Sometimes a person (“Principal”) is unable to be present to perform a task, such as executing a real estate sale contract, completing a closing, or selling a motor vehicle. The power of attorney (“POA”) is a means to authorize another person (“Agent”) to perform a task or many tasks for the Principal. A general POA, however, is ineffective when the Principal is not competent. A durable power of attorney (“DPOA”), however, is effective even when the Principal is not competent.
The DPOA may be effective and used by the Agent immediately upon being signed or may be effective and used by the Agent only upon the event that the Principal is declared incompetent by a physician(s).
A DPOA can be as narrow or broad as the Principal desires. It may be limited to the sale and transfer of a particular motor vehicle, or may be broad and grant general powers to the agent, authorizing the agent to do anything for the benefit of the Principal that the Principal could have performed himself or herself. Examples include paying bills, banking, signing contracts to buy or sell property, and managing investments.
If the Principal further desires, however, he or she may also grant to the Agent additional specific powers. Some additional specific powers include the ability to execute, amend or revoke a trust agreement, to make gifts, to designate or change beneficiaries to receive property upon the Principal’s death, to make anatomical gifts, to make healthcare decisions, and to consent an autopsy.
An agent who exercises any powers under a DPOA has a fiduciary duty to the Principal to act in the best interest of the Principal, and to avoid conflicts of interest on self dealing. The Agent has a duty to exercise prudent care, and may be unable to perform some things that the Principal could have performed. For instance, although the Principal may have been free to gamble on a sporting event, or to invest in a new and risky business venture, the Agent will likely violate the Agent’s fiduciary duties by doing either.
Although an Agent who exercises any powers under a DPOA has fiduciary duties, has a duty to provide an accounting to the Principal, and is liable to the Principal for damages suffered as a result of a violation of those duties, enforcement of these rights and remedies involves litigation and substantial expense. The principal may recover a judgment against the Agent for the litigation expenses, but there is a risk that any judgment may not be collectible.
Accordingly, a Principal must consider carefully:
(i) Whether to execute a POA or a DPOA; and
(ii) If so, the authority to grant to his or her Agent and who to name as the Agent. Two or more Agents may be named.
A person considering a DPOA should confer with legal counsel to discuss the purpose(s), and to be fully advised concerning the benefits and risks involved. At the Thurman Law Firm, we would be happy to discuss these and other estate planning matters with you to assure that your estate plan satisfies your personal needs and purposes.