THE ONLY CONSTANT IS CHANGE

Each and every day a client asks me to write a power of attorney. These come in many shapes and sizes, and there are too many types to discuss in one article, so in this article we will look at the financial power of attorney. In next month’s piece, we will look at the healthcare power of attorney, which is also referred to as a living will. By writing both articles this morning, I can take the month of May off and work on my golf game.

Powers of attorney all flow from the concept of agency, meaning that you (the principal) appoint someone else (the agent) to do something for you. This can be for one specific thing, such as attending the closing on your home, which is called a special power. Or it can be an all-encompassing grant of all financial powers to another, called a general power.

The history of these documents goes back hundreds of years, but in 1974, Pennsylvania enacted a specific statute to bring some order to the situation. The law was modified in 1982 and again in 1992. Then, in 1999, the current act was passed. Each step along the way has made the writing and use of these documents more uniform, but there is still a tremendous amount of confusion and suspicion surrounding these documents.

I cannot begin to estimate the number of times that a client, holding a legitimate power of attorney, has called me from a bank or a broker’s office to tell me that their efforts to attend to the business and financial affairs of their principal are being rebuffed by some teller or clerk. The ultra-cautious reaction of banks and brokers to agents using powers of attorney to manage someone else’s money, stems from the many episodes of abuse, such as when the holder of a power of attorney withdraws money from the principal’s account and converts it to himself. That is a crime, by the way.

I hear people say, “Why can’t ‘they’ do something about these abuses?” The answer is that “they” have no control over the actions of the agent who intends to steal. We have laws on the books and police to enforce them, but crimes occur anyway. Every effort to reduce or avoid fraud or coercion by the legislators is met by a fresh round of agents, who are prepared to risk everything for the opportunity to get their hands on someone else’s money. And no amount of legal protection is going to avoid the bad acts of bad people.

Some of the key elements of a valid power of attorney are:

• Notice-this is a component of the power of attorney that is printed in heavy bold print and signed separately by the principal. It explains to the principal what powers are being given to the agent, and reinforces the seriousness of the transaction.

• Acknowledgment-this part of the document is signed by the agent when he takes over the financial duties, and it is somewhat of a pledge to properly discharge his duties.

• Fiduciary Duty-this is the obligation of the agent to exercise the powers in the best interest of the principal, keep an accurate record of all financial transactions, keep the principal’s assets separate from those of the agent, and exercise reasonable caution and prudence.

And the grant of these powers can be made permanently, which makes the power “durable.” This means that once the principal gives the power over to the agent, it continues until the principal revokes it in writing, or dies. If someone challenges the agent’s actions in court, the court can remove the agent if it finds abuse. In fact, the court can order the agent to make restitution to the principal if he has wrongly converted assets to himself.

“Springing” powers of attorney usually require that the principal be declared incapacitated by two physicians before the power of attorney takes effect. This can cause excessive delays in getting the bills paid, and it can be expensive to get two medical opinions in writing. In a year’s time, I might write one or two springing powers, while all the rest are general powers.

The many uses of a power of attorney make them very valuable. I find that they are looked upon by clients as an inexpensive type of transaction insurance. By that, I mean, if someone becomes gravely ill and does not have one of these, a guardianship petition will need to be filed in court, causing significant delays and costing a lot of money in legal fees, court costs, and medical opinions. For the incidental cost of preparing a power of attorney, usually below $100, it makes sense to have one made up and put away for the proverbial rainy day.

Maybe I can appoint someone to drive, chip and putt for me, under a power of attorney for lousy golfers. Then, if I don’t want to play on a rainy day, I can devote my time to the pursuit of the part of the game at which I excel–The Nineteenth Hole.

Christopher M. Abernethy has been practicing law in Hampton Township since 1976. He focuses on elder law, which includes wills, trusts, powers of attorney, living wills, and probate matters. He also is proficient in all aspects of real estate law and business law. He is a member of the National Association of Elder Law Attorneys, and the AARP Legal Services Network. He can be reached at 412-486-6624 or by email at cabernethy@aaylaw.com.