Welcome to the Living Trust Network's frequently-asked questions (FAQs) about a Power of Attorney.
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What is a power of attorney (POA)?
What authority can be given under a POA?
Is there any authority that cannot be given to an agent?
Do I need witnesses when I sign a POA?
Does my signature on a POA have to be notarized?
How many copies of a POA should I sign?
Where should a power of attorney be kept?
Are there different kinds of POAs?
When should a durable POA be used?
When should a springing POA be used?
Who should I name as my agent under a POA?
Can I name more than one person as agent under a POA?
If I have a POA, can I still make decisions for myself?
Can my agent make medical decisions for me?
Does an agent have legal obligations under a POA?
A: A "power of attorney" is a legal document that delegates legal authority to another person. The person who delegates legal authority to another person is called the "principal." The person to whom legal authority is delegated is called the "attorney-in-fact" or the "agent." The use of the term "attorney-in-fact" does not refer to a lawyer. Instead, it refers to any person who is authorized to act for, or on behalf of, another person. Conversely, a lawyer is often referred to as an "attorney-at-law."
A: A principal can grant an agent the authority to do virtually anything the principal could do on his or her own. A POA that grants broad powers to an agent is often referred to as a "general power of attorney." A POA that grants only limited or specific powers is referred to as a "special power of attorney."
A: Yes. Generally speaking, a principal can give an agent the authority to do any act that the principal could do on his or her own, unless prohibited by public policy or a contractual obligation. Although the laws governing a power of attorney are still evolving and each state is free to determine its own rules, the following acts are generally not permitted by an agent on behalf of a principal:
Marriage or Divorce. Matters pertaining to marriage and divorce cannot be delegated to an agent.
Voting. An agent cannot vote on behalf of a principal.
Testament. No state (with the possible exception of the State of Washington) currently allows an agent to create, amend or revoke a Last Will and Testament on behalf of a principal.
Amending or revoking revocable living trusts. If a revocable living trust provides for the disposition of assets upon the death of the grantor, then the common law provides that an agent cannot act on behalf of the grantor to amend or revoke the trust. However, the law in this regard is not clear in most states, so extreme caution is warranted if this authority is to be considered under a POA.
Representing a principal in court. An agent may not represent a principal in court. The exception, of course, is if the agent is also an attorney at law.
Bankruptcy. The bankruptcy courts are divided on this issue. One bankruptcy court (the United States Bankruptcy Court for the Eastern District of Virginia) has denied a bankruptcy petition filed by an agent on behalf of a principal. Other bankruptcy courts have permitted such filings.
Retirement benefits. Neither the Department of Veterans Affairs, the Social Security Administration, nor the United States Office of Personnel Management recognizes an agent under a POA.
A: The answer to that question is not entirely clear. Many states do not specify any formal requirements for signing a POA. Therefore, in those states where the statutes are silent, a principal only has to sign the instrument to make it effective.
Other states have more formal requirements. Some states require one witness, others require two. Some states require that witnesses not be related to the principal, others do not. Still other states require that the principal’s signature be notarized. If real estate is to be transferred under a power of attorney, then most states will require that the power of attorney be executed with the same formality as the execution of a deed.
To insure that a POA will be recognized in all states regardless of where it was executed, the better practice is to sign it before two disinterested and unrelated witnesses and have your signature notarized by a notary public.
A: For the reasons set forth in the answer to the previous question, the better practice is to have your signature on a POA notarized by a notary public.
A: To be legal in most states, only one copy of a power of attorney has to be signed. The better question, though, is whether more than one copy should be signed? There is no right answer to that question. It depends upon whether the POA is going to be used for a single purpose (such as a real estate closing) or for many purposes (such as managing your personal finances in the event you become incapacitated). In the former case, the agent will probably only need one copy to give to the buyer at the closing. In the latter case, the agent may need two or more originals. Financial institutions, for example, often request either an original or a certified copy. An agent should always resist giving away an original because an original always has to be shown when the agent is acting on behalf of a principal. If all the originals are given away, the agent may not be able to transact further business on behalf of the principal.
A: Unless the POA is to be used immediately, the original should always be retained by the principal in a safe place. The agent should be advised that he or she has been named as agent and should also be advised as to the location of the original and the number of originals that have been signed. If the principal stores the originals of the POA in a safe-deposit box, the principal should authorize the bank to allow the agent access to it and should also give the agent a key. If the principal stores the originals of the power of attorney at home, then the originals should be kept in a fire and water proof safe. The agent should also have access to the home, either with a key or through contact with a neighbor or relative.
A: Yes. There are three different kinds in common use today; namely:
Under common law, a POA became effective as soon as it was signed by the principal, and it remained in effect until the principal revoked it or the principal became incompetent or died. Because a POA terminated upon the principal’s incompetency, it was virtually useless as a tool to manage the affairs of the principal during incompetency. For estate planning purposes, this is precisely when a power of attorney was needed most.
In 1954, Virginia changed the common law rule by providing that a POA would remain in effect after a principal became incompetent, but only if the instrument specifically said so. Thereafter, all the other states and the District of Columbia changed their common law rule to specifically allow a power of attorney to survive incompetency. Today, a power of attorney that survives the incompetency of the principal is referred to as a "durable power of attorney." or "DPOA." In order to constitute a DPOA, most states require that the document contain the following provision - or words of similar intent:
A: For the most part, a DPOA is intended to be used in the event the principal is unable to make decisions on his or her own. It is generally thought to be a much better solution that having the courts appoint a guardian or conservator to act for the principal. Many professionals also prefer to use a DPOA even if the power is to be used immediately for a specific purpose, such as for a real estate transfer. In that case, if the principal should become incompetent prior to the occurrence of the specific purpose, then the agent could still complete the transaction. Consider the following hypothetical: Assume that a principal wants to close on the sale of real property on Friday but can’t be at the closing. On the preceding Monday, he gives his wife a DPOA to act on his behalf. On the following day, the principal is injured in a car accident and is unconscious in a hospital when Friday arrives. On Friday the principal’s wife completes the transfer on his behalf using the DPOA. If the POA wasn’t durable, the transfer would have been delayed or possibly lost forever.
