[Note: This material was prepared by Slade V. Dukes, Program Fellow for the Stetson University College of Law Elder Consumer Protection Program. We appreciate Mr. Dukes' contribution and expertise. Be careful in applying this information, however -- state and local practices do vary, and you should seek competent legal counsel from an attorney in your jurisdiction to help you resolve any disputes or clarify misunderstandings.]
A power of attorney is one of the most important and powerful documents that you can create. It is also one of the most dangerous. Because of the potential for abuse and exploitation, you need to give the process a lot of thought and plan carefully. Do your own research; to avoid becoming a victim you must be an educated consumer, understand your options and know your rights.
Choosing an Agent:
The person to whom you give power of attorney is called your agent or, sometimes, attorney-in-fact. Obviously your agent must be completely trustworthy and have your best interests at heart. If there are other individuals available you should also choose an alternate agent in case the first named agent is unavailable or fails to act. A power of attorney could be a useful tool in your time of need; if it is granted to the wrong person, it could actually be used to your detriment.
Your agent will have great control over you and many of your rights and powers. The law recognizes the importance of the role and gives the agent a duty, called a “fiduciary duty.” By definition, “A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client.”
To protect you (and others who sign powers of attorney) the law forbids your agent from acting in a way that is against your best interests. While the legal protections do help deter exploitation, abuses can and do occur. To ensure that you are as protected as possible, be selective in choosing your agent as well as deciding what authority to give him or her.
Capacity and Competency
Only a competent person can sign a power of attorney. You need to take care of your power of attorney now, while you are still able. If you have a family member or friend who is already incapacitated, it is too late for that person to sign a power of attorney.
Durable and Non-Durable Powers
A durable power of attorney is designed to provide power and authority to another person to make your decisions even after you are incapacitated or lack the capacity to make your own decisions.
If you decide that you want a durable power of attorney, there are two types: those which only become effective when you are incapacitated, and those which are effective upon signing and remain effective if you do become incapacitated. The former are often called “springing” durable powers of attorney; the latter are called “surviving” or “immediate” durable powers. Many lawyers recommend against using “springing” powers of attorney, though state and local practices vary. One thing to keep in mind: if you sign a “springing” power of attorney, someone (perhaps your doctor) will need to sign a document indicating that you have become incapacitated before your agent will be able to handle even simple transactions.
Generally speaking, an agent can be granted most rights if they are included in the document. It is helpful if the power of attorney is clear, detailed and explicit about what rights are being given so that you maintain as much control over the grant of authority as is possible.
Give the person you have appointed as agent a copy of the document so that they know they have responsibilities, and so they can prove their position to banks, brokers and others they will need to deal with. For certain large transactions, like buying or selling property or title transfers, the agent will have to present the power of attorney document before the business is conducted. For smaller day-to-day transactions, like signing checks, the same level of documentation might not need to be provided.
Not every right can be delegated by a power of attorney. An agent does NOT have the authority to amend or revoke a will, to contract a marriage, or to vote on your behalf. Depending on the document and state law, however, it may be possible for your agent to change insurance beneficiaries, alter a trust or make substantial gifts of your property.
The power of attorney could also provide the agent the authority to make gifts on your behalf. If you wish to grant this power, be explicit in how you want the gifts to be given; you can specify to whom, for what occasion and how much should be given in certain instances. Why would you ever want to authorize someone else to make gifts of your property? There may be good reasons to authorize gifts for tax or long-term care planning – or you may just want to make sure that your children, grandchildren or others can rely on your assets to assure their medical care, education or support.
POA vs. Joint Accounts
You probably will want to give your agent access to bank accounts. If you ask for help with this goal at your bank, you will likely be offered a joint account signature card. This is NOT the same thing as a power of attorney – the joint account owner has the right and power to use the money for their own benefit, and upon your death the joint tenant actually owns the entire account. You may even expose your bank accounts to the other signer’s creditors, tax liability, child support and spousal maintenance claims. Far better to leave your bank accounts in your own name, give your agent a power of attorney and (if you want the accounts to flow to your agent – or someone else – automatically at your death) designate a “payable on death” (POD) beneficiary.
Generally, power of attorney forms do not need to be recorded officially – and should not be. There is no need to let the world know whom you have named as agent, and you might change your power of attorney before it becomes useful. Two important exceptions: if your power of attorney is used to sell real estate, it will need to be recorded AND once the power of attorney is actually being used, your agent might find that recording it is an easy way to secure certified copies of the original document.
If you ever want to revoke or terminate your power of attorney you should do so in writing and have it notarized. Once the termination/revocation is written and notarized you should give a copy to your now-former agent and also to any financial, medical or other institutions that received a copy of the original power. You can revoke or terminate a power of attorney as long as you have capacity to do so.
Your rights and powers are important and must be protected. The power of attorney is meant to be a helpful document, not a license to steal. In order to help prevent exploitation, be careful to choose an agent you trust completely and without qualification. Discuss with your agent the power and how you expect it will be used. If you consider the alternatives carefully, and make your desires known now, then you will have more control over your own life, even if you lose the capacity to handle financial affairs directly. Considering the importance and complexity of these documents, you may wish to consult with a local attorney familiar with elder law, estate planning, and powers of attorney.