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Business Power of Attorney

Business Power of Attorney

A Business Power of Attorney enables one person to conduct the affairs of another. The Power of Attorney can be broad or it can be limited to suit the needs of a particular situation. The Power of Attorney becomes effective upon signing and can be used anytime thereafter.

One who gives Power of Attorney is known as the principal, while the recipient is the agent. Although a Power of Attorney should be prepared by a lawyer, the agent is not required to be a lawyer and usually is a family member.

In considering whether to enter into a Power of Attorney, the principal must be as certain as humanly possible that the agent is a trustworthy and responsible person who will act in the principal’s best interests at all times. There are legal standards with which the agent must comply. However, if an agent misuses the Power of Attorney and loses or takes the principal’s assets, it is frequently not possible to recover them. The question often arises as to making a Power of Attorney effective only when the principal becomes disabled. The difficulty arises as to how to make the Power of Attorney effective so that a clerk at a bank or insurance company knows it is actually in effect. The clerk cannot make a judgment on the capacity of someone who is not present. In the past, a Power of Attorney sometimes was qualified so that it only became effective if the principal’s physician wrote a letter certifying incapacity. However, doctors often refuse to write this letter for fear of liability. Therefore, the Power is written to become effective immediately upon signing.

A Power of Attorney is an excellent device for a principal to provide for the conduct of his or her affairs during a period of incapacity or illness. The alternative, in the absence of a Power of Attorney, is for the family of an ill or incompetent person to seek court appointment of a guardian. This procedure is costly and can be very emotionally disturbing to family members. A guardianship petition presented to the court results in issuance of a citation which must be handed to the alleged incapacitated person. This paper advises the person that is or her family feels he or she is incapacitated. The resentment caused by this statement may cause irreparable harm to the relationship. The unpleasantness and expense of guardianship may be avoided by prior planning and use of a Power of Attorney. The Power of Attorney also allows the principal to name the agent while a guardian will be chosen by the court and could be someone unacceptable to the ward. A guardian must file annual reports which are costly and time consuming. An Agent under Power of Attorney is not required to file reports, although the principal can request that he do so.

The law governing Powers of Attorney has been amended several times since 1982. The law now requires itemization of specific powers if these are intended to be included. Some of these specific powers are:

  1. To make unlimited gifts
  2. To make limited gifts
  3. To create a Trust for the principal
  4. To add to an existing Trust
  5. To claim an elective share of the Estate of a spouse
  6. To disclaim any interest in property
  7. To renounce fiduciary positions
  8. To withdraw and receive income or principal of a Trust
  9. To engage in insurance transactions (which may include the power to change the beneficiary on life insurance)

In the absence of specific mention of these powers, the agent will not have clear authority and may find it necessary to bring a guardianship action. Anyone presently using a Power of Attorney which was drawn prior to 2006 should contact an attorney. Powers of Attorney must now have a special notice on the front, be separately signed, and special language at the end where the agent also signs.

Perhaps because Powers of Attorney have become more detailed and complex, there is more litigation concerning their use. One highly controversial provision is the power to make unlimited gifts. This power gives the agent the maximum flexibility and is often well used to transfer assets of a principal who suffers a long and progressive last illness such as Alzheimer’s disease. The appropriate use of the gifting power can enable the protection of assets from death taxes and/or enable the principal to qualify for Medical Assistance at an earlier time. However, unlimited gifting power means that the agent has full authority to give the principal’s assets to any one or more persons in any amounts, and the agent may freely give assets to himself or herself. An unscrupulous agent could take all of the principal’s assets and there could be no legal way to recover them.

Another controversial provision is the power to engage in insurance transactions. A recent case addresses the use of a Power of Attorney to change the beneficiary of life insurance. The principal named his second wife as beneficiary and his agent, his daughter by his first wife, changed the beneficiary to name herself. The parties went to Court at great expense to fight over whether the daughter had authority to make this drastic change in her father’s plan.

The facts and family circumstances must be carefully considered in drawing a Power of Attorney, and the potential problems and relationships must be factored into the decision-making.

Powers of Attorney may be revised and/or revoked so long as the principal remains competent and able to execute the changes. At such time as the principal may be too ill or unaware to execute the changes, the Power of Attorney can no longer be changed, but continues if it is properly drafted. This is known as a “Durable Power of Attorney” and usually includes language to the effect that “this Power of Attorney shall survive any incapacity of the Principal.” If the principal, while able, decides that the Power of Attorney is no longer satisfactory, he or she may revoke it by delivering written notice of revocation to the agent. Safety dictates that the revocation also be sent to any bank or institution which has been accepting the Power of Attorney as authority. If the Power of Attorney is on record, the revocation should also be recorded.

We advise our clients to record Business Powers of Attorney because this protects the document. Even if the original is lost thereafter, there can be certified copies obtained from the Recorder’s Office. In the event that an agent finds it necessary to sell the principal’s real estate, the Power of Attorney must be recorded in the Court House of the County where the real estate lies. Other than for such recording, the agent should keep custody of the original Power of Attorney at all times; copies may be left at each place of its use. Once a principal is incapacitated, loss of the original unrecorded Power of Attorney can be critical and may cause resort to a guardianship proceeding.

The Power of Attorney can be limited to specific needs of the principal. For example, a Power of Attorney might specify that it may only be used to sell one parcel of land, or to affect only one bank account specified by bank and account number. Occasionally, two persons may be named to act together so that both signatures are necessary. This prevents one person from acting arbitrarily. Limitations may make the principal feel more at ease in giving the Power of Attorney. However, limits should be clear and simple so that a bank or other party accepting the Power of Attorney will be able to determine if the Power of Attorney is effective at any given time.

The agent has a duty to account to the principal for actions taken in using the Power of Attorney. In case of an illegal misuse of the principal’s property, the agent is liable for his or her actions, although practical recovery may not be possible. If not sooner revoked, the Power of Attorney will cease at the principal’s death, and cannot be used thereafter. A property held by the Agent at death of the principal must be accounted for and turned over to the Executor or Administrator of the principal’s estate. The agent should keep careful records and should never mingle the principal’s funds or property with his or her own. The principal, his executor, or his heirs may challenge the actions of the agent, in which case proof will be required.

Use of a Power of Attorney depends upon a great deal of trust by the principal and upon responsible action by the agent. The Power of Attorney must be carefully contemplated and should never be given lightly. In the proper circumstances, the Power of Attorney will be of great benefit and can ease the principal’s worries about the future, as well as relieving family members of considerable hardship.

By Lisa Pepicelli Youngs, Esq.