Ins and Outs of Drafting A 'Power of Attorney'
MORGAN N., an active older American, is concerned about what might happen to his financial affairs if he were incapacitated. He currently has monthly household payments to make, including utilities.
So he created a power of attorney (POA) agreement, naming one of his adult children as his legal representative in case he cannot handle his own affairs.
His daughter is now empowered to act for him in emergencies, such as writing checks on his personal account for electric bills. But her responsibilities are limited. She cannot go out on her own and sell his house. Nor can she redirect his investments.
"A power of attorney gives people a lot of authority," says Sanford Schlesinger, chairman of the wills and estates department at the law firm Kaye, Scholer, Fierman, Hays & Handler in New York. Thus, he says, it is not to be entered into lightly, or without careful regard as to how it is written.
Some POAs are written for younger adults - a young couple or a single mother who may have no one to help her in the event she cannot care for her children. But a POA is "usually written only for the elderly," Mr. Schlesinger says.
"A power of attorney should be a strong consideration for an older person," adds Timothy Casserly, an attorney in Albany, N.Y., specializing in legal issues for the elderly. "It can be far more useful than a guardianship or trusteeship agreement, and it can save a family a lot of money."
Many people feel uncomfortable addressing the issue of a POA, since it deals with unpleasant hypothetical scenarios. But according to Mr. Casserly, it is really "user friendly," since its purpose is to protect a person's affairs.
A POA will not be considered enforceable if the person writing it is mentally incapacitated at the time. The principal, that is, the drafter, must understand the significance of the POA agreement, Schlesinger says.
POA agreements come in several forms:
*A general POA provides broad duties for the agent. He or she becomes a surrogate for the principal.
*A special POA provides specific duties: the ability to pay just the gas bill, or to buy or sell a certain type of stock or bond.
*A limited POA is even tighter. The agent may be able to sell one type of bond, and perhaps within a certain price range.
*A springing POA really narrows the field for agents. It might be the type of agreement that a young adult would execute, Schlesinger says. It comes into play only when a person is totally incapacitated. And it legally defines incapacitated.
Both principals and agents can be multiple, meaning a husband and wife could jointly write a POA, naming a single agent. Or a single person could name several agents.
Finally, it is important to understand the two main classes of POA agreements - nondurable and durable. A nondurable POA automatically terminates when the person who wrote it passes on or is mentally incapacitated.
The durable agreement, on the other hand, does not terminate. It continues regardless of the mental competency of the principal. (It does terminate upon the death of the principal.) It is this durable POA agreement that experts recommend for people who may be concerned about an untoward mental incapacity.
The durable POA is now recognized in all 50 states, Schlesinger says. It is especially important to have a lawyer involved in drafting a durable agreement. In some states, the document must be written as carefully as a will; in other states, agreements that deal with property must be recorded the way a deed is recorded, he adds.
Who should you designate as an agent? Clearly, someone you trust, such as a relative. You also could designate a lawyer, accountant, or other professional.
You can usually sign a simple POA document in front of a notary public, who, in turn, also signs, or witnesses, the agreement. Most lawyers advise that a simple POA should always be notarized. In the case of a durable POA, you must follow the exact legal requirements of your particular state.
To terminate a POA, you must notify the agent that the agreement is over and that you want your POA document back. You should also contact all institutions that may know of the agreement, such as banks or investment houses, letting them know the POA was terminated. Make certain there are no extra copies of the POA floating around.
*Starting Aug. 22, the "Your Money" column will appear Tuesday instead of Monday.