Avoiding Missteps With Your Power of Attorney
In her September 25th article for this newsletter, attorney Elizabeth Boehmcke discussed the basics of fiduciaries, including agents under financial powers of attorney. In this article, I will elaborate on some common missteps that occur under General Durable Powers of Attorney (“POAs”) and how to prevent them.
POAs are an effective tool for an individual (referred to as a “Principal”) to grant authority to a trusted individual or individuals (referred to as “Agents”) to do specified acts. The authority granted to Agents may be effective either immediately upon execution of the POA or only in the event of the Principal’s incapacity, as determined by a medical professional. There are advantages and disadvantages to both options, but usually Principals will only grant immediate power to their Agents if there is a compelling reason (such as disability) and no current concern about trustworthiness of the Agent. If there is any concern over the ability of an Agent to faithfully and competently perform the duties of an Agent, then they are likely a bad choice. Many of the problems our office sees regarding POAs are due to the Agent’s inability to accurately account for their actions or comprehend their duties when acting as an Agent. I will highlight three frequently encountered examples: a “Family Course of Dealing” ; “Poor Documentation”; and “Inactive Agent”.
Scenario #1 “Family Course of Dealing”
Frequently, families have relationships that are particular to their family unit. For instance, mom and dad may regularly provide some support for their son or daughter. When mom or dad become incapacitated it is inappropriate for this type of support to be continued if it is not explicitly provided for under the POA. In fact, the Agents can face serious criminal or civil repercussions if they are transferring money to themselves or other family members. In the above example, son may be serving as mom’s agent and continue transferring funds to himself. While such gifts were fine while mom did it herself, they are inappropriate when the agent is transferring the funds. Furthermore, there is no means for the Principal to “sign off” on disbursements if they never recover from their incapacity. Expenditures for the benefit of persons other than the Principal are clearly not allowed unless specifically authorized under the POA. The inability to continue with the “Family Course of Dealing” upon the incapacity of the Principal often results in financial hardship for loved ones and accounting headaches for the Agent. If a “Family Course of Dealing” is meant to be preserved, then the POA should explicitly allow for the specified course of dealing. For example, the POA could allow for gifts to the Agent (or another family member) of certain specified amounts and for specified reasons. Full disclosure to your drafting attorney is crucial to preserving such relationships when the Principal becomes incapacitated.
Scenario #2 “Poor Documentation”
Every individual has their own method for tracking their finances. When an individual is tasked with being an Agent under a POA, they should carefully track their actions with regard to the Principal’s finances because they may be subject to review by a court. Accordingly, when an Agent is named, they should be told they have been appointed to that role and advised on what their duties entail. This conversation should be facilitated by an experienced estate planning attorney. As an initial matter, the Agent and Principal should make sure that any checking account used by the Agent has check imaging as a feature. This feature means that the monthly statement provided from the bank will contain images of the checks that have been processed on that account. Such information allows for disabled Principals to easily review the check-writing practices of the Agent and determine if funds are being spent appropriately. Furthermore, this feature allows for the Agent to account for their actions if they failed to record a transaction in the account’s check register. Agents also shouldn’t use debit cards or other means of conducting business because they do not leave an adequate trail of documentation. The goal of a good Agent is to have all transactions fully documented and to do so as efficiently as possible. Accordingly, using checks creates a clear record of an Agent’s actions and allows for clear documentation of their transactions. In the event the agent hasn’t kept up with accounting for their actions, the check images offer an easy resource for reconstructing the actions of the agents to represent in an accounting. If an agent uses a debit card, then receipts should be maintained for the transactions and filed chronologically for easy accounting.
Scenario #3 “Inactive Agent”
A POA creates the authority for an Agent to act on behalf of the Principal, but it does not create a duty to act. This is an important distinction because an Agent confronting this new-found authority may be timid or hesitant to act, because they are unsure what they can or cannot do. In order to prevent inaction, a conversation with the Agent is necessary. Usually, such a conversation is best handled by an Attorney with clear knowledge of applicable law.
