What is a Power of Attorney?
Powers of attorney are an extremely important part of designing a complete estate plan as they plan for your disability, incapacity, or inability to make decisions for yourself. If you were to suddenly become ill, in a car accident, or undergo a surgery, who makes financial and medical decisions for you? This question is answered by your power of attorney. That document appoints an agent that you choose to make financial or medical decisions for you.
How a Power of Attorney is Created
A power of attorney is a written document that gives power over your own affairs to a person or entity you choose. There are two primary persons that are involved in a power of attorney:
- Principal – The principal is the person giving the power to a certain person or entity (the agent) make decisions
- Agent – The agent is the person or entity given the power by the principal and authorized to make decisions on behalf of the principal. We generally recommend that you have one primary agent and at least one back up agent in case the primary agent is unwilling or unable to serve.
Under Tennessee law, for a power of attorney to be valid it must either be signed in the presence of a notary or witnessed by two disinterested parties. (A witness cannot be an agent). Conversely, in Kentucky, a power of attorney must have both two witnesses and a notary to be valid. Once signed, the power of attorney goes into effect.
Medical or Healthcare Power of Attorney
A medical power of attorney provides your agent with the ability to make healthcare decisions for you should you be unable to make the decisions for yourself. Here are some examples of situations in which your healthcare power of attorney can make decisions for you:
- You undergo a surgery and your doctor discovers another issue requiring further surgery. Your agent appointed by your medical power of attorney can give him permission to operate.
- You develop dementia/Alzheimer's disease and cannot make competent decisions for yourself. Your medical power of attorney agent has the ability to admit you to a nursing home or assisted living.
- You have a terminal condition and a feeding tube is keeping you alive. Absent a living will or other directive, your agent has the authority to withdraw the feeding tube.
- You pass away and there is a need for an autopsy. Your agent appointed by your healthcare power of attorney can authorize the autopsy.
To be clear, your agent cannot override your own decisions so long as you are competent to make them. Your agent cannot place you in a nursing home if you refuse. They also cannot change your advance directives such as your desire to be buried or cremated or whether you want to stay on life support.
What Happens If I Do Not Have a Medical Power of Attorney?
If you do not have a medical power of attorney in place and are unable to execute one due to lack of capacity, Tennessee has established a hierarchy as to who makes decisions for you. This hierarchy is as follows:
- Your spouse (unless legally separated)
- Your adult child
- Your parent
- Your sibling
- Another adult relative
- A friend who has exhibited special care and concern for you, knows your values, and is willing and available to act
The doctor would start with your spouse and work down this list until they find someone who is willing to step in and serve. Note that this type of predetermined hierarchy can be problematic though. What if you have an adult child from a previous marriage who disagrees with your current husband as to a decision that must be made. Under Tennessee law, your spouse has the right to make the ultimate decision, but this can cause significant strife between the parties and could potentially lead to litigation. Also, consider the fact that you loose control over who will make decisions for you without a power of attorney. If you want your child to make healthcare decisions instead of your spouse, your desires are inconsequential and the predetermined hierarchy would control. The best way to avoid this type of conflict is to designate a medical power of attorney well before you have any issues.
Add a Back Up Agent for Health Care Power of Attorney
It is common for many spouses to name each other as their medical power of attorney. However, should you and your spouse be close to the same age, consider adding a reserve, or back up agent for your medical power of attorney that is younger than you are. If your spouse becomes sick or predeceases you, and you do not change your power of attorney, you would have no one to step up to serve as your agent. It is always a good idea to have someone in reserve in case someone you appoint is unable to serve.
Durable General Power of Attorney
A durable general power of attorney equips your agent with the broad ability to make general and financial decisions for you during your lifetime. So for example, if you want to appoint a family member or friend as your agent, that person has the ability to perform the following actions:
- Write checks out of your personal account
- Pay bills
- Take out loans in your name
- Make investment decisions
- File your taxes
Can My Agent Use My Money for Their Personal Benefit?