A: Like the DPOA, a springing POA is intended to be used in the event the principal is unable to make decisions on his or her own. It is generally thought to be a much better solution than having the courts appoint a guardian or a conservator for the principal. The difference is that a durable POA becomes effective as soon as it is signed by the principal whereas the springing power of attorney becomes effective only if - and when - some future event occurs, such as when the principal becomes incompetent. In a perfect world, the springing POA would be far preferable to the durable POA because a springing POA becomes effective only when it’s actually needed. The durable POA presents a little bit of a problem because it becomes effective immediately, even though the principal is fully capable of acting on his or her own. The problem with the springing POA is that it’s very difficult to say when the triggering event occurs. If the triggering event is the principal’s incompetency, how do you know when that occurs? You might require that a physician certify to the principal’s incompetency but, in practice, it becomes a rather messy affair. For this reason, many estate planning attorneys prefer to use the DPOA and have the principal keep all the originals until it’s time for the agent to act.
A: A POA conveys broad powers to an agent to act on behalf of the principal. In most cases, a durable or springing POA will authorize the agent to perform virtually all acts that the principal could perform on his or her own, with the exception of certain acts discussed above that are deemed to be against public policy or contractual obligations. Obviously, there is plenty of room for abuse by an agent. While there is some legal recourse against abusive actions of an agent, the best protection is to insure that a prospective agent has the proper qualifications for the job. The proper qualifications are honesty, integrity, and common sense. To be sure that a prospective agent has these qualifications, the principal should have known the prospective agent for a long period of time and should have had regular dealing with this person. A spouse, a trusted family member, a proven friend, or a professional with an outstanding reputation for honesty and integrity are good candidates. A person with known financial difficulties should not be considered, nor should anyone who is unknown to the principal regardless of reputation.
A: Yes. You can appoint multiple agents if you wish. If you appoint two or more agents, you must decide whether each agent can act separately in managing your affairs or whether they both must act together. Requiring both agents to act together can help protect against abuse, but it also makes it more difficult for the agents to get things done. This is especially true if one agent is local and the other is out of state. One solution is to allow either agent to write checks for the payment of regular recurring bills, but to require both agents to sign for other actions, such as changing investments, signing accounting and tax forms, etc. This is one area where the advice of a professional advisor can be invaluable.
A: Yes. The agent named in a POA is only the representative of the principal. As long as the principal is capable of making his or her own decisions, then the principal is free to carry on as though the POA didn’t exist.
A: Yes, if that is one of the powers conveyed to your agent under your POA. Most states, however, provide for a health care directive or a health care proxy, which is essentially a POA for health care decisions. This is a separate document from a POA for financial purposes. The preferred practice is to have a durable POA for financial purposes and a health care directive for medical decisions.
A: Yes, an agent is required to act in the best interests of the principal. An agent is a fiduciary, which means that the law demands a strict adherence to standards of honesty and loyalty to the principal. An agent must account to the principal for all of his or her transactions on behalf of the principal. The agent must keep the principal’s property separate and apart from his or her own, and the agent must keep a separate checking account on behalf of the principal.
A: Generally, no. However, if the POA is used in a real estate transaction, then the POA might have to be recorded on the land records in the city or town where the property is located. If you do record a POA in such transactions, the POA becomes a public record open to inspection by the public. If the POA is later terminated, then the notice of termination should also be recorded. If you do record a POA for any reason, then you will be able to obtain certified copies of the POA for a nominal fee. The ability to obtain certified copies can be invaluable if the agent is lacking a sufficient number of originals. In most jurisdictions, a certified copy is legally equivalent to the original document.
A: There is no official monitoring of an agent under a power of attorney, at least not by any government agency. That is deemed to be the principal’s responsibility. It is important, therefore, that an agent be monitored by the principal or, if the principal is incompetent, by a close family member. Either the principal of a close family member should insist on regular accountings and notice of any major transactions. If there are grounds to believe that an agent is misusing a POA, it should be reported to the police or other law enforcement authority. In most jurisdictions, the abuse of a fiduciary relationship is a criminal offense.
A: A revocable living trust is, by far, the very best vehicle that you can have to manage your financial affairs during periods of incompetency. The reason is twofold: First, the law of trusts is much better defined than the laws governing a POA; there is much better accountability by a trustee than there is by an agent; and, there is much better recourse for a principal or other family members over mismanagement by an agent. However, trustees have no authority over property that is not in a living trust and very few people transfer all of their property to a living trust. So, a durable power of attorney can play a very valuable role in your overall estate planning even though you already have a living trust. First and foremost, your agent will be able to transfer all remaining property to your living trust so that it can be administered under the terms of the trust instrument. Second, your agent may have to file personal tax returns on your behalf or handle certain issues regarding past tax returns. There may also be other things that your successor trustee cannot handle, such as having access to your safe deposit box, dealing with motor vehicles, etc. For all of these reasons and more, a durable POA is a necessary component to a living trust under almost all estate plans.
You should know, however, that many of the powers discussed above are not automatically given to your agent under a POA. Instead, they must be specifically included in the POA document. As a minimum, your power of attorney should give your agent specific power to transfer property to your revocable living trust. This is one area where you want to consult your local attorney because each state may have different laws governing these powers.