A power of attorney (POA) is a document that allows you to appoint an agent to transact business on your behalf. The agent is also referred to as your "attorney-in-fact," but it does not have to be an attorney. It can be a friend, relative, or other associate.
The individual who grants the power of attorney and appoints the agent is referred to in legal terms as the "principal."
You're free to give your attorney-in-fact whatever powers you choose. This authority can be very broad, or your POA can limit the individual to a single act or transaction.
Timing Is Everything
The authority granted to an attorney-in-fact is effective immediately in most powers of attorney. The attorney-in-fact can literally exercise the powers in the document as soon as it's signed.
The principal might not intend that the powers be exercised until some future point in time, however, usually when and if the principal should need help managing their affairs. The authority is legally granted and effective immediately anyway, unless an additional step is taken to prevent that.
A POA is referred to as a "durable" power of attorney if you intend that your attorney-in-fact should act for you now and continue to act for you if you should become incapacitated at some point in the future.
A "springing" POA doesn't become effective unless and until the principal becomes incapacitated. This kind of POA “springs” to life when it's needed.
You can also limit your agent to taking care of only certain issues, such as paying your monthly bills, rather than grant the right to unilaterally act for you in any circumstance. This would give you more control over a durable or other POA that goes into effect immediately.
The Definition of "Incapacitated"
The key to a springing POA is the event that triggers the powers' effectiveness. Some attorneys include language in the document to provide that the POA only becomes effective if two physicians sign it, stating that the principal is incapable of managing their own affairs.
It sounds like an easy precaution to take, but it can be problematic.
Getting certifications from physicians can take weeks, even months, and no one will be taking care of your affairs during this time if you're unable to do so yourself.
Who Says the Principal Is Declining?
Imagine that you're a physician being asked to certify that the principal of a POA is no longer mentally competent. The child of one of your patients might come to you and ask you to sign a document indicating so, allowing the child to have complete control of your patient’s finances under the terms of a POA.
You might feel comfortable doing so if the patient is in an irreversible coma, but what about a patient who is slowly declining? You'll obviously want to take some time observing and assessing your patient.
Maybe the parent has good days and bad days, periods of lucidity, and times of confusion. It's easy to see why there might be uncertainty, disagreement, or squabbling among doctors and family members over the degree of the principal's incapacity.
Another complication can arise because physicians are bound by the Health Insurance and Portability Act (HIPAA). They may not be able to provide some information regarding the principal's medical condition due to HIPAA's privacy constraints unless the agent can provide authorization to do so.
You can sign and provide a release at the same time you create your POA to safeguard against this eventuality, but other issues might remain.
Sometimes a lawyer who drafts a POA will hold it under an escrow agreement, only releasing the document to the attorney-in-fact when the lawyer believes and agrees the principal is incapacitated. This shifts the burden of liability to the lawyer.
A banker or other financial entity might not accept the attorney-in-fact’s authority, even if two physicians sign the document. The institution would logically want some confirmation that the signatures of the physicians are genuine, and maybe even some reassurance that the physicians have made the correct diagnosis.
Some attorneys suggest that the situation be vetted by an additional person or family member assigned to make the determination of whether the springing power of attorney should be activated.
Financial institutions have also been known to refuse to accept POAs unless they're on the bank's own forms. Options are limited if a financial institution refuses to accept the attorney-in-fact’s authority. The institution can be sued, but that can take a lot of time and money.
Who Should Have Power of Attorney?
You're making a springing power of attorney to simplify matters if you should become disabled or unable to act, but you could actually end up creating issues that might have to be resolved by a court if you put conditions on the attorney-in-fact’s authority.
Adding terms to address when you are or are not disabled can defeat the purpose of simplicity should issues arise.
Maybe you can't trust that individual period if you don't trust your agent not to use the power until you're incapacitated. Never name someone you don't wholeheartedly trust to act as your attorney-in-fact. Other choices besides family members include banks and trust companies that provide POA services for a fee. This is often the best alternative.
Agents are held to high fiduciary standards by law in most states, and they can be prosecuted for abusing their authority or powers given to them.
POAs Are Invalid After Death
All powers of attorney end when the principal dies unless the document specifies an earlier date. The POA also ends when divorce papers are filed if the named agent is the principal's spouse. The principal also can change or revoke a power of attorney at any time. You're not stuck with its terms after you create and sign one.