The Comprehensive Guide to Probate, Trusts, Estate Planning, and Inheritance Litigation

What is a Power of Attorney?

A power of attorney delegates authority from one person to another.  The “Principal” is the person delegating authority.  The “Agent,” also known as the “Attorney in Fact” is the person receiving the delegation of authority.

What are the Types of Powers of Attorney?

A power of attorney could be a general power of attorney, in which case everything the principal could do can be done by the agent.  A specific power of attorney, also known as a “limited” power of attorney, can be created for handling a specific situation or problem, or to engage in a specific transaction.  For example, it is common in most states at a real estate closing to delegate a limited, specific power of attorney to the closing attorney so that any necessary details can be handled post-closing.

Originally, a power of attorney did not survive the incapacity of the principal.  Now, a durable power of attorney is typically used, which survives the incapacity of the principal.

A “springing” power of attorney is a power of attorney that only becomes active upon the incapacity of the principal.  Typically, a springing power of attorney requires some sort of medical verification to attest to the incapacity of the principal.

An “escrow” power of attorney is kept by a third party, typically the drafting attorney, under an escrow agreement, whereby the power of attorney is released to the agent only if certain conditions are met – such as the escrow agent being provided medical proof that the principal is mentally incapacitated.  Because of the difficulty in getting third parties to accept springing powers of attorney (how would a third party verify that the spring was activated, e.g., how to verify that the principal is incapacitated), the escrow arrangement can often be the better practice.  The drafting attorney would normally be in a much better position than a bank, for example, to determine whether the conditions to activate the power of attorney have been met.

How is a Power of Attorney Created?

A power of attorney is often created as part of the estate planning process.  A power of attorney is normally in writing and sets forth those powers that are delegated to the principal.

State laws vary in terms of whether witnesses are required, or whether a power of attorney must be notarized.

Must a Person be Competent to Create a Power of Attorney?

Yes. The principal must have capacity at the time of the creation of the power of attorney.  Capacity in this context would require an understanding of the effect and purpose of the power of attorney.

Does a Power of Attorney Restrict the Activities of the Principal?

A power of attorney will typically be a non-exclusive delegation of authority to the agent.  The principal retains all rights to do what the principal could have done in the absence of the power of attorney.  If the agent is working at cross-purposes to the principal, the principal would ordinarily revoke the power of attorney.  Of course, if the principal is infirm and is being manipulated by a nefarious actor, leading to the revocation of the power of attorney, the (former) principal can always file for a guardianship to protect the principal.  The standard use of a power of attorney is to manage the care and expenses of an infirm person – but sometimes this purpose is thwarted by unscrupulous actors, leading to a guardianship.

What Activities are Permitted by the Agent?

The agent holding the power of attorney may perform only those acts specified in the document.  Some powers of attorney are broad, and permit the agent to do anything that the principal could have done.  Other powers of attorney are limited to specific transactions or certain tasks.

What May an Agent Not Do on Behalf of the Principal?

State laws vary, but in general an agent may not create or revoke a will.  Some states allow the creation of revocable trusts and gifting, and other states allow gifting or the changing of beneficiary designations, but only if specifically enumerated in the power of attorney.  Indeed, Florida requires that the principal initial on the document certain “superpowers,” such as gifting, creating trusts, and changing beneficiary designations.

What Are the Responsibilities of the Agent?

While the power of attorney gives the agent the authority to act on behalf of the principal, the agent is not obligated to serve. Once an attorney-in-fact takes on a responsibility, he or she has a duty to act prudently.

How Should the Agent Sign Documents?

The agent will always want to add after his or her signature that the document is being signed “as attorney-in-fact for” the Principal. If the attorney-in-fact only signs his or her own name, he or she may be held personally accountable for whatever was signed. As long as the signature clearly conveys that the document is being signed in a representative capacity and not personally, the agent should be largely protected.

Do Third Parties Accept Power of Attorney?

Third parties are often concerned whether the document is valid. They do not know if it was executed properly or forged. They do not know if it has been revoked. They do not know if the principal was competent at the time the Power of Attorney was signed. They do not know whether the principal has died. Third parties do not want liability for the improper use of the document. Some third parties refuse to honor powers of attorney because they believe they are protecting the principal from possible unscrupulous conduct.

Many financial institutions will insist that either you use their power of attorney form, or that an affidavit be signed by the principal affirming that the power of attorney is valid.  Financial institutions may also require that the principal execute some release language so that the financial institution does not have liability for the improper use of the power of attorney.

May the Agent Employ Others?

Yes. The agent may hire accountants, lawyers, brokers or other professionals to help with the agent’s duties, but may never delegate his or her responsibility as attorney-in-fact. The power of attorney may not be transferred by the agent to someone else.

What is the Difference Between an Attorney-in -Fact, Trustee, and Personal Representative?

A personal representative, also known as an executor, is the person who takes care of another’s estate after that person dies. An attorney-in-fact may only take care of the principal’s affairs while the principal is alive. A power of attorney expires upon the death of the principal.

A trustee only has power over an asset that is owned by the trust. In contrast, an attorney-in-fact may have authority over all of the principal’s assets (except trust assets).  A trustee may continue acting for the settlor of the trust after the settlor dies. In contrast, a power of attorney expires upon the death of the principal.

May a Power of Attorney Avoid the Need for Guardianship?

Yes. If the alleged incapacitated person executed a valid durable power of attorney prior to his or her incapacity, it may not be necessary for the court to appoint a guardian because the attorney-in-fact already has the authority to act for the principal. As long as the attorney-in-fact has all necessary powers, it may not be necessary to file guardianship proceedings and, even when filed, guardianship may be averted by showing the court that a durable power of attorney exists and that it is appropriate to allow the attorney-in-fact to act on the principal’s behalf.

When there is strife between family members, the guardianship court may scrutinize past use of the power of attorney to determine whether the agent should continue managing the principal’s affairs, or if a guardianship is necessary.

What is a Health Care Surrogate Designation and How Does it Differ From a Power of Attorney?

A health care surrogate designation, also known as a health care proxy, is a document in which the principal designates someone else to make health care decisions if the principal is unable to make those decisions. Unlike a power of attorney, a health care surrogate decision-maker has no authority to act until such time as the attending physician has determined the principal lacks the capacity to make informed health care decisions.  A power of attorney, in contrast, is for financial matters.

Sometimes the health care proxy and power of attorney are combined into one document.  Indeed, anyone who has been in a hospital knows that both financial and health issues are at issue.

When Does a Power of Attorney Terminate?

A power of attorney terminates when:

  1. the principal dies;
  2. the principal revokes the power of attorney;
  3. for a limited or transactional power of attorney, when the task is complete; or
  4. a guardianship court revokes the instrument in favor of a guardianship.

Does the Agent Owe a Fiduciary Duty to the Principal?

Yes.  An agent is a fiduciary and as such has a duty to invest and manage the assets of the principal as a prudent investor. This standard requires the attorney-in-fact to exercise reasonable care and caution in managing the assets of the principal. The attorney-in-fact must apply this standard to the overall investments and not to one specific asset. If an attorney-in-fact possesses special financial skills or expertise, he or she has an obligation to use those skills. The attorney-in-fact should keep careful records.

Everything the attorney-in- fact does for the principal should be written down, and the attorney-in-fact should keep all receipts and copies of all correspondence, and consider logging phone calls so if the attorney-in-fact is questioned, records are available.

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