GOOD TO KNOW: Answering legal questions about durable powers of attorney for finances/other property – Part I

What is a durable power of attorney for finances and other property?

The durable power is a signed and notarized document by which one person, the principal, gives another person, an agent, authority to act on the principal’s behalf.

The authority may be general, giving the agent broad power to make decisions, or limited, giving the agent the power to do one or more specific things. Most general powers of attorney prepared today are durable, which means the authority continues even if the principal becomes disabled or incapacitated and cannot act for himself or herself. A principal can make the power of attorney effective immediately or at some later date or event, such as when the principal becomes incapacitated. Under most circumstances, a properly executed general durable power of attorney avoids the need for a court-appointed guardian or conservator.

Note: This article does not address powers of attorney for health care decisions-making, which are governed by different laws and involve different considerations. Individuals are encouraged to complete powers of attorney for health care to appoint an individual, called a “health care agent,” to make health care decisions for them.

Considerations in using

a durable power of attorney

Why should I consider a durable power of attorney?

Insurance statistics reveal that one out of two Americans will suffer a period of prolonged disability in his or her lifetime. If you cannot manage your own affairs, someone else must. A durable power of attorney allows your agent to act even if you become incompetent.

If you do not have a durable power of attorney and you become incompetent, it may be necessary for your family to ask the court to appoint a guardian for you. Appointing a guardian takes time and can be cumbersome, public, and expensive. The family must hire a lawyer who will arrange for a court hearing. A physician must provide evidence that you cannot handle your own affairs. If you are physically able, you must go to the courthouse to hear the testimony that you are incompetent.

Many people think that it’s not necessary to have a durable power of attorney if they don’t have much money or if they hold all property jointly with a spouse or partner. However, there are many actions an agent would need specific legal authority to do – regardless of how much (or little) money you have or whether you hold most of your assets jointly with another person. Some examples include: Applying for work-related disability or income continuation benefits, and public benefits such as Social Security disability; accessing or changing retirement plans; filing insurance claims or appealing denials; signing tax forms; selling a home to move somewhere more accessible; contracting for health care services; and hiring accountants and lawyers.

What may I authorize the agent to do for me?

An agent may perform a variety of tasks for you, including handling bank accounts, paying bills, buying and selling real estate, handling a business, applying for public benefits, making changes to life insurance or retirement plans, filing taxes, hiring workers for personal assistance, hiring lawyers and accountants securing investment advice, making gifts, creating or transferring assets to a trust, compensating an agent, reimbursing an agent, and more. For each of these tasks you may authorize your agent to do almost anything the law permits you to do yourself. Your lawyer can discuss your specific concerns with you.

What should I consider before including a gifting power?

First, you need to recognize how dangerous a power to make gifts can be if your agent turns out not to be honest. You may decide, therefore, not to give your agent the power to make gifts. If you don’t want to include a gifting power, it is best to include a statement prohibiting gifting.

Under Wisconsin law, unless there is a specific provision authorizing gifts in the power of attorney, gifts are not permitted. Without such a specific provision, third parties, such as Medicaid, the IRS, and title companies, are not permitted to recognize the gift.

If you decide to give your agent the power to make gifts, you have to decide and specify how extensive the gifting power should be. Should it be limited to a certain class of persons (your spouse, children, etc.) or charitable organizations? Should it be limited to specific circumstances such as at holidays or birthdays, or for tax or Medicaid planning? Should there be a monetary limit on gifts? Should the agent be permitted to make gifts to himself or herself?

In sum, the advantages and disadvantages of a gifting power should be considered carefully in completing document. Seek the advice of a competent attorney.

What characteristics should I consider in selecting my agent?

Select someone in whom you have total faith and trust, someone who is honest and loyal to you. Consider whether the person you have in mind is available and willing to serve. While it’s always handy for the person to be geographically close, it is certainly possible for a conscientious agent to handle your financial matters from a distance. Trustworthiness is the most important factor. Find out if the person has the knowledge and experience required to manage your business or investments.

Plan ahead; what if this person, although willing to serve now, is unable to serve later? If possible, provide for one or more other persons to succeed your initial agent. The durable power of attorney may also allow your agent to appoint his or her own successor if you delegate this power.

If you have concerns about financial management, or extensive security holdings, your document may authorize your agent to transfer financial assets to a standby trust with a corporate trustee. Your agent will continue to handle your financial affairs but will not have the day-to-day worry about investment decisions. The easier you make it for your agent, the more likely he or she will be willing to act as agent.

While the corporate trustees can act as agents, some are reluctant to do so even in the financial area. The standard durable power of attorney gives more decision-making powers to agents than some corporate trustees are comfortable with. A corporate trustee, however, may accept the appointment if its role is limited to transferring your stocks and bonds to a previously established standby trust of which it has been named trustee.

A person you would like to select as your agent may have a legal conflict of interest with your own interests. This is fine if you know the person can be trusted to protect your interests and you are willing to accept the conflict. It is unwise to appoint someone who is not financially stable or who has personal problems.

While it’s natural to consider family members for this kind of responsibility, it’s important to be honest and objective when selecting an agent. Fully consider whether family members have the time, skills, and commitment to be conscientious in performing this important fiduciary responsibility for you. Consult with the individual or corporate trustee you have in mind as agent before completing your document. Remember, your agent may be exercising the power when neither you nor anyone else may be able to monitor the agent’s actions.

How can I protect myself against abuse by my agent?

The best protection is to pick an individual in whom you have total trust. Other methods of protecting yourself are: including a statement of the agent’s fiduciary duty in the actual document; requiring your agent to sign the document and thereby acknowledge his or her acceptance of the fiduciary duty; requiring that the agent be bonded; prohibiting gifts (or limiting gifts as to amount or recipients); requiring the agent to meet with your lawyer to better understand the powers being delegated, your expectations, and the agent’s fiduciary duty to you.

The agent usually serves without any supervision and without a surety bond to protect you or your estate if the agent misuses your assets. That is why you need someone in whom you have great faith and trust. If you can’t find someone who meets those requirements, do not use a durable power of attorney. Instead, discuss your concerns with your lawyer, who can suggest other ways to meet your needs and objectives.

What can I do if I believe my agent stole from me?

First, seek the advice of a competent attorney. Second, and very critical, immediately revoke (cancel) your durable power of attorney so the agent cannot do any more damage. This is best accomplished by signing a dated statement indicating that you are revoking the document. Include the date you signed the original document and the agent’s name and clearly state that you are revoking all of the agent’s power. It is wise to sign the revocation document in the presence of a notary public. Mail or deliver the original revocation to your agent. Make copies of the revocation document and immediately send them to all individuals and institutions (for example, banks) that you believe have a copy of the power of attorney document.

You have two options to try to recover the stolen assets. You may consult with a private attorney about various civil actions you could bring against your agent to recover the funds you believe your agent stole. These civil lawsuits might include actions for conversion (injury to personal property), an accounting, breach of an agent’s duty to the principal, constructive trust, and others. An attorney can fully explain these actions to you. Keep in mind, however, that if you believe your agent has already spent the funds and has no other funds to repay you, even a successful lawsuit may not result in recovering your funds.

You may also report the theft to the police and district attorney. If they believe that a crime has been committed (for example, abuse of a vulnerable adult), the district attorney may criminally prosecute your agent. A criminal prosecution may result in your agent paying a fine or serving time in jail or prison; it does not automatically guarantee that the agent will repay you the stolen funds. However, a judge may be able to order your agent to make “restitution” to you.