In broad overview, a power of attorney allows a designated person or entity to act on one's behalf. However, if one is unable to competently act, due to the onset of a mental disability, as might happen with a stroke or dementia, for example, the traditional agency based power of attorney is ineffective. This is because in law the agent (the one authorized to act) draws her or his power from the principal (the one authorizing the representation). When the principal is legally deemed unable to act, so is the agent.
To avoid the necessity of a court appointed and directed guardianship in the event of a mentally disabling event, state statutes authorize an individual to create, in advance of such a disability, a "durable power of attorney," one that "endures" even if the principal becomes mentally disabled. Sometimes individuals are appropriately reluctant to grant a power of attorney. Consultation with an experienced, trusted, and neutral professional should alleviate this concern. The durable power of attorney may be written to only become effective if a disability has occurred, for example, in the professional opinion of a specified trusted physician or panel of physicians. Carefully address in the durable power of attorney the procedure to determine both physical and mental incapacity.
Particularly for the elderly, creating a durable power of attorney is typically part of the will preparation and estate planning process. This comment provides a brief and incomplete legal educational introduction to possible provisions in a durable power of attorney. It does not discuss other documents including, for example, a medical power of attorney, directives to physicians, HIPAA authorization, and declarations of guardianships. Always consult experienced legal, medical, accounting, and taxation professionals in your disability and estate planning process.
There are numerous readily available durable power of attorney forms. As is true of any form, one must not only understand the benefits and limitations of the form but also the appropriate applicability of the form to one's individual circumstances within one's state of residency. In other words, it is dangerous to use a form without adequate knowledge and understanding.
What follows is a brief and incomplete educational listing of 12 possible provisions, among many, that one might include or add to an "off-the-shelf" statutory durable power of attorney form. While the statutory durable power of attorney form has the advantage of being readily recognizable by financial institutions, it may be incomplete. Frequently these forms grant powers in single sentences without elaboration. However, brevity may create legal issues as many state supreme courts strictly interpret a power of attorney, granting the agent only the powers specified in the document. Consult experienced professionals to determine what is appropriate in your unique situation.
In all of the following, carefully limit the authority of the agent to personally benefit, as a "general power of appointment" may create a variety of legal and taxation issues. All of these powers may be useful for addressing Medicaid eligibility or for estate tax planning. Of course, taxation and governmental or private program eligibility must always be considered before acting. The appropriateness and detailed wording and scope of powers granted require consultation with experienced professionals.
1. Authorize the agent to create a variety of "pay on death'" (POD) and survivorship accounts. Determine in advance what documentation is required by financial institutions that are likely to be contacted and if they require specific language to be included in a power of attorney.
2. Authorize the agent to create and convert the status of a variety of Individual Retirement Accounts (IRAs). Again, determine what may be required beyond general statements in a power of attorney.
3. Authorize the agent to make a variety of gifts. However, realize that family members or friends may believe that the agent is overreaching unless briefed by you in advance. Gifting may create taxation and program eligibility issues. An agent must consult experienced legal and taxation professionals prior to gifting.
4. Authorize the agent to create trust funds and name beneficiaries. Again, typical documentary requirements and taxation, etc. issues should be determined in advance.
5. Authorize the agent to deal with (sell, mortgage, enter into enforceable repair and improvement contracts, lease, etc.) real property (land, houses, commercial buildings, mineral interests, etc.). Real estate title examiners and title insurance companies critically examine real estate transactions created under a power of attorney. There is concern for forgery, prior death, and overreaching. Frequently it may be necessary to create a separate and special power of attorney to address real estate transactions. Include a specific legal description of each of these properties as this will likely be required as well.
6. Authorize the agent to employ home health care workers and address custodial care issues. Will your family and friends be in agreement with allowing your agent to make these very personal decisions?
7. Authorize the agent to deal with pets. Pets are always a very sensitive subject for individuals, family members and friends. Think carefully about the likely decisions that will need to be made.
8. Authorize the agent to deal with social media accounts, media assets, and related digital issues. There may be contractual terms-of-service agreements that override an individual's wishes. Don't forget to record computer, cellphone, and all account passwords in a readily accessible location.
9. Authorize the agent to sue in a variety of circumstances. Determine if state law allows legal action under a power of attorney or if a court created and supervised guardianship is necessary in order to sue.
10. Authorize, by specific provisions, the agent to be compensated, indemnified (made whole for financial losses), and employee a variety of professionals such as attorneys, appraisers, financial consultants, and accountants.
11. Authorize the agent to appoint sub-agents in specific circumstances.
12. Provide a specific method for revoking the power of attorney. Recording a revocation in the public records at a local courthouse is a commonly specified method.
The basic concept behind granting all of these powers is to maximize flexibility and allow the agent to act in ways that the principal might wish to act. Again, consultation with experienced professionals is necessary.
This comment provides a brief and incomplete educational overview of a complex topic and is not intended to provide legal, financial planning, estate planning, or tax advice. Always consult experienced professionals when contemplating and executing your disability and estate planning