Should you or shouldn't you? Reasons to be super cautious about giving someone your power of attorney for assets.

Powers of Attorney for Assets are the Leading Cause of Elder Abuse in California - Here's Why.

There’s a clue in the name. A power of attorney is a very powerful document. In this article, we consider just a few of the various factors to weigh in deciding whether and how to proceed with signing a power of attorney.

What is a Power of Attorney?

A power of attorney is a document that gives someone else the ability to bind you legally - buying, selling or refinancing your home, dealing with insurance companies or tax authorities, entering into contracts.

Why does this type of document give rise to so much bad behavior?

The person acting under the authority of your power of attorney will not be supervised by a court. If you or your family have disagreements about how the power of attorney is being used, it can be very difficult to persuade a court to second-guess any decisions made, because the power of attorney provides authority to act.

What are some tips to minimize abuse relating to powers of attorney?

Powers of attorney involve two people:

  1. The Principal

    This is the person who signs the document. In California, the principal must be over 18 and have the same legal capacity (ability to make decisions) required to enter into a contract. If you are responsible for a senior who seems to be going downhill, it is important to address whether the senior would like to put a power of attorney in place before legal capacity is lost - then it will be too late.

  2. The Attorney-in-Fact a.k.a. Agent

    This is the person who is given the power to act on behalf of the principal. The agent is required to act subject to fiduciary duties (which will be the subject of a future blog), but there is no direct court supervision of the agent’s activities.

    Choosing a completely honest and reliable agent is absolutely crucial. While spouses frequently sign powers of attorney in favor of each other, it doesn’t take much imagination to realize what might happen during a marriage breakdown. Similarly, while older parents hope their adult children will always act in a sensible, loving manner, normally honest people can find temptation too difficult to resist when in financial difficulties themselves. While we all hope our family relationships avoid the full King Lear scenario, dipping into a bank account inappropriately can be too tempting for some people with their own unmet bills.

Does it matter what type of power of attorney I sign?

Minimize the risk of abuse of a power of attorney by carefully considering what type of power of attorney is most suitable for your situation.

There are three categories of power of attorney:

  1. Simple

  2. Durable, and

  3. “Springing” Durable.

  1. A simple power of attorney gives the agent the power to bind the principal (that is, the person signing the power of attorney) from the moment of signing until the principal either dies or loses legal capacity (that is, the ability to make decisions). Alternatively, an expiration date could be stated on the document or the principal could revoke the power of attorney so that it is no longer effective. Not long ago, simple powers of attorney were useful for situations like closing on the refinancing of a home when one of the spouses was out of town. Nowadays, an electronic signature will usually suffice, so simple powers of attorney are used less often.

  2. A durable power of attorney is effective from the moment of signing and continues to be effective after the principal has lost legal capacity. For seniors who might be losing eyesight or short-term memory, the challenge of dealing with their financial affairs on a computer can become quite daunting. They may have legal capacity, but nonetheless be ready to turn decision-making over to the next generation. If a durable power of attorney is signed, then assets can continue to be managed seamlessly if there is a subsequent decline in mental facilities. To limit the scope of actions that can be taken by the agent, carefully consider the range of powers included in the document. For example, you might want someone to deal with a specific bank account, but not all of your financial accounts. In this situation, ask your bank whether they have their own form of power of attorney. This can be signed and put on file with the bank, saving potential future hassle.

  3. A “springing” durable power of attorney has no effect on the date of signing. It “springs” into effect once a physician has signed the attached form stating that the principal is unable to make decisions for him or herself. This is usually the most suitable for generally healthy middle-aged couples who opt to sign a power of attorney in favor of each other. A senior adult who wants to retain control for the time-being could sign a springing durable power of attorney in favor of a trusted adult child. One possible safeguard is to appoint more than one agent, requiring them to act jointly. The downside is that if they disagree, the matter might end up in court, causing expensive legal fees and an unpredictable outcome.

Like marriage, powers of attorney should not be entered into lightly. Like marriage, enter into a power of attorney in haste, repent at leisure. This article considers only some of the factors that must be carefully weighed. Obtaining legal advice from an experienced estate planning attorney can be crucial to a good outcome.

The above article is for informational purposes only and does not constitute legal advice. No warranty is given about the accuracy of statements contained in this article. You are strongly urged to retain the appropriate legal counsel for your needs. The author does not know you or your situation and is therefore unable to provide you with legal advice. Attorney Elizabeth Botsford and Busy Wills, Inc. only provide legal advice after a retainer agreement is signed.