Continued from Last Week: More Durable Power of Attorney Tips

By signing a power of attorney, you authorize your chosen agent to perform the acts you designate. You can bestow on your agent either broad or narrow authority. By using a power of attorney, you are creating an agency relationship that is controlled by the law of your state of residence. You may make your power of attorney effective immediately or at the time of your disability or incapacity.

All states and the District of Columbia have legislation authorizing some form of durable power of attorney, but the laws are not uniform. Still, without the “magic words” saying that your power of attorney continues past your incapacity, your power of attorney will terminate when you become incapacitated. All powers of attorney, whether durable or not, terminate upon the death of the principal.

The conclusion of last week’s column dealt with the dangers of using broad gifting authority in your durable power of attorney because, depending on your circumstances and preferences, blanket gifting authority could do you in. This is especially true if you, like 97 percent-plus of all Americans, don’t have more than $2 million in net assets and don’t have to worry about estate planning issues. However, limitations on inter-spousal gifts may interfere with Medicaid planning should one spouse require nursing home care.

So, if your circumstances justify gifting and self-dealing by your agent, make sure that the language you use is clear and is prepared by an attorney who is knowledgeable in this area. And make sure that the authorities granted to your agent are not so broad as to be construed as giving your agent what is known as a “general power of appointment,” which could cause your assets to be included in your agent’s estate if your agent dies before you do.

Even though the laws of most jurisdictions protect financial institutions that rely on and accept properly signed and, where incapacity is involved, recorded durable powers of attorney, it appears that many financial institutions would rather have the signature of an incapacitated person on a check than accept the signature of his/her agent using a durable power of attorney. Some institutions have procedures in place that differ from and conflict with state law.

For example, the “staleness” doctrine, about which we have written previously, is an artificial “rule” utilized by some banks so as not to accept durable powers of attorney that were signed more than three to five years before. Therefore, unless there is a good reason to limit its viability, make sure that your durable power of attorney states that it will continue to be valid for an indefinite time.

Be sure to take copies of your durable power of attorney to those entities with which you transact business, and seek a letter from a qualified representative acknowledging that you have placed your power of attorney on file and want it used should you become incapacitated. And if you revoke or change your power of attorney, make sure that you notify immediately all entities to which you provided your power of attorney, and replace the old copy in their files.

Unlike a guardianship or conservatorship, which are involuntary proceedings, by using a durable power of attorney, you are voluntarily creating a contractual agency relationship that is governed by terms you put in the document, not by what a court may order. Therefore, if an individual has sufficient mental capacity to execute a durable power of attorney, its use is preferable to court-mandated fiduciaries.

That said, one of the main reasons to have a durable power of attorney is to avoid probate protective proceedings that may be brought by disgruntled potential beneficiaries. But since we don’t know what the future may hold, make sure to nominate your agent to be appointed as your court-appointed fiduciary so that, should protective proceedings be brought, the person you chose to handle your affairs during incapacity will have priority.

While generally not required unless you become incapacitated, we believe it’s a good idea to record your durable power of attorney among the public records of the county of your residence after you sign it. And, likewise, should you revoke or supplement it, record the new documents as well.