The Use and Misuse of Powers of Attorney

Have you signed a power of attorney? Are you considering signing a power of attorney or are you named as the agent on a power of attorney for a family member or close personal friend? If so, this article is directed to you.

We can classify powers of attorney into two broad categories: (1) health care powers; and (2) financial powers. In either category, the person who is signing the power (delegating authority to another) is referred to as the “principal” and the person named to exercise the authority is referred to as the “agent.” The principal does not lose or give up any authority in signing a power of attorney; instead, the principal is simply authorizing another to handle certain matters as specified in the power.

Powers frequently specify that: (1) they will be effective only upon the incapacity of the principal (commonly called “springing powers”); or (2) if effective upon signing, will continue in force during any period of incapacity (commonly called “durable powers”), but all authority terminates upon the death of the principal. A power of attorney cannot be used as a vehicle to avoid probate!

Most attorneys today recommend clients consider financial and health care powers as part of their estate plan. Attorneys have seen numerous situations where the lack of powers of attorney has created emergencies requiring the appointment of a guardian to make health care decisions, and/or a conservator to handle financial affairs for an incapacitated person. Since such proceedings are expensive, it is desirable to avoid them, if possible, through the use of properly prepared powers of attorney. Unfortunately, the desire to avoid court proceedings can overshadow the need to consider the consequences of signing a power of attorney in favor of a person who could misuse the power or fail to use the power in accordance with the wishes of the principal. Remember, powers of attorney are good alternatives only if the agent is qualified to handle the tasks assigned and is “above reproach.”

The agent holding the power of attorney assumes great responsibility in exercising the power and must act exclusively on behalf of the principal. The authority granted in a health care power can be exercised only if the principal is unable to make his/her own medical decisions and, in such a situation, should be exercised only in accordance with the principal’s wishes. If authority is given in the health care power (which it usually is) to refuse authorization for certain medical procedures or direct certain procedures be stopped or not be initiated, the agent must be prepared to exercise such authority, if that is the wish of the principal, even though such exercise may accelerate the moment of death. Otherwise, the power will not meet the principal’s intended purpose in signing the power. The agent in a health care power should therefore have a complete understanding of the principal’s wishes regarding care and treatment and be willing to act accordingly.

The agent in a financial power of attorney also is obligated to act exclusively for the best interests of the principal. Any action undertaken by the agent for the benefit of the principal which also benefits the agent is permissible only if the power specifically sets forth the proposed action. Further, the agent is entitled to compensation for his/her efforts only if there is a specific provision authorizing compensation. An agent who acts in violation of these rules is subject to civil liability and possible criminal prosecution!

It is not unusual for the actions of the agent to be questioned at some future time. It is therefore imperative the agent keep detailed records of every financial transaction undertaken on behalf of the principal, deposit all funds of the principal in accounts in the principal’s name and always pay obligations of the principal by check from the funds of the principal. It is also good practice for the agent to keep receipts and a diary or other similar record in which contemporaneous notes are made documenting each action undertaken by the agent under the power of attorney.

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