Weaknesses in Powers of Attorney

The durable power of attorney is the most important estate-planning tool the attorney has. The power of attorney allows the principal to appoint a 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 and minimizes the likelihood of going to court to get guardianship.

An incompetent patient is under the complete control of a hospital or nursing home administration. 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 amicable.

Because of the extreme importance of this document, it should not be prepared without careful review of all provisions nor executed without careful consideration and counseling. Downloading a power of attorney from the internet is not the same as having an attorney draft one specifically for you. Even a power of attorney drawn up by an attorney may not be effective if the attorney is inexperienced in estate planning and elder law.

A recent client had a power of attorney that was prepared by an attorney, but IRAs and other retirement plans were not explicitly mentioned. This may be a problem because there is a significant IRA that this client needs to liquidate.

Other clients come in with “springing” powers of attorney. This is a power of attorney that cannot be exercised unless the principal is certified as incompetent – usually by two doctors. Such a power of attorney may be very difficult to “spring.” The principal may be flat on his or her back in a rehab bed, unable to move, but if the principal’s mind is clear the agent would have no authority to act on the principal’s behalf.

Here is a list of provisions that may impair the value of a power of attorney:

1) A “springing” provision. As stated, a springing power of attorney may be difficult to spring. If the principal is willing to trust the agent when the principal is incapacitated, why would he or she not trust the agent while fully competent?

2) Lack of the power to make gifts. Unless the agent has authority to “make gifts,” the agent is limited to transactions for fair market value. This can make it extremely difficult to qualify the principal for government benefits. It can also make it difficult for the agent to get rid of items of property that are not worth trying to sell.

3) Failure to specify IRAs and other retirement accounts as included in the agent’s authority. A power of attorney that gives the agent authority over all sorts of bank and financial accounts will not cover retirement accounts unless they are explicitly mentioned. Liquidating retirement accounts affects the principal’s income tax return. This is considered “tax planning” and a bank, credit union or brokerage may balk at liquidating even a very small IRA.

4) Tepid information releases. The agent must have comprehensive authority to demand information concerning the principal’s health, medical treatment, financial circumstances, tax returns, and government benefits. Authority to waive privileges is also necessary. Information release provisions are among the most important parts of a well-drafted power of attorney.

5) Unclear procedure for succession or lack of nomination of a successor agent. Agents sometimes become sick, absent or deceased. It is vital to name at least one successor agent and to explain how the successor agent becomes the incumbent agent. This provision should not be too specific or difficult to satisfy.

6) Absence of health-care powers. The ability to talk to doctors and arrange for care of an incapacitated principal is crucial. Many states provide in their laws for a “health-care power of attorney” that is only triggered by near-total incompetence. Such a document is useful for end-of-life decisions, but is worthless when the principal is at least partially competent. Authority to make health-care decisions can be very helpful when the principal is mentally alert but physically incapacitated. Under those circumstances, the agent needs authority to deal with health-care facility management.

A power of attorney is extremely important legal document. It should be drafted by an attorney who is experienced in estate planning. It is also a document that must be executed before it is needed. It is never too soon to execute one.

The next post will discuss what to do when a bank or other institution – including the government – refuses to honor a power of attorney.

 

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
law-business.com
 
©2014 John B. Payne, Attorney
 
 

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