Durable Power of Attorney
Discussion of a Durable Power of Attorney - General Durable Power of Attorney
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Paragraph 1 - The introductory paragraph sets forth the full name of the person making the Durable Power of Attorney. In this particular example, the agent is designated in this paragraph. However, many Durable Powers of Attorney utilize a separate paragraph to make the designation of the agent. See, e.g., Durable Power of Attorney For Healthcare. Also, it is advisable to include the name and address and the telephone number of the agent who is being designated.
Paragraph 2 - Generally sets forth the fact that you are giving the agent certain powers. This paragraph gives an example of a large number of powers which can be given to an agent. It is advisable to review each in detail, and to make certain that you intend for your agent to have each power. If there is one or two powers that are not acceptable to you, or seem irrelevant to your particular circumstances, you should leave these out of your document. Or if there are a large number of the powers listed that are not acceptable to you, you might consider handcrafting a more limited designation of powers to an agent. Remember, your provisions must be clear since you will not be able to explain what you meant, and handcrafting any provisions is almost always better left to an attorney, who may have more insight into language which may be more readily accepted in courts should a challenge ever arise.
Paragraph 2a - Power to Sell Property. This power gives the agent the right to sell any or all of your real property, such as land or houses, your personal property, such as furniture and clothes; and intangible property, which can be items such as songs, books, or other rights you may own. This paragraph also sets no limits on your agent to sell at market value or at a profit or that which constitutes a "good business deal" as you understand it. There are also no limits on what to do with the proceeds from the sale. Presumably, your agent must use these proceeds for your benefit, but there is no language in this document which provides this limitation.
This paragraph contains no limitations on the agent, so it is imperative that you understand that upon the moment of execution of this document, you could be allowing your agent to sell some or all of your property with no relation to the market value or "fair price" which you may intend. This broad language illustrates the dangers faced in not being specific or limiting enough. And, it also demonstrates that you must trust the agent considerably.
Paragraph 2b - Power to Buy Property. Similar to the power to sell discussed above in Paragraph 2a, this provision confers a broad power to the agent to purchase all types of property on your behalf. The same considerations discussed under the power to sell are applicable here. Be sure that you want your agent to have this broad power.
Paragraph 2c - Power to Borrow. This power gives your agent the broad power to encumber any of your property. Encumber means to borrow against or to put liens against this property to secure loans. This essentially means that you have conferred broad power on your agent to get loans, on your behalf, for any reason. Again, this paragraph, as it is written, confers a tremendous amount of power on your agent. Ideally, you should provide language which places significant limitations on the actions of an agent, if necessary.
Paragraph 2d - Power to Invest. This provision enables your agent to invest your property. This means that your agent might have the inherent power to convert your property into marketable property, such as stocks or bonds. This means that in addition to investing your property in other property, you may be conferring the power to convert it into other property. You should be sure that this is an intended result before putting this provision in your Durable Power of Attorney.
Paragraph 2e - Power to Enforce Rights. This power covers authorization to enable your agent to take a variety of actions on your behalf. This power gives your agent the right to send out a letter "demanding" [which really means requesting] payments owed to you. It also gives your agent the right to sue another person to collect debts which may be owed to you or to enforce actions which may be in your best interest. For example, if a person to whom you lent $5,000 was supposed to pay you in monthly installments and has not done so, your agent would be able to sue to collect this money. If you secured this debt with a parcel of property, your agent may be able to hire an attorney and foreclose on the secured property [assuming state and federal law permits such foreclosure.] Obviously, for $5,000, there is a practical limit to the amount of money your agent can spend to secure compliance with the terms of the debt instrument.
Your agent may also be entitled to settle your account with the person who owes you money. For example, your agent could decide that this debt should be fully and completely settled for the sum of $4,000, or even $1,000. Under this provision as it is written, your agent could settle for either amount and still be within his/her powers as you have drafted them. Depending upon which amount is the settlement amount, you may or may not be particularly pleased with the actions of your agent. Thus, it is critical to select the agent who will best serve your interests.
This document also includes a provision regarding social security benefits, and gives the agent the power to receive these benefits. The agent can, by virtue of the power conferred in this document, deposit these amounts in the account which you designated, or into any account [except theirs] which might be for your benefit. Of course, all interest and other proceeds are required to be held for your benefit as well.
