By Lisa Hughes
Attorney and Partner,
Yates Campbell & Hoeg LLP
Are you confused about the concept of giving someone Power of Attorney (POA)? In fact, it has nothing to do with delegating power to a lawyer or an attorney-at-law.
What it is: A POA is a legal document in which we name another person to make legally binding financial decisions for us. Usually, the person to whom we delegate this authority is a close family member or friend.
How it works: The person delegating authority using the POA is known as the principal, and the person chosen to make decisions on behalf of the principal is the agent. The principal dictates the scope of the authority which is granted as well as the time when the authority becomes effective. The principal can later withdraw the grant of authority. As with any legally binding relationship, each party has duties as well as rights. In sum, the POA is a special type of contract.
What you need to know: There are a number of conceptual items to keep in mind when considering the type of authority you would include — and sometimes, choose not to include — in a POA.
- A POA is generally governed by state law.
The 50 states, the District of Columbia, Puerto Rico, and the U.S. territories each have different rules with respect to POAs just as they do with respect to many other legal instruments. There are also specific federal laws and regulations in the context of using POAs when doing business with federal agencies.
- POAs are durable.
To say that a POA is durable means that it continues to be valid if the principal becomes incapacitated or incompetent. For example, if Mom names Son as the agent under her POA and Mom suffers a disabling stroke, the durability feature means that Son’s authority endures throughout Mom’s period of incapacity.
In some states, the durability feature is the default rule and, therefore, it need not be stated in the document. In other jurisdictions, you would include a sentence in the POA that in effect states, “This instrument is durable and its viability is not affected by my subsequent incapacity.”
Since you cannot predict in which state your POA might be used at some later point in your life, I recommended that the POA contain the durability language so that it is useful in all jurisdictions in the event you become disabled.
- Additional default rules may have an impact on your POA.
You will want to ask your estate planning attorney which powers are automatically included under your state’s law. With respect to any powers you may not want to grant, you should itemize them to be sure that your agent does not have them.
These include powers to:
• Make gifts of your property to family members or charity,
• Change beneficiaries on your life insurance policies or retirement plans,
• Amend your revocable trust or your Last Will and Testament.
- It’s important to indicate in the POA when the agent’s authority is to be valid.
There are two choices regarding the timing of authority. You might choose an immediate grant of authority or a grant that ripens upon the principal’s future incapacity. Some lawyers refer to the contingent POA as a “springing POA” since it is signed today but the agent’s authority to act is delayed until some triggering event occurs.
There are pros and cons to both delayed and immediate grants of authority:
• The advantage of the immediate grant is that the agent can act immediately with no further documentation to support the grant of authority. Others view the unfettered, immediate grant of authority as a risk that should be avoided.
• Those who feel the immediate grant of authority is unwise choose to make the grant contingent upon the agent obtaining certification of the principal’s incapacity from one or more medical providers. Some view this extra medical or psychiatric documentation as an important safety feature, and others view it as an unnecessary roadblock.
• In my experience, the immediate grant is chosen about two-thirds of the time and the contingent grant approximately one-third of the time. And, by the way, clients are not the only ones with strong opinions regarding this concept — attorneys’ views also differ on which option makes the most sense.
- It is the rare agent who is able to use the POA without encountering problems.
There has been so much abuse and crime committed by agents under POAs that almost all financial institutions have developed strict rules with respect to POAs.
It is more likely than not that your agent will encounter at least some resistance on the part of financial institutions, pension administrators, health insurance companies, the IRS and the Social Security Administration when your agent attempts to act under your POA.
To combat abuse and to provide more uniformity, most large institutions have developed their own POA form, and some of them refuse to recognize a POA unless it is on their form.
This resistance can be frustrating but a good estate planning attorney can usually smooth things over once the agent needs to use the POA.
- The agent’s power to act under a POA dies with the principal.
Once the principal passes away, the POA is a complete nullity. All financial transactions on the part of the deceased principal must be taken by a new agent (known as an executor, administrator, or personal representative) appointed after the principal’s death by the appropriate court.
The Bottom Line
Having a good grasp of the foregoing half-dozen concepts will enable you to have productive conversations with your attorney and your family members about POAs and lead to signing good documents that address your individual concerns and needs.
Questions? Contact Hope Katz Giibbs, publisher of Be Inkandescent magazine, by email.
About Lisa Hughes
Attorney Lisa M. Hughes is experienced at preparing Wills and trusts, Powers of Attorney, guardianships, and conservatorships; in administering estates of decedents and incapacitated individuals; and in the related tax and asset-protection planning. Her particular areas of focus include succession planning for closely held businesses, same-sex couples, and incapacitated beneficiaries, as well as certain elder-law challenges and trusts for those with special needs.
A graduate of Georgetown University Law Center, Hughes is licensed in the District of Columbia, Maryland, and Virginia, and has more than two decades of experience in estates, trusts, and wealth-planning.
Additionally, Hughes is a member of the Board of Governors of the Trusts and Estates Section of the Virginia State Bar; she is a Public Safety Trainer with the Commonwealth Autism Service; and she serves as legal counsel to Spectrum Housing Foundation, a tax-exempt organization that facilitates support for disabled adults.