One of the documents that routinely belongs in a well-balanced estate plan is a General Power of Attorney (also called a Power of Attorney for Asset Management.) What is it and how does it work?
When you give someone power of attorney, you give them the authority to act as your agent. You give them the authority to take your place to make decisions for you and to act for you in specific situations. When properly appointed, an agent has the authority to make any decision for you that you could make for yourself, subject to any limitations that you impose on them. A General Power of Attorney gives the person that you name as your agent very broad authority to act for you in a wide variety of ways. A Limited Power of Attorney gives the person that you name as your agent very specific authority to act for you in a limited number of ways.
For instance, if Patricia gives Alice general power of attorney, Alice may be able to sign checks on Patricia’s bank accounts, sell Patricia’s house, or transfer property into Patricia’s revocable trust. Alice may be able to prepare and sign Patricia’s tax returns, access Patricia’s safe deposit box and use Patricia’s credit cards. On the other hand, if Patricia only gives Alice the authority to sell her car, then all Alice can do is to sell Patricia’s car.
Why would anyone ever want to give someone else this kind of power? While we all expect to handle our own affairs until the end of our lives, often in our senior years, we need someone else to step in to help us out. It may be a question of capacity, or it may be a question of mobility. While my mother was very sharp mentally until her passing, it was difficult for her to get around. I was able to take care of her tax returns, to fetch items from her safe deposit box for her and to interact with her financial advisors because she had given me power of attorney. Other people may not have the mental capacity to handle these tasks any longer and may need someone else to perform the tasks for them.
A Power of Attorney can either become effective immediately when you sign it, or it can become effective only when you become incapable of handling your own affairs. It is a very personal choice as to when it becomes effective and depends on factors such as the integrity of the person you choose as your agent, your relationship with physicians and your overall age and health. I encourage you to discuss this choice carefully with your attorney.
While an attorney-drafted Power of Attorney should be acceptable to all third party banks and other financial institutions, many banks and other financial institutions have their own forms that they require you to use. While I doubt they can legally require you to use their form, it is often easier to just comply with their requirements. If you cannot comply for some reason, I would be more than happy to challenge a bank’s right to ignore a valid Power of Attorney simply because it is the bank’s policy to use only their own form. For instance, if Patricia has signed a Power of Attorney that I have drafted that gives Alice the ability to access her safe deposit box and then Patricia develops Alzheimer’s so that she does not have the capacity to sign a bank’s form and a bank is refusing to let Alice access that safe deposit box simply because Patricia did not sign the bank’s own form, I would be happy to take that bank to court for refusing to honor a valid Power of Attorney. However, if Patricia is still able to sign the bank’s form, most likely it would be easier and less expensive to simply have her sign the bank’s form.
Being named as an agent under a Power of Attorney is different than being named as a trustee of someone else’s revocable living trust. Even though I had power of attorney for my mother, when it came time to buy, sell and rent real property for her, I was able to do these things for her because I was the trustee of her revocable living trust and all of her real property was a part of her trust estate. By naming me as a trustee, she gave me the authority to manage any assets IN HER TRUST ESTATE. By naming me as her agent (power of attorney), she gave me the authority to manage any of her assets that were NOT a part of her trust estate.
While both a Power of Attorney and a Will handle assets that are not a part of your trust estate, the most significant difference between a Power of Attorney and a Will is that a Power of Attorney is only effective during your lifetime, and a Will is only effective after your death. As soon as the Power of Attorney is no longer effective, the Will becomes effective. So, most people need both a Power of Attorney and a Will to cover their lifetime needs and their needs after death.
If you have any questions about Powers of Attorney, I would be happy to discuss them more fully with you.
Originally posted by Susan on May 12, 2014.