Power of Attorney (POA)

What is a power of attorney?

A power of attorney (POA) is a document that allows you to appoint an agent to transact business on your behalf. The agent is also referred to as your attorney-in-fact, but you agent does not actually have to be an attorney. You agent can be a friend, relative, or other associate. The individual who grants the POA and appoints the agent is referred to in legal terms as the principal.

When does the power of attorney take effect?

The authority granted to an attorney-in-fact is effective immediately in most powers of attorney. The attorney-in-fact can literally exercise the powers in the document as soon as it's signed. Sometimes the principal might not intend that the powers be exercised until some future point in time. The authority is legally granted and effective immediately anyway, unless an additional step is taken to prevent that. A POA is referred to as a durable POA if you intend that your attorney-in-fact should act for you now and continue to act for you if you should become incapacitated at some point in the future. A springing POA doesn't become effective unless and until the principal becomes incapacitated. This kind of POA “springs” to life when it's needed.

What does incapacitated mean?

The key to a springing POA is the event that triggers the powers' effectiveness. Some attorneys include language in the document to provide that the POA only becomes effective if two physicians sign it, stating that the principal is incapable of managing their own affairs. It sounds like an easy precaution to take, but it can be problematic.

Are there medical factors to consider?

Another complication can arise because physicians are bound by the Health Insurance and Portability Act (HIPAA). They may not be able to provide some information regarding the principal's medical condition due to HIPAA's privacy constraints unless the agent can provide authorization to do so. You can sign and provide a release at the same time you create your POA to safeguard against this eventuality, but other issues might remain.

Are there financial factors to consider?

A banker or other financial entity might not accept the attorney-in-fact’s authority, even if two physicians sign the document. The institution would logically want some confirmation that the signatures of the physicians are genuine, and maybe even some reassurance that the physicians have made the correct diagnosis.

Who Should Have Power of Attorney?

You're making a springing power of attorney to simplify matters if you should become disabled or unable to act, but you could actually end up creating issues that might have to be resolved by a court if you put conditions on the attorney-in-fact’s authority. Adding terms to address when you are or are not disabled can defeat the purpose of simplicity should issues arise. Maybe you can't trust that individual period if you don't trust your agent not to use the power until you're incapacitated. Never name someone you don't wholeheartedly trust to act as your attorney-in-fact.

Do Power of Attorney Agents get paid?

Acting as a POA agent is a lot of work which involves a significant degree of liability. Because of this, a person or organization acting as a POA agent is entitled to compensation for such services. Although POA documents may specify the amount of compensation, most estate plans state that the POA agent shall receive “reasonable compensation,” which is a term of art referenced by the California Probate Code. Reasonable compensation is not a defined term.

When California courts determine reasonable compensation, they look at specific factors in accordance to California Rules of Court which are: The gross income of the trust; the success or failure of the trustee's administration, as measured, e.g., by the growth in value of the investments; any unusual skill, expertise, or experience that the trustee has brought to the position, e.g., investment management expertise; the fidelity or disloyalty shown by the trustee; the amount of risk and responsibility assumed by the trustee, as measured, e.g., by negotiation of oil leases or management of a large office building; the time that the trustee spent performing trust duties; the custom in the community, including the compensation allowed to trustees by settlors or courts and the fees charged by corporate trustees; and whether the work was routine or required more than ordinary skill and judgment.

For further information, contact our firm for a free consultation.