Don’t overlook the importance of a financial Power of Attorney (POA). It is an important tool in estate planning. The recent article “Top Ten Facts About Powers of Attorney” from My Prime Time News, explains how a POA works, what it can and cannot do and how it helps families with loved ones who are incapacitated.
The person to whom a POA is granted is called the attorney-in-fact or agent. The person who agrees to the POA is called the principal. It is the principal who grants the agent the authority to act pursuant to the POA. The agent’s authority under a POA is only effective while the principal is living. It ends upon the death of the principal. At that point in time, the executor named in the last will or an administrator named by a court are the only persons legally permitted to act on behalf of the decedent.
An incapacitated person may not sign a POA.
Powers of Attorney can be broad or narrow. A person may be granted authority under the POA to manage a single transaction such as the sale of a home. That person may also be granted authority to handle all of the principal’s financial and legal affairs. A POA should be created with an estate planning attorney as part of a strategic plan to manage the principal’s assets. A generic POA could create more problems than it solves.
You can have more than one agent serve under your POA. If you prefer that two people serve as attorneys-in-fact, the POA documents will need to state that requirement.
Banks and financial institutions may have problems with POAs. In some cases, they insist that only their POA forms be used. This has created problems for many families over the years, when POAs were not created in a timely fashion.
In 2010, Colorado law set penalties for third parties (banks, etc.) that refused to honor current POAs without reasonable cause. A similar law was passed in New York State in 2009. Rules and requirements are different from state to state, so speak with a local estate planning attorney to ensure that your POA is valid.
Your POA is effective immediately, once it is executed. A Springing POA becomes effective when the conditions specified in the POA are met. This often includes having a treating physician sign a document attesting that you are incapacitated. An estate planning attorney will be able to create a POA that best suits your situation.
If you anticipate needing a trust in the future, you may grant your agent the ability to create a trust in your POA. The language must align with your state’s laws to achieve this.
Your agent is charged with reporting any financial abuse and taking appropriate action to safeguard your best interests. If your agent fails to notify you of abuse or take actions to stop the abuser, they may be liable for reasonably foreseeable damages that could have been avoided.
The agent must never use your property to benefit himself, unless given authority to do so. This gets sticky, if you own property together. You may need additional documents to ensure that the proper authority is granted, if your POA and you are in business together, for example.
Every situation is different, and every state’s laws and requirements are different. It will be worthwhile to meet with an estate planning attorney to ensure that the documents created will be valid and to perform as desired.
Reference: My Prime-Time News (April 10, 2021) “Top Ten Facts About Powers of Attorney”
Suggested Key Terms: Power of Attorney, Principal, Agent, Death, Agent, Estate Planning Attorney, Incapacitated, Executor, Administrator, Springing Power of Authority, Trust