March 31, 2017

Pick the Right Power of Attorney Instrument

Selby C. Rains

With a power of attorney document, you authorize an agent to manage your financial matters when you cannot do so. It is a great responsibility, so choose the right person and the right POA tool with care.

General Power of Attorney

A power of attorney (POA) is an essential component of a complete estate plan. When your client executes a power of attorney, he authorizes another person to manage financial matters on his behalf. These financial matters may embrace a broad range of activities, including, but not limited to: banking transactions, managing stocks and bonds, real estate transactions, and gift-giving authority. Choosing the right person to serve as attorney-in-fact under the power of attorney is an important decision. The power of attorney may become effective immediately or only in the event that the client is unable to manage his own affairs.

The person appointed by the client to act on his behalf is called an "agent" or "attorney-in-fact." Because managing one’s assets is a great responsibility, it is important for the client to consider whether this individual will act in his best interests. The client will also want to select someone who is capable of managing assets accumulated during life.

Convenience plays a major role in deciding who should act as (general) power of attorney. On one hand, it might make the client’s five children feel good to all be appointed together as agents, but what other issues does that create? Is it wise to make the child who lives in the same town as the client call the client’s older sisters who live in Santa Barbara, Cleveland, and Beijing every time she needs to make a decision? A better option may be to appoint one child or sibling as primary agent and appoint the others as alternates.

Durable Power of Attorney

A durable power of attorney means that the power of attorney continues after the client becomes disabled or incapacitated. As a practice matter, an attorney should almost always draft a durable power of attorney for the client over a non-durable power of attorney. If a power of attorney is not designated as a "durable" power of attorney, it will be automatically revoked in the event of the client’s disability or incapacity. If this happens, a guardianship proceeding may be necessary in the future. Moreover, a durable power of attorney should expressly define what it means to be "disabled" or "incapacitated" and whether it only becomes effective upon incapacity or disability (known as a "springing durable power of attorney").

A non-springing durable power of attorney becomes effective immediately upon its execution; it may be used immediately after signing. A durable power of attorney should be kept in a safe place and the client should inform the attorney-in-fact of its location. That way, the attorney-in-fact may obtain the durable power of attorney when needed. The Attorney-in-Fact will normally need a copy of the durable power of attorney to act on the client’s behalf, especially when dealing with banks or other similar financial institutions.

An attorney-in-fact has the responsibility to reasonably and prudently act in the best interests of the client with respect to the matters within the scope of the agency. Although the attorney-in-fact is entitled to be reimbursed from the client’s assets for reasonable expenses incurred on the client’s behalf, it is prohibited for an attorney-in-fact to commingle funds. If the client wishes to compensate the attorney-in-fact from the client’s assets for services rendered on the client’s behalf, then that too needs to be expressly stated.

A durable power of attorney remains in effect as long as the client is alive or until it is revoked. A durable power of attorney may be revoked at any time by the client as long as the client is competent. To revoke, use a form, such as a simple affidavit. Forward the revocation form/affidavit to every person that received a copy of the initial durable power of attorney. A durable power of attorney may be drafted to automatically revoke the attorney-in-fact when divorce occurs. Moreover, a new durable power of attorney can revoke any previous durable power of attorney. Upon revocation or alternation, the client should provide notice to the attorney-in-fact and to others that may be currently relying upon it. The client should keep a list of people who have a copy of the client’s durable power of attorney.

I recommend that the clients designate at least three people beyond themselves to act as durable power of attorney alternate agents. This will ensure if one attorney-in-fact is unable or unwilling to act (and the client is already incapacitated) a guardianship can still be avoided because there is a successor named in the power of attorney.

Moreover, it is important to counsel the client on the powers granted to the attorney-in-fact. A few of the powers are listed below:

  • Real estate transactions
  • Chattel and goods transactions
  • Bond, share, and commodity transactions
  • Banking transactions
  • Business operating transactions
  • Insurance transactions
  • Estate transactions
  • Digital asset management
  • Claims and litigation
  • Personal and family maintenance – If you grant your agent this authority, it will allow the agent to make gifts that you customarily have made to individuals, including the agent, and charitable organizations.
  • Benefits from governmental programs or civil or military service
  • Health care billing and payment matters; records, reports, and statements
  • Retirement benefit transactions
  • Tax matters
  • All other matters – Full and unqualified authority to my agent(s) to delegate any or all of powers to any person or persons whom my agent(s) select.

The main advantage of a durable power of attorney is that the agent or attorney-in-fact may be authorized to act with respect to any of the principal’s property. The downside is that, as compared to a revocable trust, for example, the permissible scope of the agent’s powers and the contours of the agent’s fiduciary duties may not be as clear.

Springing Power of Attorney

Unlike a durable power of attorney, a springing durable power of attorney does not become effective until some later event or after a certain period of time. A springing durable power of attorney typically becomes effective when the client becomes disabled or incapacitated. A springing durable power of attorney should expressly define what it means to be "disabled" or "incapacitated."

Healthcare Power of Attorney

A (general) power of attorney typically does not allow the attorney-in-fact to make any healthcare or medical decisions. When the client needs medical care, the doctor is required to obtain the client’s permission before beginning treatment. That permission can be difficult or even impossible to obtain if the client is incapacitated or unconscious. Many times, hospitals will require a signed document authorizing a third person to make decisions on the client’s behalf.

A medical durable power of attorney can be a useful tool for those with a physical disability or long-term care needs. A medical durable power of attorney — called a "medical proxy" in some states — empowers an agent to provide or withhold informed consent on the patient’s behalf regarding any form of medical treatment. A medical durable power of attorney authorizes an agent to make medical decisions beyond the end stages of life (i.e., artificial nutrition, hydration and life support). It may also provide details regarding the patient’s preferences for certain forms of medical treatment and quality of life.

Equally important, a medical durable power of attorney should also include the most recent HIPAA language. In 2003, the U.S. Department of Health and Human Services enacted regulations under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The law includes privacy provisions that ensure patients’ confidential medical information is properly protected. Medical providers may be liable for serious sanctions and monetary fines if they fail to adhere to the stringent rules regarding the release of unauthorized "protected health information" (PHI). Because definitions under HIPAA are very broad and the penalties for violating them are so severe, most health care providers are stringently reluctant to release PHI to anyone other than the patient, without legal authorization. Therefore, it is imperative to have a valid health care power of attorney with current HIPAA language, so that in the event of incapacity, family members or an appointed trustee, power of attorney, or guardian will be able to access medical records and make informed decisions on the client’s behalf.

Decisions about medical treatment are difficult and decisions about the healthcare of loved ones can be a heavy burden. For these reasons, choosing a healthcare power of attorney can be challenging. If the client is struggling to appoint someone, counsel them to consult with their family, and remind them that their decision ahead of time will only ease the overall healthcare decision-making process.

 

Selby C. Rains

Selby C. Rains is an associate attorney at Hallman & Associates in Dallas, Texas. She exclusively focuses her legal career on issues of estate planning, trusts, and probate. Selby handles estates, wills, trusts, powers of attorney, and other ancillary documents related to estates of various sizes and complexity.