In this series, I will get right to the point about what I think your family needs to know about important topics in elder law, estate planning, and estate administration. My goal is to provide information so that you can make more informed decisions and clarify your estate planning goals. In this article, the topic of discussion is Powers of Attorney.
What is a Power of Attorney?
A Power of Attorney is an agreement that someone called a “principal” signs to allow another person or entity, called an “agent,” to make certain decisions for them.
There are Different Types of Powers of Attorney
There are different types of Powers of Attorney. In Pennsylvania, different sections of our law cover types of Powers of Attorney. Chapter 54 of the Decedents, Estates and Fiduciaries Code covers Health Care Powers of Attorney while Chapter 56 covers Financial Powers of Attorney.
In my office, I prepare separate documents for these. In the past it was common to see these powers combined and I still review a fair amount of documents that were drafted that way.
I like these to be separate because you may wish to choose a different people to manage your health care decisions and financial decisions, and, as stated above, the standards for both documents are governed by different sections of law.
Powers of Attorney are Essential for All Adults
I cannot overstate the importance of having Powers of Attorney. Every time I review a client’s estate plan, I review these documents to make sure they are in order.
Married couples are often surprised when I tell them that they need Powers of Attorney and that they may not be able to make important financial decisions for each other without them. Here’s a simple test – ask yourself, do you have a retirement account (an IRA or 401k for example)? If you answer yes, you need a Power of Attorney so that your spouse can make important decisions involving that account in the event you become unable to do so yourself.
Young adults are also surprised to learn that it is wise for them to have Powers of Attorney as well. Even if young adults do not have an accumulation of financial assets to plan for, it is important for them to name the people they trust the most to make medical decisions for them in case they become incapacitated in the future.
You Do Not Lose Power to Manage Your Affairs
When you sign a Power of Attorney, you allow someone else to make decisions for you. You do not give up the power to make these decisions for yourself while you can. You are simply allowing someone else to step in and help you. It is important to understand that in this case, you are not limiting your own power by giving someone else power.
Some Documents are Better Than Others
As I have alluded to earlier in this post, not all Powers of Attorney are written the same way. They are not all of equal quality. I have to draft new Powers of Attorney for clients because their current documents do not grant their agent enough power to protect their assets in the event of a nursing home crisis.
Pennsylvania law has specific criteria that must be met in the document in order for the agent to be able to gift, or transfer assets out of the principal’s name. Most documents that I review allow the agent to make what we call limited gifts but in order to execute most plans to protect assets, we need the document to allow the agent to make unlimited gifts.
I have found trying to save a few dollars by purchasing do-it-yourself documents online or through big box office supply stores to be a particularly bad idea. These documents tend to lag behind important changes in the law because they aren’t updated frequently or quickly enough. The end result is that the client has to pay twice for an appropriate document and therefore has spent more than they needed to by trying to save money.
Trusting Your Agent is Key
The most important factor in choosing an agent for your Power of Attorney is trust. You need to have unwavering trust that the person you are choosing will make decisions that are in your best interest.
The law provides some safeguards regarding the behavior of agents by imposing certain duties on them when they act for you, however, this is no substitute for making sure that you choose someone you trust to fill this role.
Banks May Not Accept Old Powers of Attorney
From a practical perspective, the ultimate goal of having a Power of Attorney is that it will work when your agent has to use it. In other words, you expect that when your agent provides your Financial Power of Attorney to the bank, the bank will put it on file and allow the agent to write checks for you and take care of other important banking activities.
Banks and other financial institutions tend to be suspicious and require more intense scrutiny of documents that were not prepared recently. Powers of Attorney that are 5 years old, for example, may garner heightened scrutiny, and Powers of Attorney that are 10+ years old may be considered “stale.” Sometimes, after review by their legal department, banks choose not to accept these older documents.
The best way to ensure that your Power of Attorney will be accepted is to have it reviewed every 5 or so years and to keep it updated when the law changes. This will ensure that when it is presented to the bank, the most current form is being used.
Although age of the document should not matter because a Power of Attorney should be acceptable as long as it was executed according to the law at that time, it’s best to err on the side of caution here. Instead, focus on what’s important – getting the result that you want, which is making sure your document will be accepted when your agent needs to use it.