Saturday, February 23, 2008

Powers of Attorney: What Do You Assume?

Any lawyer worth his salt gets somewhat upset watching Robert Shapiro hock his documents through LegalZoom.com. Anyone can draft up a document; but it isn’t the document that counts, as much as the knowledge as to how that document operates, along with attendant pitfalls, in the context in which is needed. Will the forms work? I’m not sure because I haven’t read them, but I suppose they will in a basic say. Will they tell you what you need to know about the how’s and why’s and wherefore’s? I don't think so.

One of the more disturbing documents I see listed as a pre-printed retail product is the Power of Attorney (POA). If I were to pick one document that is the single most powerful document that one can execute, it would be the Power of Attorney, aka a general Power of Attorney or a financial Power of Attorney. It gives someone else the authority to act in your place. It gives someone else the authority to sign your name on your behalf. You give somebody else complete control of your finances.

When I first started practicing, Powers of Attorney were relatively routine. I had a pre-set form that I would use myself. Push the button and generate the document. But over the past 10 years, with the passing of various privacy laws such HIPPA, various court rulings as to limitations as to how these things are used, the nationalization of our financial system with the digital age, and the tightening of state Medicaid standards, all of these have made the crafting and use of Powers of Attorney anything but routine. A mistake in drafting or a mis-assumption as to their usage can result in financial disaster to the unsuspecting user.

At the most basic level, there are several forms of POA’s. A limited POA is used for a specific purpose. These are often used to transfer automobiles or real estate when the owner lives far away from where the transaction is taking place. Then there are Health Care Powers of Attorney. These allow one person to make medical decisions for another when the second individual cannot make them for one’s self. These are important in their own right, and stand separate and apart from the type of Power of Attorney we are discussing here, although many people mistakenly assume that one can be substituted for the other. They are different animals.

A general Power of Attorney is the type most people want drafted, usually when there is a sick member of a household, in order to assist that individual with financial matters. If one is comatose in a hospital, one can’t pay the bills. For the most part, the people for whom I draft these things are good people with the best of intentions, but that is not always the case when feuding families try to use them to grab the Mom and Dad’s money, or to do “Medicaid” planning. Many people think that a Power of Attorney is absolute, right? Not really, and there is where you start to get into trouble.

Here are some basic misunderstandings about the use of a Power of Attorney:

1) The Power of Attorney does not survive the death of the Grantor. It dies with the Grantor, so it can’t be used to empty out the bank accounts or transfer the real estate after the Grantor’s death.

2) The Power of Attorney cannot be used to enrich oneself or one’s family. The Power of Attorney establishes a fiduciary relationship between the Grantor and Grantee, and it must only be used to act in the Grantor’s best interest. Giving the money to yourself is not in the Grantor’s best interest.

3) Unless properly drafted, the Power of Attorney is extinguished by the incompetence of the Grantor, which almost defeats its purpose. It must be drafted as a Durable Power of Attorney to account for that circumstance.

4) Unless properly drafted, Powers of Attorney are difficult, if not almost impossible, to use when dealing with brokerage accounts, annuities and insurance companies. Dated (old) Powers of Attorney are difficult to use even with local banks.

5) When using it for purposes of real estate transfers, the Power of Attorney must be recorded, and meet the statutory witness and notary requirements for the transfer of real estate. Recorded Powers of Attorney make an already powerful document even more powerful as it now public record. Any rescission must be recorded also.

6) Powers of Attorney are tricky when being used for Medicaid planning. That means that if the Aunt Tillie’s heir who also has a Power of Attorney tries to impoverish Aunt Tillie to qualify her for Medicaid, don’t be surprised if the state comes a’knockin’ at some point in the future.

7) While attempting to cure some of the issues listed above, a Power of Attorney may accidently become a Power of Appointment. That means that if Aunt Tillie gives Rodney her Power of Attorney with curative language to account for some of the above problems, and Rodney dies first, Aunt Tillie’s money may be implied as belonging to Rodney for estate tax purposes as relates to Rodney’s estate.

All of the above being said, proper drafting, attention to detail, and proper useage instruction can alleviate many of the problems associated with Powers of Attorney. A pre-printed form just doesn't cut it. They should only be drafted by a qualified attorney or estate planner as part of an overall estate plan or elder care plan. Yes, you can buy one through LegalZoom.com or through Office Max, but as a wise man once said, a little bit of knowledge is a dangerous thing. And as to the assumptions as to how these very powerful documents work, those assumptions can make an “ass” out of “u” and “me.”

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