Home | Power Of Attorney

Money & the Law: Don't rush into a financial power of attorney *

A document routinely included in an estate planning package is a financial power of attorney. A financial power of attorney causes one person, known as the principal, to appoint another person, the agent, to act within the scope of authority described in the document. A financial power of attorney can be very broad (a “general” power of attorney, limited to a particular transaction (a “special” power of attorney) or anything in between. As part of an estate planning package, a power of attorney is likely to be “general,” granting broad powers to the agent. (Contrary to what the name implies, an agent under a financial power of attorney does not get to — or have to — practice law.)

A financial power of attorney can be of benefit to someone who must regularly travel to remote and distant lands. It can also be of assistance to someone who, due to age or illness, is facing a risk of mental decline and impairment. This is so because, with proper language inserted, a power of attorney becomes “durable,” meaning the grant of authority contained in the document survives legal incapacity. If a person not having a durable financial power of attorney becomes incapacitated, it’s likely a conservator will have to be appointed to handle the person’s financial affairs. This requires a legal proceeding that can be costly, divisive among family members and humiliating to the incapacitated person.

But, despite their seeming utility, letting a financial power of attorney loose in the world is not something to be done without careful thought and planning. This is so because an agent named in a financial power of attorney can use the document to do bad things. This can include outright theft or something more subtle. For example, a child who is appointed agent in a durable power of attorney, watching his or her inheritance melt away by reason of caregiver and medical expense, might engage in a quiet little program of pre-death asset distribution or skimp on an elderly parent’s needs.

Also, financial powers of attorney create risks for people named as agents. In the beginning, before incapacity, the agent’s job is simple — do whatever the principal wants done. But when incapacity comes along, the agent’s responsibilities change dramatically. Now the agent becomes something in the nature of a trustee or conservator. What duties does this entail? Must the agent round up information about, and become responsible for managing, the entirety of the principal’s financial affairs, to include business interests, investment accounts, loans, insurance policies, tax obligations, vehicle maintenance, pet care, etc.?

And how does the agent know when incapacity has set in? In many elderly (and not so elderly) people, capacity comes and goes. When does the agent stop waiting for instructions from the principal and start making discretionary decisions?

Sitting on top of all that is a question about the standard of care applicable to agents named in a power of attorney. Is the standard simply good faith — meaning honesty? Or is the standard higher — requiring diligence, competence and prudence — as would be applicable to an actual trustee or a court-appointed conservator?

The point here is that financial powers of attorney are more complex than they might appear to be at first glance, and they deserve serious attention by both lawyer and client as a part of an estate planning process.

Jim Flynn is a private attorney at Flynn Wright & Fredman LLC. Reach him at moneylaw@jtflynn.com.

Article Source: http://freelegalinformation.info

By Jim Flynn, The Gazette

© 2006 - 2016 Free Legal Information.info

Powered by Article Dashboard

Warning: Unknown: open(/home/content/55/9808155/tmp/sess_e8krpn5fpagbsndqp4kgu2bkv5, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0