What is a power of attorney?
A power of attorney is the grant of legal rights and powers by a person, the “principal,” to another, the “agent” or “attorney in fact”. The attorney in fact, in effect, stands in the shoes of the principal and acts for him or her on financial and business matters. The attorney in fact can do whatever the principal may do — withdraw funds from bank accounts, trade stock, pay bills, cash checks — except as limited in the power of attorney. This does not mean that the attorney in fact can just take the principal’s money and run. The attorney in fact must use the principal’s finances as the principal would for his or her benefit.
When does the power of attorney take effect?
Unless the power of attorney is “springing,” it takes effect as soon as it is signed by the principal. A “springing” power of attorney takes effect only when the event described in the instrument itself takes place. Typically, this is the incapacity of the principal as certified by one or more physicians. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used until he or she becomes incapacitated. If wanted, Elder and Disability Law Advocates will act as an Escrow Agent and hold the Durable Power of Attorney executed by the Grantor, until the Grantor becomes disabled or incapacitated. Then, and only then, will the Escrow Agent release the Durable Power of Attorney to the Grantor’s agent.
Does the power of attorney take away a principal’s rights?
No, absolutely not. Only a court can take away a principal’s rights in a conservatorship or guardianship proceeding. An attorney in fact simply has the power to act along with the principal.
Can an attorney in fact be held liable for his or her actions?
Yes, but only if he or she acts with willful misconduct or gross negligence.
Can the principal change his or her mind?
Certainly. A principal may revoke a power of attorney at any time. All a principal needs to do is send a letter to his or her attorney in fact telling them that their appointment has been revoked. From the moment the attorney in fact receives the letter, he or she can no longer act under the power of attorney.
The importance of Gifting Powers and Self-Dealing Authorization!
The Principal will frequently name a family member as agent; and for Medicaid Planning purposes, a transfer of assets is sometimes called for under the Durable Power of Attorney. The Principal normally wants to see the transfers (gifts) made to family members of which the agent is a part. Therefore, by specifically including a Gifting Power and a Self-Dealing Authorization, the agent can transfer (gift) assets to family members and be a participant in that gifting program.
Can an attorney in fact be compensated for his or her work?
Yes, if the principal has agreed to pay the attorney in fact. In general, the attorney in fact is entitled to “reasonable” compensation for his or her services. However, in most cases, the attorney in fact is a family member and does not expect to be paid. If an attorney in fact would like to be paid, it is best that he or she discuss this with the principal, agree on a reasonable rate of payment, and put that agreement in writing. That is the only way to avoid misunderstandings in the future.
What if there is more than one attorney in fact?
Depending on the wording of the power of attorney, you may or may not have to act together on all transactions. In most cases, when there are multiple attorneys in fact the power of attorney document specifies that they can each act independently of one another. Nevertheless, it is important for them to communicate with one another to make certain that their actions are consistent.
Can the attorney in fact be fired?
Certainly. The principal may revoke the power of attorney at any time. All he or she needs to do is send the attorney in fact a letter to this effect. The appointment of a conservator or guardian does not immediately revoke the power of attorney. But the conservator or guardian, like the principal, has the power to revoke the power of attorney.
What kind of records should the attorney in fact keep?
It is very important that the attorney in fact keep good records of his or her actions under the power of attorney. That is the best way to be able to answer any questions anyone may raise. The most important rule to keep in mind is not to commingle the funds the attorney in fact is managing with his or her own money. Keep the accounts separate. The easiest way to keep records is to run all funds through a checking account. The checks will act as receipts and the checkbook register as a running account.