Springing vs. Non-springing Powers of Attorney
A power of attorney is a document in which you appoint an agent to transact business on your behalf. The agent is called your attorney-in-fact. You, the person appointing the agent, are called the principal. You are free to give the attorney-in-fact whatever powers you choose. This authority can be very broad it can be limited to a single act or transaction.
In most powers of attorney, the authority is granted to the attorney-in-fact is effective immediately.
That is, as soon as the document is signed, the attorney-in-fact could exercise the powers given in the document. Usually, the principal intends that the powers not be exercised by the attorney-in-fact until the principal (that’s you) needs help. But legally, the authority is granted and effective immediately.
Many clients are uncomfortable with this. When they are hale and healthy, they don’t like the idea of a spouse or child visiting the bank and cleaning out their accounts using the power of attorney. Most people would like it if the power of attorney became effective only when they became incapacitated. This kind of power of attorney is called a “springing” power of attorney because it “springs” to life when needed. This sounds good but is fraught with difficulties.
It Comes With Some Caveats
The key to a springing power is what event triggers the power’s effectiveness. Some attorneys include language in the power of attorney providing that it only becomes effective if two physicians sign a document that states that the principal is incapable of managing his or her own affairs.
Imagine that you are a physician. The child of one of your patients comes to you and asks you to sign a document so that the child can have complete control of your patient’s finances. Are you going to sign it? You probably shouldn’t. If the patient is in an irreversible coma maybe you would feel comfortable signing such a document.
But that’s the easy case. What about a patient who is slowly declining? For example, the have good days and bad days, periods of lucidity, and times of confusion. Do you, the medical doctor, give control of the finances to the child? Or the next-door neighbor who is named in the power of attorney? It is easy to see that there might be uncertainty, disagreement or squabbling among doctors and/or family over the degree of the principal's incapacity.
Even if you two physicians sign the document, you take the power of attorney and two physician’s certifications to the bank, would you as the banker accept the attorney-in-fact’s authority? How do you know if the signatures of the physicians are genuine? For that matter, how do you know that the individuals who sign are, in fact, physicians? How do you know that the physicians have made the correct determination?
To take the medical profession off the hook, we sometimes recommend that another person or family member make the determination of whether or not the power of attorney should be activated. A friend or family member may be more wiling to stick his or her neck out, but the problem of third party reliance remains.
Similarly, sometimes the drafting attorney will hold the power of attorney under an escrow agreement, only releasing the document to the attorney-in-fact when the attorney believes the principal is incapacitated.
This shifts the burden of liability to the lawyer. (Which pleases the physicians, but is not so good for the lawyer.)
Who Should Have Power of Attorney?
Remember, you are making a power of attorney to simplify matters if you become disabled or unable to act. By putting conditions on the attorney-in-fact’s authority, you are creating issues that may need to be resolved by a court, for example, whether you are disabled, thereby defeating the purpose of simplicity in dealing with issues that may arise.
All powers of attorney end when the principal dies, unless the document specifies an earlier date. The principal also can change or revoke a power of attorney at any time. If a spouse is the agent, the power of attorney ends when divorce papers are filed.
The bottom line is that if you can’t trust the person not to use the power until you are incapacitated, then you can’t trust the person period.
Someone whom you cannot trust should not be named as your attorney-in-fact. When there is no family member who would be a suitable attorney-in-fact, other choices include banks and trust companies that provide power of attorney services for a fee. This is often the best alternative.
Another word to the wise about powers of attorney; we have found that many financial institutions are refusing to accept powers of attorney unless they are on the financial institution’s own forms. Again, this defeats the purpose of having a power of attorney. However, options are limited if a financial institution refuses to accept the attorney-in-fact’s authority. They can be sued, of course, and we know how much time and money that takes. Alternatively, a guardian can be appointed in court - the very thing the power of attorney was intended to avoid.