Powers Of Attorney – A Useful Tool And A Necessary Part Of Estate Planning
A financial Power of Attorney (PoA) is a legal document that empowers someone (your Agent) to act for you (the Principal) in all financial and related matters you give them authority to act. It is not a very complex document to prepare and sign, but it is a very powerful document that often does not receive the attention it deserves. A financial PoA is effective for the duration of a person’s lifetime or until the person revokes it. Death of the Principal automatically ends the authority, and the Power of Attorney cannot be legally used anymore.
State statutory law usually governs Powers of Attorney, their content and their format. In Pennsylvania it is Title 20 Chapter 56 (20 Pa.C.S. Ch. 56). In New York, it is New York General Obligations Law, Article 5, Title 15.
Authority Under a Power of Attorney
All Powers of Attorney usually have denominated powers you can give someone. They include real property transaction (buy, sell or mortgage real estate), banking and financial institution transactions (make deposits and withdrawals, take out loans), and stock and bond transactions (buy and sell stocks, bonds or other securities, including in businesses). Other important powers include the powers to operate businesses, take out insurance policies, and conduct estate planning or name beneficiaries. Finally, you can use a Power of Attorney for retirement plan transactions, government benefit programs planning (Social Security, Medicare, and Medicaid), litigation, and tax matters. There are more enumerated powers, and you can alter or limit the authority of your Agent. Thus, the Power of Attorney is a flexible legal document that will suit any legitimate purpose. You can even use for Medicaid eligibility planning.
A Power of Attorney is a Very Powerful Document
You can give your Agent the broadest powers available under the Power of Attorney. On the other hand, you can limit those powers or make the Power of Attorney specific to a single transaction. For example, if you are leaving the country to go on a trip for a month, but you are in the process of selling your house, you can designate an Agent solely for the purpose of completing this single real estate transaction. That Power of Attorney is good for that real estate transaction once, but it is not effective for anything else. Alternatively, you can give your Agent broad, continuing powers to buy, sell or mortgage your real property for you.
There is a Notice page that comes with the Power of Attorney, about your powers, the authority of your Agent, and under what circumstances you or a court can revoke the Power of Attorney. It is important to read and understand this Notice, and to discuss it with your attorney before signing. Your attorney will explain the different types of the Power of Attorney to you, discuss the selection and appointment of Agents, discuss the legal ramification or your designations, and answer your questions. The attorney will supervise the signing of the Power of Attorney with two witnesses and a Notary Public to give it legal effect.
General Durable Power of Attorney Versus Springing Power of Attorney
There are two types of this important legal document. The General Durable Power of Attorney is effective immediately upon signing by you, the Principal and your Agent. Your agent can do everything you can do for yourself if you give your Agent the broadest possible authority. Under a General Durable Power of Attorney, the powers continue even if the Principal becomes disabled or incapacitated. Hence, the General Durable PoA is also effective in case of disability or incapacity.
Conversely, the Springing Power of Attorney is only effective in case of disability or incapacity. It does not function if the person is not disabled or incapacitated. In other words, if you do not want to give anyone authority unless you are incapacitated, the Springing Power of Attorney is for you. If you sign a Springing Power of Attorney, a physician will have to certify your incapacity in writing before it becomes effective.
Selecting an Agent
You must trust the person you are appointing as you Agent, and that they will make the best decisions for you. Although your Agent is supposed to act in your best interests under the law, this is not always the case. You must think carefully when appointing an Agent under a Power of Attorney. Typically, individuals appoint their spouses, children and grandchildren as Agents. However, appointing parents, siblings, nieces and nephews, or even more distant relatives and friends, is not uncommon. However, if you have doubts about a person’s motives, honesty, or money management abilities, you should not appoint them Agents. For example, if they misuse the Power of Attorney, they can empty your bank accounts or give away all your property without asking you. Individuals with a serious criminal history, drug or alcohol abuse problems, or compulsive gamblers should not be Agents.
You should typically appoint at least one primary Agent and a successor Agent in case the primary Agent cannot act or is unwilling to act. You can appoint two people to jointly act (act at the same time) as your Agents, but then they will have to agree on the course of action. If they do not agree, there is deadlock, and they may not take the necessary steps.
Revoking Powers of Attorney
Signing a Power of Attorney does not automatically revoke all prior PoAs you signed. You need to include specific provisions to revoke all such prior legal instruments in the new document. A Power of Attorney can also be revoked by a separate document in writing. However, it is imperative to put all your prior Agents on notice of the revocation. Otherwise, they can still act as Agents under that old PoA. You should also put financial institutions (banks and investment brokerages) on notice if they have a copy of the prior PoA. The revocation is not binding on them until you give them legal notice. See 20 Pa.C.S. § 5605. A professional attorney can help you do that, so that your Agents cannot misuse the powers previously granted to them.
Not having a Power of Attorney May Create Problems
If a person becomes mentally disabled or incapacitated, he or she is legally unable to sign a Power of Attorney. The only way to get authority over that person’s property and finances is to file a Guardianship proceeding. In Pennsylvania, the process is in Orphans Court under Title 20, Chapter 55, Incapacitated Persons. In New York, it proceeds in the Supreme Court under Article 81, Mental Hygiene Chapter 27, Title E. The process is complicated and cannot usually be handled without an attorney. It is also time-consuming and expensive. The process involves the preparation and filing of a petition, collection and submission of medical documents, and multiple court appearances. It also involves the appointment of court attorneys and evaluators, and possibly testimony of medical experts.
It is important to remember that your Agent under the financial PoA cannot make health care decisions for you. You must execute a Health Care Proxy and/or a Living Will to appoint someone to do that. These documents are commonly referred to as Health Care Directives.
Contact Us
In summary, anyone who is over the age of 55-60 years old should have a financial Power of Attorney. It is “Доверенность” or “Doverennost” in Russian and “Довіреність” in Ukrainian. Your attorney will guide you through the process and help you avoid mistakes.
For more information on different options available to you and to avoid Guardianship proceedings through effective estate planning, contact Powers of Attorney lawyer Leonid Mikityanskiy at our Southampton, PA office at 215-357-1400. We will help you protect your loved ones with attention, confidence and care.