Paragraph 2f - Powers As To Retirement Funds. Again, this provision confers the power to essentially do anything that you could do with respect to your retirement accounts, IRAs or other such accounts. Naturally, this could be a substantial sum of money, and to ensure that your estate is properly preserved, you might consider the establishment of a trust, instead of this Durable Power of Attorney. The trust laws regarding agents who are called "trustees" are substantial and in most states, substantial limitations on the actions of trustees are imposed. See Revocable and Irrevocable Living Trusts.
Paragraph 2g - Powers As to Bank Accounts. This provision clearly gives your agent full authority with respect to your bank accounts. Remember that this gives your agent some authority over not only your bank accounts, but your interest in joint bank accounts. This creates a potential area of conflict, for example, in the area of a mother/daughter joint account. If you are a joint holder of an account with your daughter, but your daughter is used to writing the checks and making deposits, conferring full authority over all your bank accounts gives your agent authority to start acting like this bank account is yours. Naturally, this may be seen as an infringement upon the rights of your daughter, even though prior to the creation of this Durable Power of Attorney, you had this authority but did not exercise it.
Also, you should consider the impact of allowing your agent to open or close bank accounts, which others, such as your spouse, might be relying upon for their needs. Your agent may believe he/she is acting in your best interests and may not be acting in the interest of the other party, although you might want the agent to consider the needs of those who are important to you. Again, this may be an area better served by the creation and implementation of a trust instrument, and an attorney should, at the least, be consulted for advice in this area.
Paragraph 2h - Powers As to Safe Deposit Boxes. Taking possession of the safe deposit box key effectively gives the holder the right, under this instrument as it is written, to exercise control over the contents of your safe deposit box. Problems may arise as to property which may be jointly held, but for which no documents of title may exist. Precious stones, jewelry, coins or related items, often have no documents of title, but might be considered possessions of more than one person, such as husband and wife who may have a joint safe deposit box. Giving an agent the authority to control this safe deposit may conflict with the other person's needs and/or understanding, and care should be taken to avoid problems, since the whole idea of this Durable Power of Attorney is to avoid ending up in court fighting over possessions, money, or property.
Paragraph 2i - Powers As To Claims/Actions. This provision is a bit different from Paragraph 2e, in that this provision is more limited and focuses on any legal action or claims owned, or owed by you. This gives the agent the power to collect on any legal actions which you may have, or to sue or mediate or take actions to settle any such claim. Also, for anything that you may be liable to others for, or for which others may have a claim against you, this power enables your agent to defend your interest by negotiation, hiring an attorney, submitting a claim to an insurance company or other such action. Courts will usually recognize valid Durable Powers of Attorney in settlements or actions in court, if necessary.
On the other hand, you should realize that the signature of, representations of, or other actions by, your agent will bind you during any litigation and thereafter. Thus, you will not normally be able to re-open a lawsuit previously settled by your agent while you were temporarily incapacitated, and try to argue that your agent was not acting in your best interest. Other parties are permitted to rely upon the actions of your agent, and to make decisions and to take actions in reliance thereon.
Paragraph 2j - Powers As To Trusts. This power gives your agent rights to take any action with respect to a trust that you could take. That would include making a trust, or dividing an existing trust into other trusts, revoking a trust, modifying a trust, or transferring assets into or out of the trust. However, this power may be somewhat confusing since the existence of a trust requires that you have appointed at least one trustee to administer the terms of the trust, and to deal with all of the assets which you have transferred into the trust.
Also, if certain trusts retain the power to modify or alter the terms of the trust, or if certain other powers are retained by the Trustor, even by implication, the estate planning and estate and other tax aspects of these trusts may be affected. This is a serious area which requires the utmost in care and the use of professional attorney advice from your Plan Attorney if you are a member of the Family Legal Access Plan.
It is always a good idea to seek the advice of an attorney as to the ramifications of including this trust power in your Durable Power of Attorney. Your entire situation, along with your spouse's and your heirs, would have to be carefully considered to properly determine the extent of the power, if any, which should be given to an agent in this area. The author can think of no situation in which this power ought to be included in your Durable Power of Attorney, without discussing your entire estate, and your family situation with an attorney prior to drawing any conclusions about the assistance this provision might offer.
