What is a power of attorney?
A power of attorney is a contract between the "principal" and the "attorney in fact," usually called the "agent." The durable power of attorney is the most important estate-planning tool the attorney has, allowing the principal to appoint the person of his choice to make important financial and health-care decisions. It also allows the principal to give guidance in the exercise of those decisions.
Why is a power of attorney so important?
A will only becomes effective when the person making it dies, and a trust only applies to the person's property; but a power of attorney is effective while the principal is living and often avoids court involvement in the family's affairs. Without a power of attorney, it may be necessary to seek a court appointment to pay bills or manage property. Even more importantly, guardianship may be necessary to protect an incapacitated patient from bad treatment in a health- care facility.
An incompetent patient is under the complete control of a hospital or nursing home administrator. Family members and significant others can express their desires, but without guardianship or power of attorney they have little authority to enforce their decisions. This is a fact that many persons do not know. They often become complacent during periods when relations between the care provider and the family are friendly. However, if care at the facility fails to meet the family’s expectations or if there is a disagreement over what kind of treatment the patient should receive, the lack of a well-drafted power of attorney can be catastrophic. The case of Terri Schiavo shows how bad things can get when a person has not made her wishes known in an unequivocal written document.
Because of the importance of this document, it should not be prepared without careful review of all provisions, nor executed without careful consideration and counseling. The attorney must particularly stress the responsibility borne by the agent. The attorney must also be alert to potential abuses of the power of attorney and decline to participate in either drafting or execution if it appears that an incompetent principal will be induced to sign a power of attorney.
Persons who sign powers of attorney do so out of a desire for privacy and to avoid court supervision of their affairs. They are also exercising a private right to contract. The powers granted may be durable–continuing despite disability–or springing–exercisable only on disability. Some attorneys recommend a springing power of attorney to avoid involving the agent in the principal’s affairs before the principal becomes incompetent. However, a springing power can be difficult to exercise and may leave a principal who is mentally competent but physically incapacitated without an advocate. For this reason the attorney should offer an immediate power of attorney that includes health powers so that the agent can act for the principal before the principal becomes unable to participate in medical decisions.
Why do powers of attorney include such long lists of powers?
Powers of attorney are strictly construed. A general grant of "all powers, not limited to the following" will add nothing to the laundry list of powers set forth, in most states. For example, a bank will often require that the power of attorney specifically grant the power to deposit or withdraw before the bank will allow the agent to do banking. Therefore it is desirable to make the power of attorney exhaustive in naming specific powers.
Can the agent under a power of attorney make gifts for the principal?
The construction of a power of attorney is particularly strict relating to gifts and estate-planning. Under the general rule, an agent may not make gifts nor change the principal's estate plan without an express authorization in the power of attorney. Although a recent California case upheld a gift of the principal's home by an agent to herself, the extenuating circumstances point out the difficulty of justifying self-gifts without explicit authorization in the power of attorney. After the agent signed and recorded the transfer, the principal took several actions tending to show that he knew and approved of the transfer: he confirmed his intentions in a conversation with a County Recorder's employee, he acknowledged receiving the deed in the mail after recording, and he had conversations with several disinterested individuals in which he described the transaction and his involvement [Estate of Stephens, 122 Cal.Rptr.2d 358 (Cal. 2002)]. Without such evidence, gifts by an agent to himself or herself would be likely to be overturned, if challenged.
What can the agent do if someone refuses to respect the power of attorney?
Banks, stock brokers, hospitals, and other third parties have the right to question the validity of a power of attorney. After all, they may be liable for damages if they negligently accept an invalid power of attorney and their customer or patient suffers a loss. Therefore, agents often get turned away when they try to use their powers at banks, credit unions, stock brokers, and other places. The agent should not just give up if the power of attorney is legitimate and he or she is justified in exercising the powers granted.
When the person to whom a power of attorney is presented is unfamiliar with the document or does not understand the agent’s right to act for the principal, a letter from an attorney often solves the problem. A thoughtful, but strongly-worded, letter explaining the agent’s authority to act, requesting that the employee refer the matter to the institution’s legal department usually prompts the employee to decide to allow the agent to act for the principal.
Sometimes, the problem is that the power of attorney is stale. This just means that it is older than the bank officer or hospital administrator is accustomed to. A power of attorney does not expire, unless an expiration date is written into the document. However, if a bank officer is seeing a power of attorney that is a dozen years old for the first time, he or she may wonder whether it is still valid. A power of attorney that is more than 60 days old will not be accepted by most stock brokers. The fact that the power of attorney is older than the third party would like to see does not mean the power of attorney is no good. An attorney can probably cure the problem for the agent.
A stale power of attorney can be refreshed in several ways. One is to have the agent sign an affidavit that he or she is still authorized to act for the principal. An attorney can also sign an affidavit showing that the power of attorney is still valid. There are several other ways to put the power back into a power of attorney.
For stock transactions, a Medallion signature is required. This does not mean that the original power of attorney must have had the principal’s signature guaranteed. It usually means only that the agent’s signature on the stock transfer instrument must have a Medallion guarantee.
Is a photocopy of a power of attorney valid?
Most powers of attorney include the following language: “A photocopy of this signed original shall be deemed to be, and should be accepted as, an original.” A copy of a power of attorney that includes this provision will be accepted for most routine uses. However, a real estate transaction will usually require an original signature and many agencies and institutions will demand to see the original. Therefore, it is smart to execute two or three original powers of attorney when doing one. That way, the agent is not out of business if a one-and-only original is lost or destroyed. Besides, the additional cost of doing two or three extra originals should be very small.