Appendix K:
Power Of Attorney

Available Topics:

What is Power of Attorney?

What is Durable Power of Attorney?

What is Springing Power Of Attorney?

Power Of Attorney

A power of attorney is a document in which one person (the principal) gives authority to another to act on his or her behalf. The designated individual is known as an ìattorney-in-fact,î although the person need not be a lawyer. The scope of the power can be limited (such as the authority to sell a house) or general. The principal can even grant the power to make gifts of his or her property, but not to make a will..

There are two main reasons to use a power of attorney: to facilitate business or financial transactions, and to enable action on behalf of an individual who is incapable of making his or her own decisions. For business purposes, a detailed and extensive power of attorney is often used to cover every conceivable transaction an attorney-in-fact may have to make.

When using a power of attorney to manage personal affairs, the authority should be specified as much as possible and should be of limited duration. A bank (or anyone else with whom the attorney-in-fact may have to deal) might not accept the power of attorney if it is too general in scope. If the power of attorney involves the transfer of funds, the bank may require that all involved parties approve the arrangement in advance.

Durable Power of Attorney

A conventional power of attorney becomes void if the person granting the power is suddenly incapacitated. By designating a ìdurableî power of attorney, however, an individual can provide for the management of financial affairs and other matters in the event that he or she is rendered unable to act personally. Under such an arrangement, the attorney-in-fact makes decisions that the disabled principal would normally make, such as selling property, cashing certificates of deposit, or writing checks.

A durable power of attorney is often a very broad and detailed document. To be durable, it must contain a clause explicitly stating that the power shall not be affected by the principalís subsequent disability or incapacity, or by the passage of time. Without such a clause, most state laws would probably render the power of attorney inoperative immediately upon the disability of the principal.

Use of the durable power of attorney allows the principal to choose an agent rather than having the court select a guardian. Consequently, it also eliminates the need to establish guardianship or conservatorship over the estate, which is often an expensive and time-consuming process, and enables the attorney-in-fact to make property transactions without prior court approval.

Most experts recommend a separate, statutory health care power of attorney document. This particular instrument is covered in more detail in a separate appendix to this report, ìAdvance Medical Directives.î

Springing Power Of Attorney

An alternative to a durable power of attorney is the springing power of attorney, which only becomes effective when the principal becomes incapacitated or upon some other specified occurrence. The springing power of attorney is used if a person wishes to delegate power when incapacitated, but wishes to retain it while still healthy.

A springing power of attorney requires a formal determination of disability before the power of attorney will be considered operative. This can involve a short delay and extra expense. (A springing power of attorney might provide, for example, that two doctors examine the principal and attest to disability.) If there is uncertainty or disagreement over the degree of the principalís disability, however, banks or others might balk at recognizing the authority of the attorney-in-fact. Such disagreements often wind up in court.

Cautionary notes

It is important to remember that any power of attorney is ultimately an instrument presented to banks and other third parties who can arbitrarily decline to recognize it for their own reasons. The party being asked to accept a power of attorney is in fact doing the principal a favor. If the person or institution has any reason whatsoever to fear ìgetting in troubleî for honoring the document, it might be rejected. A stock brokerage, for example, does not want to worry about following the instructions of an attorney-in-fact under a customerís power of attorney, only to have the customer file a lawsuit later, arguing that the document should not have been honored for some reason.

Brief, general power of attorney forms usually are not acceptable if the attorney-in-fact is engaging in a transaction involving much moneyóespecially when there are questions about the principalís mental capacity. Moreover, such short instruments are not designed for a ìdurableî power of attorney.

Banks and other institutions are concerned, too, over reports in recent years of abuses of discretion and ìself-dealingî in the principalís property by persons purporting to act under powers of attorney. Institutions do not want to risk claims by disgruntled account owners that their accounts have been spent down by dishonest attorneys-in-fact, using power of attorney documents that were deficient in some respect and should not have been honored.

Consequently, it is prudent to discuss the matter beforehand with the bank or institution that will be asked to honor the power of attorney. Some banks may have their own power of attorney forms and might insist they be used.

References

Fockler, John K. 1995. "Should You Use One or Both? Durable Power of Attorney for Health Care and Living Will," Tennessee Bar Journal, vol. 31.

Hamann, Ardath A. 1993. "Family Surrogate Laws: A Necessary Supplement to Living Wills and Durable Powers of Attorney," Villanova Law Review, vol. 38.