Powers of Attorney
Powers of Attorney
A power of attorney (POA) is a written instrument in which one person (the principal) designates another (the agent) to act on the principal’s behalf in a legal or business matter as an “attorney-in-fact”. The term attorney-in-fact is commonly used in the United States, to make a distinction from the term attorney at law. An attorney-at-law in the United States is a lawyer—someone licensed to practice law in a particular jurisdiction. As an agent, an attorney-in-fact is a fiduciary for the principal, so the law requires an attorney-in-fact to be completely honest with and loyal to the principal in their dealings with each other.
If the attorney-in-fact is being paid to act for the principal, the contract is usually separate from the power of attorney itself, so if that contract is in writing, it is a separate document, kept private between them, whereas the power of attorney is intended to be shown to various other people. Like a revocable trust, a power of attorney enables a client to entrust the management of his or her financial affairs to another.
There are several types. A power of attorney may be special or limited to one specified act or type of act, or it may be general, and whatever it defines as its scope is what a court will enforce as being its scope. (It may also be limited as to time.) In California, a power of attorney becomes ineffective if its grantor dies or becomes “incapacitated,” meaning unable to grant such a power, because of physical injury or mental illness, for example, unless the grantor (or principal) specifies that the power of attorney will continue to be effective even if the grantor becomes incapacitated (but any such power ends when the grantor dies). This type of power of attorney is called a “Durable Power of Attorney”. If you are giving Power of Attorney for your health care decisions, it is called an Advance Directive in California. Look for that tab on this website for more explanation.
In some U.S. states and other jurisdictions it is possible to grant a springing power of attorney; i.e., a power that only takes effect after the incapacity of the grantor or some other definite future act or circumstance. After such incapacity, the power is identical to a durable power, but cannot be invoked before the incapacity. This may be used to allow a spouse or family member to manage the grantor’s affairs in case illness or injury makes the grantor unable to act, without the power of an attorney-in-fact before the incapacity occurs. If a springing power is used, care should be given to specify exactly how and when the power springs into effect.
As the result of privacy legislation [HIPAA] in the U.S., medical doctors will often not reveal information relating to capacity of the principal unless the power of attorney specifically authorizes them to do so. Determining whether or not the principal is “disabled” enough for the power of attorney to”spring” into action is a formal process. Springing powers of attorney are not automatic, and institutions may refuse to work with the attorney-in-fact. Disputes are then resolved in court, which is of course a costly, and usually unwanted, procedure.
- Of the three major legal options for surrogate lifetime financial management (revocable trust, durable power of attorney, conservatorship), a durable power of attorney (DPOA) for financial management is the simplest to implement. The instrument establishing the DPOA can be easily prepared and executed. No transfer of title to assets is required, court supervision is unnecessary and administrative requirements are minimal;
- Like a revocable trust, the DPOA’s lack of court supervision ensures the principal’s privacy and minimizes delays in financial transactions;
- A DPOA is also quite flexible. The powers granted to the agent may be as broad or as narrow as the principal wishes;
- Allows a trial run of management by an agent;
- A DPOA is particularly useful when surrogate financial management is desired for only a short time.
- It may not be accepted by third parties;
- There is a huge risk of abuse by Agent. It may not becmoe evident for years that there was abuse by the Agent at which point huge damage will be done;
- It is limited to lifetime management, not after death.
While a Power of Attorney of most any type can be easily drafted by you, because of the potential of abuse, litigation and confusion, it is better for you to have the help of an attorney. Give this serious thought as part of your estate plan.
When you are ready to take this step, please, give me a call. I am here to help.