The Four Most Common Mistakes of Powers of Attorney

The Document Is Not “Durable”

If the power of attorney is “durable,” it means that the attorney-in-fact’s legal authority to act for the principal is not revoked if the principal becomes physically incapacitated or mentally incompetent.

If the document is not “durable,” then the attorney-in-fact’s authority is automatically revoked upon the principal’s incapacity or incompetency. As a result, guardianship or conservatorship may be necessary, the avoidance of which should have been one of the main reasons to have a power of attorney. If you have an old power of attorney, look for the word “durable.” If you don’t see it, that’s one reason to execute a new document.

The Document Is Too Narrow

All too often, powers of attorney prepared by general practitioners are only one or two pages long. Remember, generally speaking, the attorney-in-fact can do only those things that are listed in the document. If it is not in the document, the agent cannot do it. An adequate form is closer to ten pages long. Put simply, “more is better.” A power of attorney should be as broad as possible because you cannot predict everything that may need to be done on your behalf. Although a lot of the provisions may not be applicable to the principal when the document is signed, they may become relevant in the future.

Financial institutions have also become increasingly more demanding in looking for specific authorization for the act the attorney-in-fact wishes to carry out. Good powers of attorney today list a wide variety of specific actions the attorney-in-fact may take on behalf of the principal, including the authority to make gifts. Without these powers, the agent may not be able to make the gifts necessary to execute a long-term care plan.

For example, a limited gifting provision in a durable power of attorney may restrict the attorney-in-fact’s ability to protect the principal’s assets from the cost of long-term care. For example, the language in the document may only authorize gifts up to the amount of the gift tax annual exclusion ($13,000 in 2010). Under this scenario, if the long-term-care plan calls for the attorney-in-fact to make transfers in excess of $13,000 to any one individual, the agent does not have the authority to do so, thereby limiting the agent’s ability to maximize asset protection under the Medicaid plan. If the principal is competent and willing to do so, he or she should execute a new durable power of attorney with an unlimited gifting provision.

The Document Does Not Name an Alternate Attorney-in-Fact

If the principal names only one person and that person declines to serve, is unavailable, or predeceases the principal, you will end up in the world of guardianship because you failed to execute an adequate instrument. Thus, it is vital that you name an alternate if only one attorney-in-fact is named or appoint joint or co-attorneys-in-fact to serve jointly or severally.

The Document Is Old

Banks and other financial institutions are often reluctant to accept an older power of attorney. Although powers of attorney are legally valid from the date they are signed until they are revoked or the principal passes away, in practice they are considered to become “stale” as time passes. This means the bank takes the position that too much time has passed since the execution of the document, during which time the principal may have revoked the document without the bank’s knowledge. The bank refuses to honor the instrument for fear that the agent no longer has the legal ability to act on behalf of the principal. Now, this is a ridiculous position because people should not be required to update their legal documents every six months. However, it does make sense to update the document every few years if you live in a state that does not have an “anti-lapse” statute. Fortunately, Massachusetts has an “anti-lapse” provision to its statue governing powers of attorney. This means that the passage of time from the date the document is signed does not affect the validity of the document. Even so, most banks are either unaware of this provision or ignore it. In that case, clients sometimes must have the attorney who prepared the document contact the bank to “remind” them the document is valid regardless of its age. That said, it may be easier simply to sign a new power of attorney every few years. Assuming the principal is competent, he or she should sign an updated durable power of attorney, so the agent can avoid any complications in using the document to access accounts on behalf of the principal.

© Machado & Carden LLP 2010

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