Paragraph 2k - Power To Insure. This power is one of the most frequently utilized powers in a Durable Power of Attorney. This power gives your agent the right to purchase, sell, exchange, or alter [assuming the company will agree] the terms of a life insurance policy. This provision also enables your agent to change your beneficiary or to change the direction of the proceeds, dividends or other income of the policy, if any were to be paid. The power is broad enough to enable your agent to effectuate changes on joint insurance policies which you may have with others, typically your spouse, parents or children.
Unless otherwise specified, your agent may not be required to follow any agreements which you may have had with these others, including any agreements or understandings which you may have had with your spouse. As a result, you should consider this Durable Power of Attorney with your spouse or other family member to ascertain whether any conflicts might arise. It would be wise to consider various situations to make sure you have considered potential conflicts. This is an area where lawyers, who are used to dealing with anticipating future problems, might be able to assist.
Paragraph 2l - Power Regarding Taxes. Again, this is a common use for a Durable Power of Attorney. For example, if you were incapacitated, you would typically, depending upon state law, be required to file certain tax returns in addition to your federal return. Obviously, if you were injured in a car accident or otherwise incapacitated, you might not be able to do so. The actual requirements of the Internal Revenue Service and/or various state taxing agencies is beyond the scope of this discussion, but it is conceivable that a court proceeding might be necessary to handle this matter, usually along with your other affairs, in the absence of the existence of a valid Durable Power of Attorney.
Do keep in mind that many state taxing agencies and the Internal Revenue Service impose civil, and sometimes criminal, penalties associated with various actions as to tax filings. Be sure your agent is mindful of the importance of these, since the actions of your agent will most certainly be imputed to your estate, with potentially disastrous results. For example, what if your agent failed to file your return for two years, and failed to pay $25,000 in taxes. This could result in a serious liability owed to the Internal Revenue Service, along with the penalties and interest.
As another example, consider a reckless and not well-founded series of "deductions" claimed on your return for two years by your well-meaning agent. If these were disallowed, your estate might owe much more in income taxes and penalties. Also, if your return is a joint return, and your spouse allows your well-meaning agent to prepare the return, he/she may have serious liability as well.
Paragraphs 2m and 2n- Powers to Make Gifts or Loan Money. These are fairly self-explanatory. One only needs to make certain that the agent will act in your best interests if they were to receive this broadly constructed power. Imagine the situation where you owed a coin collection which your spouse had been contributing to in the form of gifts for the past 20 years. While this collection may be yours [assuming there is no community property issue], your spouse is certainly going to feel some attachment to your collection, especially if your agent informs him/her that he just sold it for a nominal value.
Paragraph 2o - Powers As To Land. This provision gives an extremely broad power as to any property, land, or related rights in which you hold, own, lease, sublease, or otherwise retain an interest. This provision is extremely broad and because each of the powers conferred herein, e.g., power to maintain or power to grant easements, is generally handled by professionals, it would be wise to proceed with caution here. It is unlikely that any agent you select will have the expertise required to handle all of these powers in a professional and business-like manner. Most land holdings are related to some investment value or income-producing value or something that requires the persons making decisions regarding these holdings to have some expertise to ensure the value is protected and ideally, enhanced, for you.
Also, because of the various bodies of state laws regarding landlord/tenant laws, sublease laws, license laws, trespass laws, royalties and rental income laws, real property transactions and the other bodies of law associated with each of the items set forth in this paragraph, it would be incredibly difficult to advise you to confer this broad power without substantial legal advice, perhaps from more than one attorney. Many of these fields are different, and require different levels of expertise.
On the other hand, a carefully construed and limited power, such as the power to collect rents, may be very helpful to your estate, if you cannot supervise the collecting of rents and need an agent to do so. This would be particularly helpful if you became incapacitated and your spouse was unable to collect the rents, but depended upon these rents for living expenses.
However, be certain to avoid giving too much power to an agent if it is not necessary. For example, if you had a going rent collection business and had an employee who normally performed this collection, any agent with this power might just "get in the way" or might upset your existing office practices, all with the intention of helping you.
