What to Consider When Deciding on Power of Attorney
A power of attorney is a written instrument in which one individual designates another to take over his or her affairs in the event of incapacity or absence. It can be extremely limited (giving the designee or agent the authority to make a single decision on behalf of the principal) or it can be so broadly written that the agent can do virtually anything the principal could do. A power of attorney is effective only until the moment of the principal’s death.
Who may execute a power of attorney?
Only a “competent” individual can execute a power of attorney. “Competence” is usually defined, in classically circular fashion, as the ability to understand the purpose and effect of the document being signed and to understand the underlying powers being conveyed.
THE AGENT
What qualifications are required of an agent?
The person designated to act for the principal is properly referred to as the agent or attorney-in-fact. In most states, any competent adult can be named as agent. Although there may be no formal requirements for being an agent, the principal should establish appropriate minimum qualifications (depending on the type of decisions that will need to be made, the number of persons affected by the decisions, and the imminent or distant likelihood of need for the agent to act).
At minimum, any agent should:
1. Be conversant with the types of investments, income, and assets held by the principal
2. Be familiar with the principal and his or her family background, preferences, and any special needs of either the principal or those reliant on him or her;
3. Have a sufficiently professional background, and a strong tie to the principal, to ensure availability;
4. If possible, have some prior experience with managing the affairs of another individual;
5. Have ready access to social service, financial and investment, health care and other professionals, and be willing to utilize those experts in determining the best course of action for the principal’s benefit.
Can or should a trustee also be an agent?
When an estate plan includes both a trust and a durable power of attorney for financial matters, the trustee and agent may be the same person. In fact, the duties of an agent and a trustee are often similar, and there may be some problems of overlapping powers and responsibilities if the same person does not fill both offices. In some cases, there may be good reason to name a non-trustee as agent. Corporate trustees, for example, usually will decline to act as agent under a power of attorney; it may be necessary to name an individual as agent to transfer assets into the trust, to execute tax returns, and to complete other acts. It may also be appropriate to name a separate agent precisely to provide a suitable person to oversee the actions of the trustee; an agent might, for example, be authorized to compel an accounting from the trustee and/or to bring a court action for accounting by or instruction of the trustee.
Who should be named as an agent?
Agents wield tremendous power over the principal. The agent must be completely trustworthy, must have the necessary financial discernment to manage the principal’s business affairs, and must be both available and willing to act. Too often lawyers and their clients simply name the oldest adult child (or the child who is geographically closest) as agent. If the principal cannot think of a suitable person who is absolutely trustworthy, it may be appropriate to forego the power of attorney. Absent a power of attorney, the principal’s incapacity will likely lead to court involvement
How many attorneys-in-fact should a power of attorney name?
A single agent is often preferred for logistical reasons. Decisions can be made quickly and with only one agent’s signature necessary. The principal may prefer, however, to name two persons so that a system of checks and balances is established. Unless the power of attorney expressly permits the multiple agents to act independently of one another, most third parties will require the signatures of every agent before permitting a given transaction. Again, there is an argument that if the principal does not trust one agent alone to handle the job, but prefers to appoint two so that each can monitor the other, then perhaps a power of attorney is not recommended.
In order to delineate clearly the powers of each agent when multiple agents are named, the language appointing agents should be formulated as either: “I hereby appoint X and Y as my attorneys-in-fact, with the express authority to act independently of one another” or “I hereby appoint X and Y as my attorneys-in-fact, with the requirement that they act together in all instances.” With more than two agents, the drafter might choose to provide that a majority of the agents could act without the consent of the remaining agent(s).
Can the principal provide for a successor agent?
Naming a successor agent is almost always a desirable step for the principal to take. Of course, the naming of an alternate or successor agent complicates things somewhat (it now becomes necessary to describe the circumstances under which the successor will succeed to the authority of the agent). The successor might be empowered to act only upon the death of the primary agent, or upon death or disappearance, or death, disappearance, or disability. It may be sufficient to authorize the successor agent to execute an affidavit setting forth the inability of the primary agent to act (or the unavailability of the primary agent).
If no successor agent is named, upon the death or incapacity of the agent the power of attorney ceases to be useful. This is also true if all named successors become incapacitated. Agency law does not authorize an agent to name his or her own successor unless the power of attorney itself authorizes such an arrangement. Consequently, it is important to gauge the need for multiple attorneys-in-fact, and to name an appropriate number of successors based on the age and medical condition of the principal and of each of the named agents.