POWERS OF ATTORNEY
Everyone is at risk of becoming incapacitated and not being able to manage his or her financial affairs. A power of attorney or POA allows a person, usually referred to as a principal, to name someone to manage his or her affairs.
1. “Durable” Power
To provide for a potential disability, a person executes a durable power of attorney. A durable power of attorney has language that causes it to continue in effect even when the principal becomes disabled. Also, under Texas and most other states’ laws, a notary public must acknowledge the principal’s signature. The usual POA is no longer effective when the principal becomes disabled.
2. Powers Granted the Agent
The principal must decide what powers to grant the agent. The agent’s authority may be as broad or narrow as the principal designates. Of course, the power of attorney is not very useful if the agent does not have the authority to manage the principal’s business. At the same time, the principal can restrict the agent from entering into transactions that the principal finds troublesome, such as commodity or option transactions.
3. Effective Time for Power
The Power of Attorney may become effective when the principal executes it or when the person becomes disabled. A POA that becomes effective on the principal’s disability is called a “springing power” since it springs into existence when the person becomes disabled.
Other POAs become effective when a physician signs a letter that the principal is incompetent. Physicians typically do not like to sign these types of letters. At the very least, these Powers of Attorney impose an additional administrative burden before they become effective.
4. Person to Name Agent
The key concern with a POA is selecting the appropriate agent. Obviously, the person named must be someone who the principal trusts, thinks capable of managing the principal’s financial affairs and is willing to take on this responsibility.
A principal may name more than one person as agent. The principal may allow the agents to act independently or require them to jointly agree on all or specified actions.
Each principal must consider his or her own circumstances. Will requiring the agents to jointly agree avoid or create animosity between family and friends?
The principal also may name a successor agent. Frequently, a person names his or her spouse as agent. In this situation, naming a successor agent may make sense in the event that the person and the person’s spouse are rendered incompetent in the same accident.
5. Effectiveness of Power of Attorney
Most financial institutions and other businesses will honor POAs, but they are not required to do so. A person or entity, such as a bank, that honors a power of attorney in good faith does not have any liability for doing so. However, it also has no liability for refusing to honor a power of attorney.
The principal may terminate the power of attorney at any time. Also, the divorce of the principal from a person that he or she named as agent will terminate the former spouse’s power.
The death of the principal terminates the power of attorney. On death, the administrator or executor of the deceased person’s estate takes over management of the principal’s business or financial affairs.
7. Medical Power
In contrast to a POA for financial matters, a person may execute a medical power of attorney that allows someone to make medical decisions on his or her behalf. These medical POAs come into effect when a person cannot speak for himself or herself. Medical Powers of Attorney do not allow the person named as agent to also serve as agent for other purposes.
The same person does not have to serve as agent under the financial POA and the Medical POA. In many cases, the same person may not be appropriate to serve as agent in both cases.
Sometimes a power of attorney is an afterthought at the time someone executes his or her will. Powers of Attorney serve an important function and deserve more thought than they are typically given.