Thus, not all of these powers should be ignored or eliminated. Each may have its proper application. However, it may be very difficult for you to construct a provision which adequately takes into account the specific needs of your situation.
Paragraph 2p - Powers As To The Operation of A Business. This power gives your agent the right and authority to step in and run your business, to buy a business on your behalf, or to sell your business. As with Paragraph 2o, appointing an agent sounds easy enough, but there is a degree of professionalism or skill necessary to conduct some of the tasks set forth in this paragraph. While an agent appointment may help you ensure a smooth transition in running a family business, this is not always the way it works in practice, unless the agent has a high degree of business skill and experience with your business.
You should take great care to receive serious business and legal advice as to all parameters of this power prior to including it in your Durable Power of Attorney. Otherwise, your greatest asset may become a liability worth very little in a short period of time. Mismanagement is an enormous problem with all businesses. Along the same lines, authorizing your agent to purchase a business, as this Paragraph does, when you have not owned one in the past may be ludicrous. Your agent is entitled to completely obligate your assets to secure this purchase, and then retains full authority over other of your assets to utilize them, if necessary, to run the operations of this business. It is a safe [practical, not legal] rule that if you do not otherwise have any interest in a business, you ought not to give your agent the authority to purchase, lease or take over a business without you.
Paragraph 2q - Power Over Medical Treatment. Prior to the rise of Durable Powers of Attorney For Healthcare, and Living Wills, both of which were discussed earlier, these powers were often set forth in a Durable Power of Attorney. The particular provision included here is a rudimentary provision, and does not provide near the protection for you and your family as a separately created Durable Power of Attorney For Healthcare or a Living Will. It would be best, in most cases, to consult those sections for more detailed information regarding each of these documents.
Also, this provision might have some application in those states which do not have specific statutes recognizing Living Wills or Durable Powers of Attorney For Healthcare. Be sure to consult with an attorney in your state to set the best method by which to create these documents so they "work together."
Normally, we would advise not including this provision, or any provisions similar to it, in this Durable Power of Attorney, and instead creating separate Healthcare documents. By comparing the provisions of the Durable Power of Attorney for Healthcare with this Paragraph 2q, it is easy to see that the first document does a much better job of handling your healthcare treatment issues with specificity than Paragraph 2q. For this reason, it is recommended that a Durable Power of Attorney for Healthcare be used if your state permits.
Paragraph 2r - Power to Release Medical Records. This is a great reason to draft a power of attorney, or to include in a Durable Power of Attorney. Medical records cannot be released without your permission. Technically, not even your spouse or children are permitted to have access to your records unless you specifically authorize it. Most entities will insist this authorization be in writing, before releasing your medical records.
However, the need for others to see some, or parts of your medical records can be wide-ranging. For example, if you were involved in an accident and incapacitated, your agents may not be permitted to obtain access to your medical records in order to deal with your insurance company to settle any claims against the person who caused the accident. Without this authorization, a conservatorship may have to be opened and the lengthy and costly legal process begun. This makes very little sense to incur this expensive and time-consuming legal expense, just to get a court order permitting the release of your medical records.
If it is carefully constructed, giving your agent this power can really be helpful and facilitate a number of activities which otherwise might require expensive court action.
Paragraph 2s - Limitation of Liability for Revocation. Many financial institutions or other entities are concerned about their liability in the event your agent presents them with a properly executed Durable Power of Attorney and in reliance thereon they take certain action. For example, assume they transfer $20,000 from your savings account to another bank in the form of a cashier's check. This is a perfectly legal function for your agent to do if you have given him/her this power. But, what if unbeknownst to the bank, you have executed a Revocation of this Durable Power of Attorney the day before your agent appears at their bank without telling them about the Revocation. On one hand, you may be perfectly satisfied with this $20,000 transfer by your a agent. On the other hand, what if you did not authorize this transfer, and you intended to fully revoke all of the powers which you gave to your agent. The bank does not want you coming to them after the transfer and claiming that the day before you executed a proper Revocation of the Durable Power of Attorney on which the bank relied.
