The Financial POA- A Very Flexible Document

In our previous article we introduced the financial power of attorney (PoA) and discussed some of the basic vocabulary and types. In this article we will look more deeply at the customizability of the financial power of attorney. A PoA is a very flexible document that allows you to appoint an agent to step into your shoes and act for you. Depending on how you draft the document, you can give a lot of authority or just a little. You can also be very broad or very narrow in the areas in which your agent can act for you. The customizations that you make will have a major effect on how your financial PoA works and how much authority you give to your agent.

Before we get into the most common customizations that appear in financial powers of attorney, we will start with a quick review of some vocabulary. In general, a power of attorney is a legal document where a principal gives legal authority to an agent (or Attorney-in-Fact) to make decisions for, and to enter into agreements on behalf of, the principal. The principal is the person who signs the PoA. A principal can be any person over the age of 18 who is mentally competent at the time of the signing of the document. The agent owes a fiduciary duty to the principal. This fiduciary duty means that the agent is required to act in good faith and in accordance with the principal’s reasonable expectations.

One of the first customizations that you can do to your PoA has to do with your agent. You can choose any competent adult to act as your agent or you can appoint an organization. Additionally, you have a choice of how many agents you want, and in what way they may act. You can choose multiple agents to act for you. A principal can also specify whether the multiple agents have the ability to act independently or if they are required to agree before they can act. A principal can also designate successor, or alternate, agents. These agents step in and act on your behalf should your original agent be unable to serve. In choosing agents, it’s important to choose someone you find honest, dependable and sensible. Other valuable characteristics for an agent can be that they are located nearby, that they are familiar with your wishes, and they are comfortable and competent to act as you would. You may also appoint a monitor to keep an eye on the transactions and agreements your agent is taking on your behalf. If you choose multiple agents that must act together or if you appoint a monitor, you should consider that while these options may be helpful in terms of avoiding fraud, it may also cause extra time, expense and conflict.

Another area of flexibility is when and how the PoA expires. The main choices here are whether there is a fixed end date, or if the power of attorney ends when you become incapacitated. If you choose a fixed end date then your PoA is a limited or special PoA. The specific end date can either be a specific calendar day or it can be when the action mentioned in the document is completed. With a general PoA, the PoA will expire when you become incapacitated. That a PoA expires at incapacity is generally the default. If you want your PoA to be valid after your incapacitation, you have to draft the PoA specifically listing it as durable. A general PoA is less valuable for estate planning purposes, but is often valuable in day to day life. It is also a valuable tool to use when you are out of the country. For estate planning purposes, it is very likely that you will want a durable PoA.

Independent of whether you choose a specific, general or durable PoA, there are still several other ways it can end. The main way the PoA can end is upon the death of the principal. The PoA can also end if the principal revokes it, as long as the principal is still mentally competent. Your PoA can end if a court invalidated the document. This is rare, but in certain cases where the principal was not competent when they signed the document, or if there was undue influence or fraud, a court will invalidate the PoA. Your PoA can also end if there are no longer any available agent. To avoid this problem, a principal should name alternate agents. It is also important to remember that executing a new power of attorney will not invalidate any previous PoA.

If you choose a durable PoA there is another customization that you can make. This customization is to when the PoA becomes effective. In general, a PoA will become effective immediately after a mentally competent principal signs it in front of two witnesses. This does not have to be the case however. A principal can have their durable PoA drafted so that it is “springing.” This means that it becomes effective if or when an event listed in the document occurs. This event is most commonly the incapacity of the principal. This can lead to an issue of determining when incapacity occurs. The wording of the document itself should be specific about how incapacity is determined, and what level of incapacity is required. A common criteria for incapacity is that two doctors must declare the principal incapacitated.

A financial power of attorney is an extremely flexible document. Every component of the document can be tweaked and tuned to fit your specific needs. It can be made more secure against fraud, it can be made into an insurance against incapacity, you can give your agent complete control over your finances, or you can give very limited power over a specific transaction. In this series we will continue to examine the flexibility and uses of financial powers of attorney as well as examine issues they bring up.