from the New York Times
May 21, 2009
Putting Your Faith in a Power of Attorney
By DEBORAH L. JACOBS
TRUST and estate lawyers routinely tell their clients about the importance of signing a durable power of attorney. Often written at the same time as a will, it appoints a family member, friend or adviser as an agent to act on your behalf in financial and legal matters — even if you become incompetent.
But as essential as these documents are, they face new — and continuing — obstacles. One is using them amid the disruptions in the financial services industry. Another is an old problem that may have grown more acute after recent scams and frauds: Many people mistrust these documents, which give unbridled power to your agent. So some people sign them to appease their lawyers but never give them to the person designated to handle their affairs.
“A power of attorney is a license to steal,” said Bernard A. Krooks, a specialist in elder law at Littman Krooks in New York who nonetheless encourages clients to sign a power of attorney. “You have to be careful who you appoint as your agent.”
Some states have tried to reduce abuses. In New York, for example, a new law requires that as of Sept. 1 all new powers of attorney be signed not only by the principal (the person granting the power) but also by the agent — a reminder of his or her obligation to put the principal’s welfare first.
In addition, if the power of attorney includes the authority to make total annual gifts of more than $500 to one person or charity, that power must be included in a separate rider that, like a will, must be signed in the presence of two witnesses.
The law, enacted Jan. 27, may deter some people from signing a power of attorney, Mr. Krooks said.
He and other lawyers remind their clients that even if signing a power of attorney makes the client feel vulnerable, it’s far better than living without one. If you become incompetent, you lack the capacity to make legally binding commitments. Without a power of attorney, your family might have no choice but to ask a court to appoint a guardian to oversee your finances. This can be an expensive and sometimes embarrassing ordeal and can involve unpleasant, even acrimonious, exchanges.
Although the two are sometimes confused, a durable power of attorney, which deals only with financial matters, and a health-care proxy, which authorizes an agent to make medical decisions on your behalf, are distinctly different. And when thinking about signing a durable power of attorney, it is important to consider the following issues:
WHOM CAN YOU TRUST? The best person to put in charge, lawyers say, is a close family member — preferably one who lives nearby. Most financial advisers do not want this responsibility, nor is it cost effective to pay their hourly fee to handle routine tasks like paying bills.
Naming joint agents, which is allowed only in some states, is one way to provide checks and balances. Or you can appoint another person, like an attorney, an accountant or a family friend, to supervise the arrangement.
Before appointing an agent, it is important to determine whether that person is willing to take on the duties. If you’re nervous about giving the signed document to your designated agent right away, you could leave it with your lawyer with instructions on when to turn it over, said Gloria S. Neuwirth, a lawyer with Davidson, Dawson & Clark in New York. In that case, remember to tell your agent whom to contact.
WHAT POWERS SHOULD BE INCLUDED? You ought to authorize your agent to take any financial action you could take yourself, said Lawrence P. Katzenstein, a lawyer with Thompson Coburn in St. Louis. This could include estate-planning strategies like financing college savings plans for children or grandchildren, prepaying charitable bequests and converting traditional I.R.A.’s to Roth I.R.A.’s.
If you have set up a living trust — a way to provide for yourself financially and to transfer assets to friends or family after your death instead of having them distributed under the terms of a will — you should carefully distinguish between the responsibilities of the trustee and those of the agent, Mr. Katzenstein said. He recommends that you indicate whether the agent may take money out of the trust, and that you give the agent the authority to transfer assets into it if you become incompetent.
Even if most assets are ultimately held by the trust, you still need the agent to perform quasi-personal functions like signing a nursing home contract or tax return and accessing a safe-deposit box.
This is not always easy, and the digital world has made it harder, in some ways.
Wendy S. Goffe, a lawyer with Graham & Dunn in Seattle, relied on a power of attorney that her husband, Scott Schrum, had given her to piece together his paperless financial life after it was found that he had cancer. While he was disabled, the form gave Ms. Goffe access to electronic records, including those for her husband’s rollover I.R.A. and 401(k) and the 529 college savings plan he had managed for their daughter Maya, 7.
The biggest chore was tracking down shares of stock that Mr. Schrum, also a lawyer, had purchased by exercising employee options online. Because of “a string of bad luck,” Ms. Goffe said, the financial institution holding the options and the couple’s brokerage company had been sold, their Web sites eliminated and the records put into storage. The shares, worth $7,500, had been credited to a stranger’s account. In dealing with each institution, she needed to present the power of attorney.
WHEN DOES THE DOCUMENT TAKE EFFECT? You can choose to make it effective from the moment you sign it, or specify that it be activated by a specific event, for instance, if you become incompetent.
The problem with the second approach, known as a springing power, is that someone must decide when you have reached that state, said Ms. Neuwirth, the New York lawyer. Traditionally, this has required a medical opinion and can lead to disputes.
Even when powers are effective immediately, the agent may not be sure when it’s necessary to take control. That is what happened to Dr. Mark Segall, a surgeon in Los Gatos, Calif., who said his elderly parents gave him power of attorney in 1996.
Knowing that they were private about financial matters and valued their independence, he did not use it until last year, when he said they seemed relieved to have his help. He then discovered that they had been shredding all their mail, including bills, for many months and had accumulated about $1,100 in finance charges on their credit card (at Dr. Segall’s request, the company waived the late fee).
WHERE IS A POWER OF ATTORNEY VALID? Because state laws vary, you cannot assume that a power of attorney signed in one state will be honored in another. Howard M. Hujsa, a lawyer with Cummings & Lockwood in Bonita Springs, Fla., recalled a client whose son was unable, under his mother’s power of attorney, to sell her house after she became incompetent.
Her power of attorney was signed in Massachusetts, which at the time required only one witness; his mother had moved to Florida, where the property was located, and Florida law says an agent with power of attorney cannot sell real estate on behalf of the principal unless the document is signed by two witnesses.
The family had to go to court to have the son appointed as guardian. He continued in this role until his mother died several years later and he had to file annual reports to the court, something an agent under a power of attorney is not required to do. The process wound up costing the family more than $30,000 in additional legal fees, Mr. Hujsa said.
Likewise, if you plan to spend time overseas and buy or sell real estate, conduct business or open a bank account there, you need to find out what the law in that country requires, said Anne J. O’Brien, a lawyer with Arnold & Porter in Washington. Very few countries will honor durable powers of attorney from other jurisdictions, she said.
While some countries have an equivalent form, others permit the arrangements only under court supervision, said Mark Summers, a lawyer with Speechly Bircham in London. In Britain, you must use a power of attorney that is 25 pages long.
Many Americans are surprised to find out that a British power of attorney can cost several thousand dollars, he said, about 10 times what a lawyer would charge in the United States to prepare a much shorter document.