To remedy this problem, this provision making you responsible for ensuring that any Revocation of your Durable Power of Attorney is made known to all relevant persons or entities. Remember, it is not the bank's responsibility to honor your Durable Power of Attorney. By seeking to limit their liability, they are simply trying to protect themselves from having a $20,000 claim against them.
Do you absolutely have to have this provision in your Durable Power of Attorney? No. However, remember the purpose of this document is to be forward thinking and to plan for your needs if you were unable to do so yourself. If you gave your agent the power to make bank transfers or conduct other bank business, your Durable Power of Attorney would not help much if your bank refused to accept this document, because of a lack of a limitation of liability provision. [Note: since your agent has this power, it is possible that your agent might also have the power to sign (on your behalf) a limitation of liability provision provided by the Bank, at the time of the transfer, which would render the Durable Power of Attorney effective for this transfer.]
Paragraph 2t - This makes it clear that the entire purpose for creating this document is that if you become incapacitated or disabled, your agent will still have these powers.
Paragraph 2u - This is legal language that simply renders the document valid, in the event that you have placed into the document a provision which is either invalid or is later declared invalid by state or federal law, or court decision. Without this provision, some states have contract interpretation laws that suggest that this document would be completely invalid simply because one of the provisions, or even an unimportant part of a provision, is invalid. Generally, it is wise to have this provision in your Durable Power of Attorney.
Paragraph 2v - This language simply sets forth which state's law governs this document. Because state laws differ widely in this area, it is useful to specify which state law applies. However, you should know that simply stating it does not always, in every case, guarantee that that state's law will apply for all purposes.
The examples of when other state, or even federal, law supersedes the state law designation are too numerous for this discussion. A general rule, however, is that if all of the transactions contemplated by the document and all of the parties named or affected under the document are in the state named, it is likely that this state law provision will be relied upon in the event of a dispute. With technology and families moving all over the United States, it is certainly conceivable that this provision would not be ironclad.
Paragraph 2w - Community Property Provision. This provision is merely a sample of a paragraph which governs the community property interest which you have. This provision requires that if your agent is your spouse, and is acting as your agent, your spouse must act in your best interest, with respect to your one-half interest of all community property. Remember that not all of your marital property is necessarily community property. Should you have a serious question about your community or separate property and how it is affected, or may be affected by your agent, you should consult an attorney. See Marital Issues When Medical Problems Arise for a more detailed discussion of these community and separate property principles.
Paragraph 2x - This provision is capitalized for emphasis. You should be sure that you understand what this document does, and the fact that this provision, which explains this document, is capitalized suggests that you understood how important this document is prior to executing it.
Signature Line - Once you are certain that you understand the purpose of your Durable Power of Attorney and that it has been drafted with the utmost care to enable an agent to handle your affairs, you should sign and date this document. However, as discussed below, you should be certain to sign in the presence of either a Notary Public or witnesses as required by your state's law.
Your agent should then acknowledge this document and his/her acceptance of this agency by signing as indicated.
Witnesses - Some states require two witnesses watch a principal sign the document, and that witnesses sign a statement indicating that they did so.
Acknowledgement Provision - Both the Principal and Agent should sign in the presence of a Notary Public [or witnesses, or both, as required by your state's law.] It is important to remember that the Notary Public is not vouching for the truth of the document. Rather, the purpose for the Notary Public is to vouch for the fact that you actually signed it, and your agent actually signed it. If the Notary is ever called into court, he/she can testify about this, as well as his/her observations at the time of signing. The court may be interested in any evidence of pressure or undue influence from the agent to make the principal sign, or to determine if, at the time of signing, the principal and the agent were of sound mind. A Notary would not, of course, know if a person were of sound mind, but could testify as to how a person acted when they observed them. This testimony might be extremely helpful in making these determinations.
Recording: Sometimes Durable Powers of Attorney are recorded with the local county or other entity, as a public record. There are substantial advantages to this recording, since it puts "the world" on notice of the existence of this Document. However, one disadvantage is that the terms of your document become a public record in some cases, and everyone learns your otherwise private business. You should seek legal counsel to assess the proper action for your individual situation. Also, some states require that this document be recorded.
Durable Power of Attorney
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