Powers Of Attorney
Most estate planning packages should include powers of attorney, by which the signer designates a trusted individual to make financial and health care decisions. The signer, also known as the Principal, names an Agent who can take over his or her affairs during a time of incapacity. The Agent “stands in the shoes” of the Principal, and is held to a high (fiduciary) standard of care.
Durable versus springing powers. Durable powers of attorney are effective immediately upon execution by the Principal, and maintain their full force if the Principal becomes physically or mentally incapacitated to the point where the Principal cannot communicate his or her own decisions. Springing powers of attorney do not take effect until the Principal becomes incapacitated, and usually contain the standard by which incapacity is confirmed, e.g., written statements from two doctors. Although springing powers appear safer, in that they cannot be used until there is evidence of incapacity, most attorneys prefer durable powers for logistical reasons. When the Principal begins showing signs of incapacity, he or she may not be willing to visit the doctor or consent to mental status exams. Even when there is consent, the Agent may not be able to act for weeks or months while doctors’ appointments are scheduled. With durable powers, the Agent can act immediately. If the Principal does not trust his Agent to wait until the appropriate time to act, then he should not designate this individual as his Agent.
General power of attorney. This document allows the Agent to make all financial decisions for the Principal during incapacity, including writing checks, paying bills, entering into contracts (e.g., for health care), and even buying and selling real estate. If the Principal wishes to authorize the Agent to compensate himself or herself, or to make gifts on the Principal’s behalf, then the document must contain express language stating this, and the gifting and compensation provisions must be separately initialed by the Principal. Agents acting on powers of attorney that lack this language may risk criminal penalties if they make gifts to themselves or others.
Acceptance by third parties. Because of the extensive abuse of general powers of attorney, third parties such as bankers and title companies may be reluctant to honor them, particularly if they are more than a few years old. Bankers often require the signature of the Principal on their own powers of attorney, even if the Principal has become mentally incapacitated. The Principal may wish to discuss this matter with their bankers or brokers, or give them copies of the powers while they still have the capacity to confirm them.
Health care power of attorney and living will. The Principal may designate an Agent to make health care and residential decisions for the Principal during a time of temporary or permanent incapacity. Usually a health care provider will accept the authorization of a spouse or family member for surgery or placement in a care home, but a health care power provides additional support. The living will expresses the Principal’s wish that his life not be prolonged by artificial means if he has been diagnosed as terminally ill, or is brain-damaged to the point of being vegetative. Reliance on health care powers increases in proportion to the degree of the illness, and the document becomes crucially important with regard to end-of-life issues. Those who have strong feelings one way or another about termination of life support, amputation, organ donation, etc., should choose a trusted person to serve as Agent and discuss these matters in depth with the Agent.
Mental health care power of attorney. The Principal may designate an Agent to make mental health care decisions. Although a regular Health Care Power of Attorney would be accepted in many situations, it is usually not sufficient to have a person moved out of her residence into a nursing home or psychiatric facility against her will. A Mental Health Care Power of Attorney can be an effective tool to make sure that an agent selected by the Principal can admit the Principal to such a facility without having to proceed to Court for Guardianship.
Termination of powers of attorney. Powers of attorney can be revoked by the Principal at any time for any reason or no reason. If the Principal has already distributed copies of the powers to the Agent or third parties, they should be notified immediately of the revocation.
Powers of attorney automatically terminate at death. An Agent cannot manage a decedent’s affairs on a power of attorney alone. If the Principal wishes to ensure continuity, other arrangements must be made (e.g., the Agent’s name can be put on the Principal’s checking account).
Alternatives to powers of attorney. A power of attorney cannot and should not be signed by a person whom does not understand the nature of what he is signing. If the Principal is no longer competent to sign such a document, then court proceedings for guardianship or conservatorship may be required. If the Principal has limited assets and income, then a simple guardianship may be all that’s required to obtain authorization to make residential and health care decisions. If the Principal has assets that must be protected, then the Agent should petition for conservatorship to obtain court authorization to manage the Principal’s financial affairs.