© Afsar Estate Planning 2018

What Is A Power of Attorney?

A Power of Attorney is a document in which a person, called a Principal, appoints someone, called an Agent, to act on their behalf for financial or other purposes when and if they become incapacitated. This instrument specifically sets out the powers the Agent will have, which may include the authority to open bank accounts, withdraw funds from bank accounts, trade stocks, buy and sell real estate, personal property, pay bills, and cash checks, among other things. If the Principal becomes incapacitated and does not have the document, the court must appoint a conservator, which is time-consuming, stressful and expensive.

 

The Four Main Types Of Powers Of Attorney Are Limited, General, Durable, And Springing

Limited. Gives someone else the power to act on behalf of the Principal for a very limited purpose and duration. It could be the right to sign a deed to property, sell some stocks or collect on a note for you on a day when you are out of town. It usually ends at a time specified in the document.

 

General.  A comprehensive, all-inclusive document which gives the Agent all the powers and rights the Principal possesses. The powers give the Agent the right to sign documents, pay bills, and conduct financial transactions on behalf of the Principal. This document can be used even if the Principal has capacity but wants help with their financial matters. This Power ends at death unless revoked.

 

Durable.

This document can either be General or Limited, but it remains in effect after Principal becomes incapacitated. Without it, if the Principal becomes incapacitated, they cannot be helped, unless a court appoints a conservator. This instrument stays in effect until the Principal dies or revokes it.

 

Springing.  

This instrument goes into effect only when the Principal becomes incapacitated. Usually, the Principal's primary physician signs a medical declaration that the Principal is incapacitated.  That declaration must accompany the Power of Attorney.  The terms of the Power of Attorney would specifiy other requirements to determine incapacity, what happens if the primary physician is unavailable and what happens when capacity is regained. 

 

Who Should Be Named As Agent? 

Regardless of what type of Power of Attorney you use, it is important to think carefully about who will be the Agent. The Agent will have a lot of control over finances, and it is crucial that the Agent is trusted completely. The Agent is considered a fiduciary which is the legal term for person who takes care of an Estate should the Principal become incapacitated. An Agent is held to the highest standards of good faith, fair dealing and undivided loyalty with respect to the Principal. The Agent must always act in the Principal's best interest and keep their goals and wishes in mind in making any discretionary decision.

 

A Child or Family Member. 

When naming an Agent, it is important to be able to trust the individual, which is why people often name family members as fiduciaries. Problems can arise when a parent with two or more children names one child as Agent.  Sometimes family may not be the best choice because:

  • It is hard for family to be completely objective.

  • Family may disagree as to how long the Administration process will take or is taking.

  • They may have different opinions about selling assets or dividing the personal property.

  • Family may not communicate with each other well.

  • This happens up to one third of the time where a child is involved.

 

Corporate Fiduciary.  

This can be a bank with trust powers, a CPA, or a trust company. A corporate fiduciary will charge a fee, usually 1-2% of the value of the estate, but the fee should be explained ahead of time. In addition, because a corporate fiduciary is experienced in managing money and property, assets are more likely to increase under this person's or institution's guidance. To ensure that the family has input, a corporate fiduciary and one or more family members may act jointly to ensure a smooth administration. If only a corporate fiduciary is named, allowing the family to discharge them if they feel the professional is not doing a good job will permit them to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.

 

Private Fiduciary. 

This is an individual who facilitates the financial transactions on behalf of the Principal.  Generally the private fiduciary charges a fee from $75-$150/hour depending on their experience and the complexity of the estate.  It is important that only a licensed private fiduciary should be appointed. A good place to get information as to services and find local licensed private fiduciaries is www.pfac.org.

 

Considerations For An Agent

The Agent appointed in a Power of Attorney has many roles, duties and obligations that should be carefully considered by both the Principal who is appointing and the Agent who will be acting. Here are some of those considerations.

 

What Are The Agent's Duties? 

An Agent has been appointed to represent the Principal with respect to their finances. In effect, the Agent steps into the Principal's shoes and take whatever investment and spending measures the Principal would engage in. Unless limitations have been stated, the Agent has the authority to open and withdraw money from bank accounts, take loans out, buy or sell assets that belong to the Principal, trade stock, pay bills, cash checks. All these transactions must completed by the Agent that are consistent with the Agent's role as a fiduciary.

 

Third Parties Not Honoring Powers of Attorney. 

Sometimes Agents experience difficulty in dealing with financial institutions. While some caution on the part of financial institutions is understandable, many go overboard. They refuse to honor a properly drafted, legally sufficient Power of Attorney. Or they require the Agent to indemnify them against any loss. Some even have their own forms and allow only those to be used. There are two approaches to solve this problem.  First, the "don't make waves approach".  Do what the institution requires, as it would be less stressful and ultimately less costly.  The second approach might be needed if the Principal already lost capacity or when the Principal's family and Agent feel that the proper legal documents are in place and should be honored.  Under California Probate Code §4406, a financial institution is legally obligated to honor legally sufficient and properly drafted documents. They cannot require that their document be filled out and used. Damages including attorney fees can be recovered if the institution was being unreasonable in not accepting the documents. However, if they refuse to honor the document because of a state or federal statute or regulation, they are not unreasonable.  Bear in mind however, that the time, money and stress that must be expended to fight this battle must be weighed against the first approach.

 

Can An Agent Be Held Liable For Their Actions? 

Yes, but only if the Agent acts with willful misconduct or gross negligence.  If the Agent keeps the Principal's best interest in mind as the basis for handling the Principal's financial affairs, they will not incur any liability.

 

What If There Is More Than One Agent? 

Depending on the language in the Power of Attorney, Agents may or may not have to act together on all transactions. When there are multiple agents if they are appointed "severally," they can each act independently of one another. If however, they are named jointly both Agents must agree to what needs to be done.  Either, way, it is important for them to communicate with one another to make certain that their actions are consistent.

 

Can The Agent Be Fired?  

Yes. The Principal may revoke the Power of Attorney at any time. All they need to do is send the Agent a letter to that effect. An appointment of a Conservator does not immediately revoke the Power of Attorney. But the Conservator, like the Principal, does have the power to revoke the Power of Attorney.

 

What Kind Of Records Should Be Kept? 

It is important to keep meticulous, detailed and comprehensive records to avoid any questions of impropriety. Also, the Agent should not commingle their funds with those of the Principal.  The easiest way to keep records is to run all funds through a checking account. The checks will act as receipts and the checkbook register as a running account.

 

Can An Agent Get Paid? 

Yes, if the Principal puts that compensation language in the Power of Attorney. Generally, an Agent is entitled to reasonable compensation for their services. However, if an Agent is a family member, payment is not usually expected.

 

 Afsar Estate Planning provides a POA for each Clients' Estate Plan