Creating The Estate Plan - Planning For Disability: The Durable Power of Attorney Part I: The Basics

In 1990, the Massachusetts legislature enacted the Uniform Durable Power of Attorney Act, enabling Massachusetts citizens to execute a court-recognized durable power of attorney. In 2009, Massachusetts joined many other states in adopting a durable power of attorney statute based on the Uniform Act which provides uniformity and universal recognition with other member states.

A durable power of attorney is a document that allows a person (the “principal”) to appoint an individual to act as the principal’s agent (known as an “attorney-in-fact”) on financial matters should the principal ever become incapacitated. Given the broad authority typically granted under a “durable” power of attorney, it is important that you are confident that the agent will act in accordance with your wishes. If you want to appoint more than one person as an agent, you can require that they must act together or you can permit them to act separately. Clients should appoint alternates to avoid the problem of the attorney-in-fact not being available to serve.

It is important to be sure that a power of attorney is “durable,” meaning it remains in effect should you become incapacitated. To create a “durable” power of attorney, the document must contain specific language referencing that the principal’s future disability will not affect the power of attorney. You should also consider including gift-giving powers that would allow the client’s attorney-in-fact to take advantage of estate and Medicaid planning strategies. Without specific language regarding gifting, future gifts made by the attorney-in-fact may be disallowed.

You can revoke a power of attorney at any time. All you need to do is send a letter to the attorney-in-fact informing him or her that the appointment has been revoked. You should also write any financial institution where the power of attorney might be used, putting them on notice that the document has been revoked. A conservator or guardian can also revoke a power of attorney, but the appointment of a conservator or guardian does not automatically revoke a power of attorney. In Guardianship of Smith, 43 Mass. App. Ct. 493 (1997), the court held that a principal’s nomination of his future guardian through a durable power of attorney mandates that the court appoint such nominated guardian in the absence of good cause or disqualification.

• Account
• Segregate assets
• Make trust assets productive as a reasonably prudent person would do in dealing with other people’s money
• Not delegate the responsibility to someone else unless so authorized
• Not self-deal.

It is very important that the attorney-in-fact keeps good records of his or her actions under the power of attorney.

A few common examples of what an attorney-in-fact can do are as follows:

• Gain access to bank accounts to make withdrawals or deposits
• Sell things that the principal owns, including real estate or personal
• Sign the principal’s name to a tax return
• Give away assets for estate planning or Medicaid planning purposes
• Change the beneficiary designations on life insurance or pension plans
• Sue people on the principal’s behalf or defend the principal’s interest in a law suit.

Most powers of attorney take effect when executed, even though the usual intent is for them to be used only in the event of the incapacity of the grantor. A client has the option of executing a “springing” power of attorney that will only become effective when the client’s physician states in writing that in the physician’s opinion the client has become incapacitated. Or a client can enter into an escrow agreement with the lawyer who drafted the document under which the lawyer will hold the power of attorney until the client’s physician certifies that the client has become incapacitated. Clients always retain the option of directing their lawyer to release the power of attorney.

A word of caution about springing power: As noted above, an attorney-in-fact under a springing power of attorney can act only when a doctor has certified in writing that the principal is not able to make informed decisions. At that point, the document “springs” into life and the agent must produce the doctor’s letter together with a copy of the power of attorney when the agent wants to do something on the principal’s behalf.

Our firm does not like springing powers of attorney but will prepare one if the client so insists because it is better than not having one at all. People who choose springing powers usually have an issue with giving up control over their assets or there is a bit of hesitancy about naming a particular person as attorney-in-fact.

First and foremost, a client should not choose a particular agent if there is any hesitancy whatsoever that the agent will act without the principal’s permission or will not follow the principal’s wishes in times of incapacity. If a client does not trust the person to do the right thing, then the client should not name him or her as agent.

Second, the springing power of attorney may require that at least two doctors certify incapacity. As everyone knows, doctors are extremely busy. Often, when someone needs to act on a principal’s behalf, that action needs to be done as soon as possible, if not yesterday. It may take days if not weeks to get two doctors to write a report indicating that the principal is not able to make informed decisions. Also, two doctors may not agree on the issue of incompetency. And because most people have one primary physician who is intimately familiar with their health, a springing power that requires two doctors’ opinions may create additional delay while the second doctor becomes familiar with the principal’s medical history and condition.

In the next article, we will identify common mistakes in a power of attorney so you are better prepared when you create your own estate plan.

© Machado & Carden LLP 2010