until the principal becomes incapacitated. If you don’t need it, it just sits there dormant. If you need it, it springs to life.

A springing power has two potential problems:

  • It requires careful drafting to identify who determines that you are incompetent and what criteria they shall use. Often you direct your agent and attending physician to make a joint determination of incapacity.
  • Third parties such as banks are sometimes less willing to recognize it because they may feel that they need additional verification that the power is now in effect.

How to Choose Your Agent. In most states, you can name any person or institution you wish as your agent. This choice is the single most important decision you will make in doing a power of attorney. Particularly if you become incapacitated, your agent will have tremendous power over your property and affairs. If there is really no one whom you trust to act as your agent, then a DPA is not for you.

Many people name one agent and a successor agent or agents in case the first agent can’t or won’t act for any reason.

Writing Your DPA. Your lawyer can make sure that your document meets your state’s requirements and that the powers you give your agent are spelled out in language that will be legally effective.

Signing a power of attorney is fairly simple, but you must comply exactly with your state’s law. Timing is important, because you must be mentally competent to execute a power of attorney. Of course, your signature as principal is always required, and many states require the document to be witnessed and/or notarized. Even if notarizing is not required by state law, it is standard practice. It reinforces the authority and credibility of the document and makes the document recordable. (If the document is to be used for real estate transactions, you must normally sign and record it in the same manner as deeds to property.) Finally, although the signature of your agent is not required on the document in most states, it’s a good idea, since it helps verify the identity of the agent.

To read more about Powers of Attorney, click here.

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