A durable power of attorney for finances is an essential part of every estate plan. A POA document allows you (the Principal) to give permission to another person (your agent) to act on your behalf. Your agent can act and speak for you when it has become difficult or impossible for you to do so yourself. A properly done POA document avoids the need for a guardianship or other court intervention if you lose the legal capacity to handle your affairs. However, not all POA documents are the same. A POA that lacks certain provisions can mean your agent will not be able to carry out your wishes at a crucial moment. This post discusses some common issues with POA documents, and how to decide whether yours needs updated.
Issue One: The POA Document is Old
Every estate planning attorney recommends reviewing your plan every 5-10 years. However, many people neglect to do so. Even if you don’t need to make changes to your will or trust, having an attorney review your POA document can be helpful. Particularly for POA documents done prior to 2012. In 2012 Ohio passed the Uniform Power of Attorney Act. This law clarified and standardized the rules regarding powers of attorney in Ohio. It also provided for a statutory power of attorney form. The law emphasizes that a POA document needs to give specific powers to the agent. Simply saying “my agent can do whatever is necessary that I could do myself” just doesn’t cut it anymore. Many POA documents done prior to 2012 rely heavily on these ‘catch-all’ provisions.
Another issue with older POA documents is that banks, financial companies, insurance companies, and others are often hesitant to accept a power of attorney done many years ago. They fear that since it has been so long, the principal may have changed or revoked the Power of Attorney. They worry that if they do what you are asking them, they could get in trouble. This remains an issue with the Ohio statutory form. If your POA document was done more than 10 years ago, you can have an attorney review it. Even if it does not need changes, the attorney can prepare an affidavit for you to sign confirming the POA is still in full force and effect.
Issue Two: The POA Is Only Effective Under Certain Conditions
People are often wary about naming someone as their Power of Attorney. And for good reason! Unscrupulous agents can use a POA to financially exploit vulnerable principals. As a safeguard against this, many attorneys draft ‘springing’ powers of attorney. These POA documents are only effective under certain circumstances. If the principal is incapacitated, hospitalized, or otherwise unable to act on their own the POA document ‘springs to life’. While this seems like a helpful provision, in reality it just makes the POA document difficult for the agent to use when it is needed most. The agent must prove to the satisfaction of the bank or other institution that the principal is incapacitated before accepting the POA. Since these companies are very risk-averse, demonstrating that the POA is effective can be challenging.
Attorneys who focus on elder law usually draft POA documents so that they are effective immediately when signed. We counsel our clients to be thoughtful and careful in naming their agents. We make certain to advise both the principal and agent of their rights and obligations. For additional safety, we often require the consent of a successor agent to perform actions like making gifts or changing beneficiary designations. This allows your agent to easily handle day-to-day affairs but requires the input and consent of the whole family on major decisions.
Issue Three: There is No Backup Agent
A POA document is only good if there is someone able and willing to act as your agent. Many people choose the person they trust the most to act as their agent. They name their spouse, sibling, or close friend, but they neglect to think about who should act if the person they’ve chosen is unable to serve. A well-drafted POA should name one or more additional agents to take over if the primary agent can no longer serve. This arrangement prevents a situation where the agent can no longer serve, but principal has lost the ability to name a new agent. Without a backup in place, the only alternative is to have a court-appointed guardian act on behalf of the principal.
A solidly drafted POA document allows your loved one to carry out your wishes easily and effectively. A poorly drafted one can make things difficult or impossible. An attorney can review your POA document, and counsel you on whether your document is sufficient to meet your goals, but be sure to consult with one who has knowledge and experience working with seniors and their families.