Occasionally, an Agent will not act even after having the authority explained to them. This inaction may be due to family discord, which may create a fear of reprisals from family members. In such instances, a third-party professional agent may be needed.
Where a duty to act is desired, a trust may be an appropriate solution. Unlike an Agent, a trustee is required to act in the best interest of the trust beneficiary with regard to trust property. Furthermore, a trust can incorporate specific parameters for a trustee’s actions. One limitation is that trustees can only act with regard to the property held by the trust. Taken in aggregate, these characteristics mean that a trust can be used to allocate a specific asset or assets that must be used for the beneficiaries’ benefit subject to certain rules. Fortunately, these rules can be used to address the concerns of Scenarios 1 and 3 discussed in this article.
These scenarios are practical problems that our clients face every day. A clear understanding of chosen agents, particular circumstances, and potential outside influences is required to execute a plan that will best accomplish the goals of a client. Furthermore, revision of a POA or an entire estate plan may be required if certain individuals are incapable or unwilling to serve as Agents under a POA.
Ask Kit Kat – The Chartreux Cat
Hook Law Center: Kit Kat, what is a Chartreux cat?
Kit Kat: Well, it’s a lovely grey cat, originally from France, as one might guess by the name. It’s actually a breed in its own right which was formally recognized by the Cat Fanciers Association (US) in 1987. That was quite a giant step, since the first Chartreux only came to the US in 1970. It is believed that the Chartreux breed was first cultivated by Carthusian monks in the 18th century in France to keep pests like mice and rats at bay. Their intelligence in finding the rodents and keeping them under control was recognized immediately.
The Chartreux has grey, dense fur and a stocky body. Its eyes tend to be in the copper or gold color range. So if you have one, be prepared for weekly brushing. They just can’t keep up with it themselves. The hair is not long like a Persian’s. It’s just extremely thick. They are very affectionate; one could say they are the ultimate lap cat! They get along with other pets, and they are very gentle with children. They also are very intelligent, and they can figure out more ways to jump and open things than one would ever think possible. Unlike the Siamese, they are not vocal, but don’t mistake that quietness for dullness. They’ll outsmart you every time!
So if you’d like a breed cat with beautiful soft fur, the Chartreux may be for you! I’ve always been to partial to grey cats, and these are very fine specimens. However, all cats, domestic and pure bred, are wonderful creatures, no matter the color of their fur! It’s the personality that really counts, and every cat I’ve encountered so far has a distinct and unique personality. That’s what makes having one or several so interesting and rewarding!
- October 9, 2015 – Andrew H. Hook will be part of a panel discussion at the 2015 Art of Healthy Aging Forum & Expo on Friday, October 9, 2015, at the Virginia Beach Convention Center, 100 19th Street, Virginia Beach, VA 23451. The forum & expo runs from 9 a.m. – 2 p.m. Tickets are $15 until September 30th (limited seating). $25 at the door. To register for this event, please click registration.
- October 20, 2015 – ATTENTION PERSONAL INJURY ATTORNEYS: You are invited to attend a special 1/2 day conference at the Westin Hotel in Virginia Beach centering on ERISA subrogation, incapacitated adults and settlement trusts. Speakers will include Andrew H. Hook and Shannon Laymon-Pecoraro, attorneys from Hook Law Center, speaking on Incapacitated Adults and what you should know; Steve Lester and David Place from Synergy Settlements speaking on ERISA subrogation; and a panel discussion on settlement trusts to include James Creel from First Capital Surety & Trust Company. 3 CLE credits can be earning by attending this FREE seminar, “Elder Law Considerations for the Personal Injury Attorney.” Come learn about issues you, as a personal injury attorney, should be considering! Conference hours are 8am – 12:30pm and include a complimentary breakfast buffet at 8am. Registration is open until October 10, 2015. Register by calling 877.242.0022 and ask for Marci or 757.399.7506 and ask for Debbie. Space is limited so register TODAY!
- October 26, 2015 – Shannon Laymon-Pecoraro will be speaking at the National Business Institute’s seminar on The Probate Process from Start to Finish in Virginia Beach, Virginia.
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