After reading a recent Wall Street Journal article, I think most of us should consider revisiting our Durable Power of Attorney documents.
It was alarming to read that because of an increase in power-of-attorney abuses, it’s fairly common now that financial institutions won’t honor even a well-executed document. Depending on your circumstances, having a power of attorney (POA) can be essential for helping handle a loved one’s financial affairs. It had never occurred to me that the document might not be honored. Although there’s a 2006 Uniform Power of Attorney Act which can protect bank employees from civil lawsuits as they exercise judgment about honoring POAs, it hasn’t been adopted in Washington.
This matter applies to more than the elderly. Most of us should have a POA to address what would happen if we were unexpectedly incapacitated.
For definition purposes, the POA is a notarized document executed by the ‘principal,’ and names an ‘agent’ to act in the principal’s behalf. It is called ‘durable’ because it remains in place when the principal cannot act. Here are some of the approaches you can use to anticipate and mitigate POA difficulties:
• The first thing I’ll do is renew the POA I have, which is now 10 years old. The WSJ article recommends revisiting your POA every six months. It is a simple legal process, so you needn’t incur big legal fees to accomplish such a review. Having a date within the last three years on the POA is apparently important in some cases, though there may not be a basis for dishonoring one with a ‘stale’ date.
• Restricting the power of the agent named in the POA is also suggested in the WSJ article. If an adult child is the designated agent, for example, that agent could be authorized to write checks up to a named dollar amount, but agreement of all of the children could be required to agree on decisions over that limit.
• If you can anticipate where your named agent would need to be using the POA, you could determine whether those institutions have their own POA forms that they want executed. That should not be necessary, but it might be helpful to check on it.
• You can also name a monitor for the POA, to whom the agent must make a regular accounting.
Although the agent named in the POA cannot make a will for the principal, in some states the agent can create a trust and move your assets into the trust. See Aging Matters, November 2009, for a brief discussion of wills.
POA abuse that has received press coverage featured agents using the POA to spend the principal’s assets inappropriately.
Therefore, everything about the POA suggests that you must be cautious about who is named as your agent in the POA — someone with whom you have a longstanding relationship of trust.