Last month, we discussed the Health Care Proxy and Living Will and the importance of appointing someone to speak for you when you cannot voice your own health care wishes due to mental incapacity. Equally important, but sometimes overlooked is the need to appoint someone to handle your business and legal affairs if you are unable to handle such matters on your own. A power of attorney is such an appointment document in which you give someone else — usually a trusted family member or friend — the authority to act on your behalf as if they were you.
There might be many reasons why you might not be able to handle your own affairs.
For example, Maureen is planning to go out of the country for a month and she wants to put her niece, Jane in charge of paying her bills, doing her banking, receiving her mail and dealing with any business matter or crisis that may arise while she is away. A properly drafted power of attorney will enable Jane to handle everything for Maureen.
Frank and Mary have entered into a contract to sell their home. Frank gets into an automobile accident and goes into a coma before he had the opportunity to sign the deed over to the new owners.
What happens in such a situation? Well, if Frank had signed a properly drafted power of attorney appointing Mary to sign real estate documents for him, then Mary could sign the deed for Frank, and all would go forward without a hitch.
But what happens if Frank had not signed a power of attorney before the accident? The answer is that nothing would happen — absolutely nothing — in fact everything would come to a standstill until Mary hired an attorney and made an application to the court to be appointed Frank’s legal guardian. Thousands of dollars in attorney’s fees and filing fees later, and several weeks of delay and Mary now has the same powers that she would have had if Frank had signed a properly drafted power of attorney.
What is a properly drafted power of attorney? A properly drafted power of attorney should be “durable.” The law considers powers of attorney to be automatically withdrawn if you lose capacity. This means that if you have dementia or other mentally incapacitating illness, the power of attorney is no longer effective. That is, unless the power of attorney is DURABLE. A durable power of attorney continues to be usable even if you become incapacitated.
Second, there should always be at least one backup person named. I have seen many powers of attorney documents naming a child as the agent with no backup person named. What happens if the child dies or becomes incompetent? It is as if there were no power of attorney in the first place, and again the person is faced with the expensive and time-consuming legal guardianship proceeding.
Third, many power of attorney documents authorize your agent to make gifts of your assets but limit the gifting authority to $10,000 a year for each person. Gifts of a larger nature may be advisable — for tax planning or Medicaid planning and should be considered.
It is of utmost importance that you give serious thought before selecting someone as your agent under a power of attorney. You should only appoint someone you trust without reservation since you are giving the person you name considerable power to handle your affairs. Needless to say, the law books are filled with cases of abuse.
A power of attorney is a relatively simple legal document and yet an extremely valuable one. The absence of this document can create significant problems and cause avoidable expense and delays.
Meg Rudansky is a Sag Harbor-based attorney who specializes in the areas of Elder Law, Estate Planning, and Probate. She can be reached at 725-4778.