Power of Attorney

An Overview

Power of attorney is a legal document that gives one person (the attorney-in-fact or agent) the authority to act on behalf of another (the principal). The principal does not relinquish control over their lives; instead a power of attorney has power to help them make decisions about various affairs. The principal is still allowed to make their own decisions.

Powers of attorney are often assigned when someone becomes seriously ill and is afraid that their decision-making may be compromised. Family members such as spouses and children typically serve as attorneys-in-fact, but anyone of legal age can serve as long as the agreement is signed and witnessed according to state law.

(Please note: Most states do not require that power of attorney documents be prepared by a lawyer. Consulting an attorney, however, will ensure that the correct documentation is completed in the proper manner.)

Traditional Power of Attorney

Traditional power of attorney documents can only be effectively executed while the principal is competent. The documents are then terminated upon death or incapacitation, but conditions for terminations sometimes vary. Those who have power of attorney can make financial, medical and other decisions in the place of the principal assuming state laws allow it. (Some states have laws that specifically spell out when a power of attorney can and cannot be used.) General powers of attorney are broad and can cover any aspect of a principal’s life.

Durable Power of Attorney

A durable power of attorney comes into effect at the time specified in the document and usually remains in effect even in cases of incapacitation. Durable powers of attorney are often used specifically when people are planning their estates and preparing healthcare directives.

Certain information pertaining to how a durable power of attorney behaves in different states and in healthcare situations is important to research as you prepare or follow a healthcare directive; laws that govern durable powers of attorney vary greatly.

Please note: Families will sometimes choose to create powers of attorney after facing difficult end-of-life situations where a power of attorney did not exist. Don’t forget that a power of attorney is terminated upon the death of the principal, so any new power of attorney only applies to those who are still alive. Consulting an attorney before signing or preparing a power of attorney is always important.

Special or Limited Powers of Attorney

Special or limited powers of attorney are crafted to be in effect during a specific period of time or under certain circumstances. There are numerous instances in which a principal might want a limited power of attorney. For example, the attorney-in-fact might have the power to handle only the principal’s finances, or maybe just the sale of their house. The attorney-in-fact might have the power only to make medical decisions for the principal (if applicable in their state). The limited power of attorney prevents fraud on the part of the agent and ensures that the principal gives permission for the agent to handle specific affairs under specific conditions.

Springing Power of Attorney

A springing power of attorney is that which is specifically designed to take effect at a future date. It is most commonly used in healthcare situations when the principal’s physician determines the principal is no longer able to handle their own financial or other affairs. In other situations the principal might simply designate a date for the power of attorney to take effect.

Please note: Certain states have adopted their own specific definitions of each type of power of attorney and those can dictate under what conditions each is appropriate. For example, New York State does not allow people with power of attorney to make medical decisions for the principal. A different designation is needed, that of a health care proxy, for someone to make medical decisions on behalf of the principal. Similarly, a state might require a living will in order to make medical decisions. A living will is similar to a health care directive. Check your state’s laws and consult an attorney to help you interpret a power of attorney that has been created or before moving forward with the creation of a power of attorney.

Multiple Powers of Attorney

A principal can appoint more than one power of attorney. The attorneys-in-fact can either act jointly, which usually requires all of them to approve any action, or they can act individually. Attorneys usually recommend against having more than one power of attorney due to conflicts and difficulties that could arise when they are needed. Some states also have laws that specifically govern the appointment of multiple attorneys-in-fact. Nonetheless, some principals do have more than one power of attorney and they must try to work together to avoid any disputes and keep the best interests of the principal in mind.

Duties

The duties of a power of attorney are fairly basic. The most important duty is to act in the principal’s best interest. The attorney-in-fact or agent is a fiduciary – a person who is legally and ethically obligated to act in the best interest of and on good faith for the principal. Other duties might include:

  • paying expenses for the principal

  • making investment, banking and real estate decisions

  • collecting benefits such as social security

  • filing and paying the principal’s taxes

  • representing the principal in matters of inheritance or claiming property

  • hiring a lawyer for the principal

  • managing retirement accounts and purchasing or selling annuities or insurance

  • managing the principal’s business

In addition, the agent is to keep detailed records of any transactions that they conduct on behalf of the principal. The principal’s money should be kept separate from that of the agent (the agent cannot gift oneself with the property or money of the principal unless the power of attorney specifically permits it). Finally, the agent is never to profit from transactions conducted on behalf of the principal. Overall, the amount of power granted to the agent depends upon the agreement that is reached between the principal and the agent.

Revocation

Power of attorney (POA) is not a situation to be taken lightly. If the agent makes decisions that are arguably not in the best interest of the principal, those decisions can be challenged and power of attorney can be revoked in some cases. This is why it is crucial that selection of a POA is undertaken carefully.

Should the principal or someone else feel that the POA is acting incorrectly, the power of attorney can be revoked by the principal at will as long as they are still competent. (Please note: Documentation must be completed and the agent must be notified in writing that the POA is being revoked.)

If the principal is considered incompetent, it is harder for the family to revoke a POA. Situations can become complicated by differing definitions of what is considered competent or incompetent.

Revoking a durable POA when the principal is incompetent, for example, can be extremely difficult. You will likely have to petition the court to hear your case and argue why the POA needs to be revoked. This will require some sort of evidence that shows that the POA breached their fiduciary duties. In cases of blatant misconduct, such as using the principal’s funds for personal reasons or selling property in which the transaction personally benefited the POA, documentation should be available to help you argue your case, but can still be difficult to obtain. Consulting an attorney to assist you with such challenges is important

Complications Regarding Power of Attorney

Though powers of attorney are designed to make end-of-life decisions easier, the loved ones of the decedent may find that they can complicate matters. For example, a power of attorney can create complications when the decedent has a surviving spouse who is incapacitated, and the couple’s child, close friend, or family member has the power of attorney for the incapacitated spouse. Most likely, the spouse will still be designated as beneficiary in the will, in insurance papers, and in other areas of the decedent’s life. Complications arise when funds and other situations are directed toward a spouse who is incapacitated.

Also, though rare, when a principal has more than one power of attorney, it can cause complications with decision-making and may at times cause conflicts. When insurance and other benefits are allocated to the powers of attorney, conflicts about how to allocate money can arise between those serving as POAs.

In some cases, evidence of misconduct and a breach of fiduciary duties on the part of the POA are discovered after death. Because a POA can often have broad power over the principal’s affairs, instances like this can affect how an estate is settled in probate court as well as a number of other financial and practical issues. The family can challenge the POA in court to get a ruling about whether or not the POA breached their duties. (Please note: It is best to consult an attorney for this process as families can become embroiled in a long court struggle where large sums of money and crucial emotional issues can be at stake. If the court rules that the POA’s actions were invalid, those actions may need to be reversed.)