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Myth 17: “I have a power of attorney, so my estate plan is complete.”

Reality: Be very careful here. A power of attorney can serve a useful purpose, but it can also be a dangerous thing!

A property power of attorney[1] is another common estate planning option and a tool we utilize as “backup” protection in almost all our customized estate plans. Like wills and trusts, you can find all types and varieties of powers of attorney, and you can even download a power of attorney form from LegalZoom or other Internet sources. But again, there’s an important distinction between what you can do and what you should do.

Having a power of attorney in place offers some potential benefits, but there are also potential dangers. Many of the horror stories you hear in the news about an elderly person who unknowingly had a bank account emptied or a home sold out from underneath him or her by a family member or friend involved abuses of powers of attorney.

To simplify, if you give power of attorney to your friend Jim (just an example), he then has the legal authority to act as you would act with respect to whatever assets and authorizations are covered by that power of attorney. The scary truth is that most of power of attorney forms you find online or elsewhere are simple, short, and all encompassing. When it comes to these and many other legal documents, short and simple is not the best approach in most instances. They can become “blank checks”; if you give that hypothetical Jim an “active” and unrestricted power of attorney over your property, you’ve just empowered Jim to sell your home, clean out your bank account, and do whatever he desires with any other asset you have. Does this sound like a good idea? For most people, absolutely not. It’s not even what they intend. However, this is exactly what many people get as a result of “do it yourself” planning.

An August 22, 2014 New York Times article, “Power of Attorney Is Not Always a Solution,” describes additional problems that can come with relying solely on a power of attorney as the basis of an estate plan. This article talked about a man who had given power of attorney to his sister prior to the onset of his severe dementia. This man was wealthy, and when his mental incapacity made him unable to manage his own affairs, his sister attempted to act under that power of attorney to access her brother’s financial assets to pay for the brother’s medical care. However, due to discrepancies in the legal name of the sister and the way her name appeared on the legal documents, the bank refused to honor the power of attorney and denied the sister access to the brother’s funds even though she had a legitimate need for the funds.

The experience and frustration of this sixty-two-year-old Connecticut woman is not uncommon. A power of attorney is not as “powerful” as many people think, and banks routinely deny the appointed person access to the assets intended to be covered by a power of attorney.

There are various reasons (and sometimes excuses) that banks use in these types of situations. Banks can be somewhat justified for being hesitant when it comes to a power of attorney because of the potential for their being used fraudulently and for the bank being sued for not properly verifying the validity of the power of attorney or the identity of the person seeking to act under it. Further, there’s no benefit to the banks to see money going out the door. This alone could be a reason that banks, investment companies, and other financial institutions can sometimes drag their feet and make it very difficult for someone to act under a power of attorney even if everything’s on the up and up.

As a general rule, we normally suggest a client give a “current” power of attorney only to the spouse. This means that only the spouse has the current ability to go out in the world with the unrestricted ability to access and transfer assets of that spouse through the power of attorney. This is consistent with how most married couples live anyway (i.e., only one spouse is required to sign a check drawn on the joint checking account, etc.). We then utilize a “springing” power of attorney in favor of sons or daughters or other trusted individuals. Thus, before a person other than the spouse could actually become empowered under our springing power of attorney, the spouse would have to be dead or disabled and the person who granted the power of attorney would have to be legally incapacitated (and we specify the legal test of incapacity in the power of attorney). Unless and until that two-pronged test is met, only the spouse of the maker of the power of attorney has an “active” power to operate under the power of attorney.

This simple concept of using a “springing” power of attorney for someone other than a spouse would do much to prevent elder abuse and other fraud so prevalent in our society.

Another very important point to understand about a power of attorney is that, by operation of law, it will end at your death. For this reason, you cannot use a power of attorney as the main planning mechanism for end of life and after. Rather, a will and/or a trust is a much better option for this consideration and for comprehensive planning in general.

[1] A durable power of attorney is a power of attorney that’s effective while the person who granted it is competent and that remains effective even after he or she becomes incapacitated. A nondurable power of attorney is one that is effective while the person is competent but that terminates when he or she becomes incapacitated. A springing power of attorney becomes effective upon the incapacity of the person who granted it.

We also need to distinguish between a property power of attorney, which is what we’re talking about here and which deals with assets, and a health care power of attorney, which is the way you can designate someone to make medical decisions on your behalf if you’re unable to do so. In Utah, this is often known as an Advance Health Care Directive.