Absolutely not. Every agent has a fiduciary duty to the person giving them that power. What that means is that a power of attorney has an obligation to make sure that any assets they possess or have access to are used only for your benefit (the principal). If the power of attorney does “self-deal”, or use the money for their benefit, it would be a breach of their fiduciary duty and they can be removed as your agent.
Remember when you choose someone to be your agent it needs to be someone you trust. Your agent has an enormous amount of power to make decisions without necessarily having your input. If you do not wholeheartedly trust the person who has power of attorney over you it may be a good idea to remove them and appoint someone else. Unfortunately, it is not uncommon that people will abuse general powers of attorney and you should be vigilant and know the person you are appointing as your agent.
Temporary or Limited Power of Attorney
Powers of attorney can be limited in duration and in scope. If you would like to limit how long the power of attorney will last you should specifically state that in the document. This is called a temporary power of attorney. For example, if you are going out of the country and want to appoint a friend to manage a rental property for you while you are gone, you can provide your friend with a power of attorney that has a set end date.
Similarly, you can execute what is called a “limited power of attorney”, allowing your agent to make decisions for you only on certain matters. Let's say you have a son-in-law you trust and you want him to be able to manage your farm while you are out of town. By executing a limited power of attorney you can explicitly constrain his power to only being able to manage your farm. Your son-in-law would not have the ability to make any other decisions for you in your absence.
Also, it is noteworthy to consider creating a springing power of attorney. A springing power of attorney allows your agent to act on your behalf only if you are unable to make decisions for yourself. Most springing powers of attorney have a clause that states that a doctor must declare that you incompetent before acting. This provides a large degree of protection to you while you are of sound mind as your agent has no power until a doctor states you are unable to act. However, there is a drawback to springing powers of attorney in that it may take time to find a doctor to evaluate you. Under pressing circumstances, this type of power of attorney can be problematic. For example, if your family needs money that only you can provide, your agent must first locate a doctor, have the doctor medically evaluate you, and find you to be unable to make decisions for yourself. Only then would your agent have the ability to make decisions for you. That process can take several days, if not weeks, and could cause significant issues with your family.
Do Banks Have to Honor Powers of Attorney?
No, banks and other financial institutions do not have to accept a power of attorney. When banks decline to honor the power of attorney presented to them it can be enormously frustrating. Various excuses banks give as to why they will not accept the document range from the age of the instrument itself to insisting that the owner on the account be present and authorize the transaction. When banks and other institutions refuse to honor the durable general power of attorney here a few actions you can take:
- First, ask to speak with the manager or someone more senior in the bank itself and plead your case
- Second, speak with the attorney who prepared the power of attorney and ask them to speak with the bank
- Third, as a worst-case scenario, you may have to petition the Court for the appointment of a conservator
Perhaps the best way to ensure that the bank will accept the power of attorney is to have a good working relationship with the bank. Set up an appointment with the manager of your bank before the need for the use of the power of attorney arises. Introduce your agent to the manager so that they are familiar with that person and understand your wishes.
Remember bankers are only doing their job and must protect their customers' assets. In many ways, you should want a bank that is strict with whom they allow access to your accounts. However, if you can establish a good relationship with your bank before the time comes to use the power of attorney, it will go a long way in eliminating issues such as these.
Update Your Power of Attorneys Every 3 to 5 Years
Durable powers of attorney are good indefinitely. They technically have no ending date. However, due to the recent rise in identity theft and abuse of power of attorneys, many banks and financial institutions will no longer accept powers of attorney greater than 3 to 5 years old. At the very least, they will question the validity of the document. Remember, a bank or financial institution does not have to accept the instrument and it is within their discretion to honor it. As such, it is a good idea to update your general power of attorney at least every 3 to 5 years just to make sure they are current.
Need Help Preparing Powers of Attorney?
When you are considering putting together your estate plan do not forget about powers of attorney. They are a critical part of a well-prepared estate plan. Attorney John Crow can assist you with preparing powers of attorneys that suit your particular needs. Give us a call today to schedule an appointment at our Clarksville or Hopkinsville offices to discuss your estate planning needs.