Beware of using ‘off the shelf’ power of attorney forms

The power of attorney is one of the most important estate planning documents you can have. It allows you to appoint someone to act for you as your agent if you become incapacitated. Without such a document, your loved ones won’t be able to make decisions for you or manage your finances. They’ll have to ask a court to appoint a guardian or conservator – an expensive and time-consuming process that could result in someone making decisions for you that you wouldn’t agree with.

Although “do-it-yourself” power of attorney forms are readily available, it’s much better to have an attorney draft the document for you. There are many issues to consider, and this is a case where one size definitely does not fit all. For instance:

  •  What can your agent do? The power of attorney document sets out what an agent can and cannot do. Powers typically include buying and selling property, managing a business, paying debts, borrowing and investing money, engaging in legal proceedings, cashing checks, and collecting debts. They may also include the power to consent to medical treatment.

Some powers typically won’t be included unless you specifically mention them, such as the power to make gifts and the power to designate beneficiaries of insurance policies.

The power to make gifts is particularly complex and important. If you want to be sure your agent has the authority to do Medicaid planning on your behalf in the event you need to enter a nursing home, then the power of attorney must allow the agent to make gifts and to modify trusts. The wording can be significant, so it’s necessary to consult an attorney.

Some people want to give their agent certain powers but not others, or certain powers in certain circumstances and not in other circumstances. Some people want to limit the gifts an agent can make to certain amounts, certain beneficiaries, or certain purposes. We’d be happy to discuss these concerns with you.

  • When can your agent act? The power of attorney can take effect immediately, or it can become effective only when you become disabled.  A power of attorney that takes effect only when you’re disabled is called a “springing” power.

While a springing power can be a good idea, it can also cause delays and extra expense because your agent might have to prove that you’re incapacitated in order to act on your behalf. If you choose a springing power, you’ll want your document to clearly spell out the method for determining incapacity, such as an affidavit from your family doctor.

  • Should you have more than one agent? It’s possible to name more than one person as your agent. However, this can lead to confusion. If you have more than one agent, you should be clear as to whether both agents need to act together or whether they can each act independently. In many cases, it might make more sense to name a single agent and then name an alternative agent who can step in if the first agent is unable to act on your behalf.

It’s also possible for a power of attorney document to nominate a guardian in case guardianship proceedings become necessary. Usually a court will choose a guardian for you, but in most circumstances the court will abide by your nomination.

  •  Be sure your document is legally valid. To be valid, a power of attorney must be executed properly. Some states may require a signature, others require the document to be notarized, and still others require a certain number of witnesses. It’s important to make sure your document is legally executed in the right way.
  •  Consult your financial institutions. Even if you do everything exactly right, some banks and other institutions are reluctant to accept a power of attorney. These institutions are afraid of a lawsuit if they follow an agent’s instructions and the power of attorney turns out to be invalid.

For this reason, many financial institutions have their own standard power of attorney forms. To avoid problems, you might want to execute the forms used by the institutions with which you have accounts. However, you’ll want to take care that you don’t sign a bank’s document that inadvertently conflicts with your own power of attorney or that restricts your agent’s ability to deal with other assets.

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