As you set out to develop your estate plan, you will no doubt be advised to set up a power of attorney agreement wherein you appoint a trusted individual to serve as your agent, or “attorney-in-fact.” Millions of Americans have used this legal document to ensure that their interests and affairs are properly managed in the event that you find yourself suddenly unable to take care of things yourself. For most, little thought is given to the actual nature of the powers being granted in any specific instance, and that can sometimes lead to unforeseen complications and situations. To avoid the unexpected, it is critical that you understand the power in Power of Attorney.
Power of Attorney Defined
As the principal in the relationship, your use of a Power of Attorney document designates another person to serve as your legal agent in matters defined by the agreement. Once in effect, the document creates a relationship that can provide the agent with a tremendous degree of control over many different areas of your life. That power can extend to everything from real estate transactions made in your name to bank account activity, asset distribution, and life insurance settlement. Depending on the nature of the agreement and the power granted, your agent will be acting in your name, and with all of the authority that you would have were you acting on your own.
The power of attorney can come in a variety of forms, each of which grants your agent different levels of authority:
- General Power of Attorney: A general power of attorney grants your agent wide latitude to handle your affairs. Typically, your agent will be able to act in your capacity to sign documents and manage financial transactions, buy or sell property, pay your bills, and so on. This type of arrangement is generally used in cases where the principal still has his or her faculties, but just needs help managing many of life’s more technical aspects. If not rescinded while you are still alive, the general power of attorney ceases to exist when you die or become legally incapacitated.
- Limited Power of Attorney: When power of attorney is limited, however, your agent is assigned only certain powers. You could, for example, delegate the authority to act in your stead during a period of time when you are out of the country or otherwise indisposed. This limited power typically has a set starting date and a firm date on which it ends.
- Durable Power of Attorney: The durable power of attorney assigns someone to be your agent, and that person retains that capacity until you pass away. The powers assigned can be of the general broad variety or more limited in scope. With this arrangement, you can ensure that there are no interruptions in the management of your estate due to incapacitation of any kind.
- Springing Power of Attorney: The springing – or conditional – power of attorney is set up to go into effect once you are incapacitated. It is wise to precisely detail what that means to ensure that your agent does not assume power over your affairs while you are still able to manage them on your own.
Why Bother with this Delegation of Power?
The main reason for assigning an agent to exercise Power of Attorney is simple. In the event that something happens to you and you lose your ability to manage your estate and affairs, there are only two real options. The first would involve the automatic assumption of authority by an agent you personally designated to act on your behalf. That is where the Power of Attorney comes into play. The second option would be used in the event that you had failed to assign someone to fill that role, and would involve a Probate Court selecting someone to serve as Conservator. That process can be time-consuming and expensive.
How Powerful is the Role?
The actual power involved in the agent relationship is enormous. Depending on how the arrangement is set up, that agent can exercise absolute power over much of the Principal’s life and assets. In many instances, people use online forms and other inexpensive methods to create their Power of Attorney documents, and often leave their agents with almost unfettered power. Just consider the following:
- A failure to hold the agent to account in the text of the document could leave him or her with unaccountable authority over your assets and life. That would leave family members and others with no real way to determine how well your affairs were being managed!
- In many instances, agents have so much control over asset transfers that they can literally transfer your assets to themselves. While that can be an important feature of the power of attorney arrangement if you need to spend down wealth to ensure Medicaid eligibility, it can be disastrous if you never intended for the agent to give himself ownership of your wealth.
- If you haven’t thought through your choice of agent, you could be granting tremendous power to someone who might make poor decisions on your behalf or even enrich himself at your expense.
Of course, you maintain the power to revoke your power of attorney at any time prior to incapacitation. That ends the agents assigned powers and renders him unable to do anything else in your name. If you have maintained the only copy of your document, you can revoke that power by destroying the agreement. If, however, the agent has a copy as well, then you need to execute a formal revocation document, using the same legal process utilized to create the original agreement.
The fact is that Power of Attorney provides incredible authority to any principal’s agent to act on his or her behalf in a wide variety of legal matters. As a result, it is a power that can be both helpful and detrimental, depending on the care and consideration that went into establishing the nature of the relationship. While online agreements have become more popular in recent years, as people try to avoid legal costs using cheaper alternatives, it is clear that there is unlikely to ever be a one-size-fits-all legal document that can properly address the complexities involved in an important matter such as this. For that reason, legal experts recommend that you consult with an attorney to ensure that your Power of Attorney is set up in a way that best meets your unique circumstances and needs. To find out more about how you can benefit from professional legal guidance, contact Robert Kulas Attorneys at Law today.