Most powers-of-attorney become effective immediately upon execution by the principal. Many principals, however, are justifiably wary about giving a currently exercisable power-of-attorney to the agent. Accordingly, most states allow a durable power-of-attorney to be drafted in such a way that it becomes effective only upon the principal's disability. Such a legal instrument is called a "springing" power-of-attorney, signed when the principal has capacity and not effective until the occurrence of a triggering event such as the onset of disability of the principal. The primary disadvantage of the use of the springing durable power is that because its operation is triggered by disability, the occurrence of the event may have to be conclusively established to the third person in order to induce such person to accept the authority of the agent. The document, therefore, should contain a clear definition of the term "disability."
In most states, the principal, in planning for asset management, should consider granting to the agent other important specific powers in addition to those enumerated by statute and found on the conventional pre-printed form power-of-attorney. Unless such additional powers are specifically drafted into the document, the agent will have no authority to act. The following are a few of many specific powers which the principal should consider including in the power-of-attorney:
In drafting powers-of-attorney, care should be given to confer powers with as much specificity as possible in order to avoid the possibility of a court construing a specific omission as an intent to fail to grant that specific power. Such an adverse finding could be to the detriment of the principal's assets.
Advantages for the Seriously-Ill
The use of a power-of-attorney for the management of the assets of a seriously-ill or disabled person has several advantages. It is especially useful in situations where the disabled person's assets may be modest and, accordingly, do not warrant the greater expense associated with other planning techniques such as trusts, conservatorships, committeeships or guardianships.
The greatest advantage of the durable power-of-attorney is that it remains effective after the principal's incapacity. The agent, therefore, can act immediately, upon the principal's incapacity, to manage his assets in a falling stock market or to take various emergency measures without initiating costly and time-consuming court guardianship proceedings to attain court authorization for such transactions.
The durable power-of-attorney is also a useful planning tool for married couples where property is jointly owned. When one spouse becomes incapacitated, the other acting as the agent, can avoid a court proceeding and act promptly in situations where, although assets are held jointly, one spouse cannot act alone to sell, transfer or refinance property or registered securities without having to obtain the consent of the other joint owner.
Care should be taken regarding the formalities involved in signing a durable power-of-attorney. Some states such as South Carolina require the same formalities as are required when a will is signed. Other states require that the durable power be signed with the same formalities necessary to make it recordable as a deed to real property. For example, in Missouri, if the agent is given the power to convey real estate, the power-of-attorney itself must be recorded. Although the Florida statute does not require it to be signed before a notary, as does the New York statute, if real property is involved, it is advisable to have the document notarized since it may have to be recorded with the deed, at which point it will have to be notarized. Similarly, California's statute governing notarization of documents is very detailed.
In most states, the power-of-attorney must be signed by the principal before a notary public. This is advisable even in those states without such a requirement since this serves to authenticate the signature of the principal to the party to whom the power-of-attorney is presented. Additionally, although not statutorily required in any state, it is advisable, where there is a question of competency, to attach an affidavit from the attending physician that the principal is competent.
And although not statutorily required by any state, a power-of-attorney should contain the notarized signature of the agent selected by the principal, since after all, it is the authenticity of that signature upon which the person to whom the power-of-attorney is presented will be relying upon.
A durable power-of-attorney ceases to have effect upon the death of the principal, upon the revocation by the principal, assuming the principal has the requisite capacity to do so, or upon the court order. If the principal revokes the power-of-attorney himself, such revocation may either be in writing or by the principal conducting himself inconsistent with the power (e.g., destroying the power-of-attorney document). In those states where, upon the appointment of a conservator, committee or guardian for the principal, the power-of-attorney terminates, it is advisable for the principal to name a person of his choice in the document to act as his conservator, committee or guardian. Lastly, a power-of-attorney can terminate if a specified time limit is specified in the document itself or if a specific event as set forth in the document has occurred.
In a few states, a principal is allowed to delegate to the agent in the durable power-of-attorney various healthcare powers in addition to control over financial matters. In most states, however, a healthcare power-of-attorney must be a separate document from a power-of-attorney used to manage the property and financial affairs of the principal. A detailed discussion of heathcare powers-of-attorney will be discussed in a later issue of The Bulletin.
Note: No power-of-attorney should be drafted without the advice of an attorney.
Carole C. Lamson is an attorney on the New York State Bar Association's Trust and Estate Section.