Practical Powers of Attorney
A power of attorney (POA) is simply a document that allows another person to act on behalf of the client. The person creating the document is called the principal and the person carrying out the wishes of the principal is now called the agent. These documents have existed for centuries but until recent years, when the principal become disabled and needed a POA the most, the documents became invalid. This was because historically, they were created for long-range business dealings and were based upon principles of agency law. Under agency law when the principle became disabled, the agent lost his/her authority to act. A series of amendments to the statutes have corrected this problem. Now all POA’s created since 1993 are presumed valid even after a principal’s incapacity, unless the document expressly forbids it. This is known as the concept of durability.
The present law on POA’s is found in Chapter 56 of the Probate, Estates and Fiduciaries Code, (The PEF Code), Title 20. The chapter was thoroughly revised in 1999 and there were minor amendments this year. Since December of 1999, we no longer have “attorneys in fact”, now we have “agents”. Now each POA dealing with financial matters for individuals must have a notice provision and an acknowledgement signed by the agent.
Gifting Powers. The revisions of 1999 also dealt with the power of agents to make gifts. Not surprisingly this power has been subject to much abuse in the past. All new POA’s can only grant limited gifting powers to the agents unless they are very specific on the gifting authority. While a dishonest agent can easily misuse gifting power, the power to make gifts under a POA is often necessary to accomplish estate planning goals or Medicaid planning. See Section 5601.2.
Powers Conveyed. Our present statute specifies 23 very broad areas in which POA’s can delegate power to agents. Of course it is easy to simply create a POA that authorizes an agent to do all of them and if the agent is a spouse of the client that is often appropriate. However, these are very powerful documents and one size does not fit all clients. Often it is better to handcraft a document to give the agent only the powers he or she will actually need.
For example, if a client is going overseas for the summer, she may need someone to see that her bills are paid while she is gone. Therefore the agent needs access to the principal’s checking account and perhaps a savings account but no more. Additionally, in such a situation the POA should state it expires at the end of summer vacation, on a specific date.
Another concern is that the statute gives the agent the power to engage in retirement planning. If the agent is picking survivorship options for a long time public employee about to separate from service, a carelessly chosen option could cost the principal and her family a very large sum. If the agent must have the power to do this, (or other matters such as sophisticated investing or tax planning) it is best to add language requiring her to hire appropriate professional services and charge that fee to the principal.
When Does A POA Take Effect? The principal may choose to have the power go into effect immediately or have it go into effect upon the happening of a specific event. In the latter case it is known as a springing POA and care must be given to choose an event that can be clearly understood by all concerned. For instance one may choose to have the POA go into effect upon the principal being declared disabled by his personal physician. The physician can easily do this with a letter if she chooses. However, some physicians may shy away from putting their opinion in writing.
Agents. The principal may choose to have several agents acting jointly or severally. In this author’s opinion this creates confusion among all who have to deal with the POA. It is better to have one agent and then one or more alternate agents if the first agent cannot act. Section 5602 (b)(1)
Execution Standards. Our statute is very informal; see section 5601(b). But if the POA will convey real estate it must be acknowledged. However, for practical reasons, such as having your document easily accepted by the large banks and stock brokers who may be familiar with other state’s more stringent requirements, it is usually best to have a POA, witnessed whenever possible by two disinterested witnesses and notarized.
Recording A POA. Any POA conveying an interest in real estate must be recorded in the appropriate County Recorder of Deeds Office. However, you may want to record your POA for other reasons. If you only have one original document, you may find that banks, etc. may balk at relying on a copy of the document. However, a certified copy of a recorded POA from either the County Recorder of Deeds or Clerk of Orphan’s Court is as good as the original. Section 5602(c). Be advised that each office may set technical requirements for documents to be recorded and reject documents that fail to meet them. Common traps for the unwary are minimum font sizes, specific margins, etc. Get to know your local county standards!
Health Care Power of Attorney. (HPOA) This is a document that allows a designated agent to make health care decisions, such as to admit a person to hospital or nursing home or authorize surgery. Presently the provisions authoring health care POA’s are found in 5602(a) (8) and (9) and seem more of an afterthought buried in a chapter dealing primarily with financial matters.
How do HPOA’s differ from living wills? A living will takes effect only when the client is unconscious or mentally incompetent and near death. However, with dementia cases such as Alzheimers a person may be mentally incapacitated but physically in good shape and live for many years. In situations such as these, an HPOA is very useful. While an HPOA may state that it is effective immediately, if in fact the client appears competent to medical personnel they will most likely disregard it and seek the client’s decision on any matter.
Since Health Care Power of Attorney provisions are buried in chapter 56 of the PEF Code dealing with financial matters, there was some concern that they had to be accompanied by the mandatory notices and acknowledgements required by 5601(c) and (d). It made no sense to add these on to a purely health care document. An amendment to the PEF Code (Act 50 of 2002), new section 5601(e) (2) makes it clear that these provisions do not apply to purely health care documents.
While HPOA’s serve a different function than living wills, it is certainly permissible to combine the two in one document. In any case care should be taken so that the agents and surrogates are either the same people under both documents or if not, that they share the same philosophy on respecting the client’s wishes on end of life care.
While care must be taken in drafting a document to meet each client’s individual needs, the POA and HPOA are valuable tools for disability planning and at least in this author’s opinion, should be routinely discussed with every will client.