Power of Attorney FAQ
What is a power of attorney?
A power of attorney is a legal document where one person (the Principal) gives another person (the Agent) the right to act on the Principal's behalf. Financial powers of attorney may authorize the Agent to handle things like paying bills, buying or selling a home or other property, collecting rent or other amounts owed to the Principal, and many other things. Exactly what the Agent is authorized to do is spelled out in the power of attorney.
Who can make a power of attorney?
To make a valid power of attorney, the Principal must be 19 years of age or older and able to understand what they are doing. It may surprise you to know that the level of understanding required to make a power of attorney is greater than what is required to make a will. It can be very difficult to tell if a person has the level of understanding needed to make a power of attorney if he or she has become mentally or physically disabled due to injury, advanced age, or other reasons. You may hear us refer to the required level of understanding as “capacity” to make a power of attorney.
What is a durable power of attorney?
A “durable” power of attorney is one that remains valid after the Principal loses capacity. Under current Alabama law, a power of attorney is durable unless it expressly states that it is not durable. It makes sense that the law would prefer durable powers of attorney. If a power of attorney is not durable, it is no good for incapacity planning.
What is a springing power of attorney?
A springing power of attorney is one that does not become effective until the Principal loses capacity. The powers of attorney that we provide may be either springing or immediately effective depending on the client's age, circumstances, and preference.
Why would I need a power of attorney?
We regularly get phone calls from families who want a power of attorney for an elderly parent or relative who can no longer handle financial matters for themselves. Often, the family has hit a road block of some type. They may need access to a bank account to pay bills for the elderly person, or they may need to sell a house or a parcel of land to pay for that person's care. Whatever the reason, the family has been advised by a bank, a realtor, or even a healthcare worker that the elder needs a power of attorney. If the elder no longer has the level of understanding needed, they cannot make a power of attorney. If the family tries anyway, and the power of attorney is later held invalid, the person who was designated as Agent may be liable for any acts taken using the invalid power of attorney.
If the elder has enough understanding, it may still be possible to make a power of attorney. A responsible lawyer will be much more reluctant to draft a power of attorney where the issue of capacity is unclear. It may help if the family can provide the lawyer with supporting medical records or a doctor's report, but the lawyer will be very particular about when they are dated and what the records say. It takes much more time and care to draft a power of attorney when capacity is at issue, especially when the elder is confined to a home or healthcare facility. It is easier and less expensive to obtain a power of attorney when the Principal has no mental or physical impairment.
Keep in mind that advanced age is not the only cause of incapacity. It may also result from injuries due to accidents or from sudden illness, such as heart attack or stroke.
The main reason you need a power of attorney is so that your family won't be left scrambling if you lose the ability to manage your own affairs. Instead, they will have a legal document that allows the person you select to handle your financial affairs.
What happens if I don't have a power of attorney?
If you are unable to make a power of attorney, your family may be required to get a conservatorship to handle necessary business. A conservatorship requires going to Probate Court, and it is expensive. Getting a conservatorship generally requires you to pay for three lawyers: one to represent the person who is seeking the conservatorship, one court-appointed lawyer to represent the person who needs the conservatorship, and one attorney to provide an independent report to the court. The family member who files for conservatorship pays the up-front costs and is usually reimbursed from the incapacitated person's funds after a conservatorship is granted. This process is even more expensive if the family can't agree on whether a conservatorship is needed or who should be the conservator.
Having a power of attorney is not a 100% guarantee that you will never need a conservatorship, but it is one of the few things you can do to prevent it. It is unusual for someone who has a power of attorney to need a conservatorship.
Can the Agent on the power of attorney do anything with the Principal's property?
The actions the Agent is authorized to take are outlined in the power of attorney document. However, even if the powers granted to the Agent are very broad, the Agent has a legal duty to act in a way that is consistent with the Principal's expectations. For example, if the Principal would not have expected the Agent to buy himself or herself a new car using funds from the Principal's bank account, then the Agent should not do that. If the Agent doesn't know what the Principal would have expected, then the Agent must act in the Principal's best interest. Using the same example, the Agent's purchase of a car for the Agent's personal use is probably not in the Principal's best interest. Misuse of the Principal's money or other property under the power of attorney is financial exploitation which could result in civil or criminal penalties for the Agent.
Is it OK to use a power of attorney form that I found on the internet?
If the answer to this question was “yes,” then we wouldn't include powers of attorney as part of our incapacity plans. The truth is that using a power of attorney form that you find on the internet is a lot like spinning a roulette wheel. It might work, and it might not. It all depends on your specific needs and what form you happened across. The laws that govern powers of attorney differ from state to state. Also, the Alabama law governing powers of attorney received a complete overhaul in 2012. The new Alabama statute includes a standard form power of attorney, but in our experience the instructions for the statutory form can be very confusing. Even well-educated people sometimes don't understand the statutory form.
How is your incapacity planning different?
Our incapacity planning is different because – as with our estate planning – we counsel clients on whether and how to build a foundation that will allow them to guard against the high cost of long-term care.
At one time, a primary goal of estate planning was to avoid or reduce federal estate taxes; but in recent years, the estate tax exemption has risen to $11.4 million for individuals and twice that amount for married couples. Most Alabama families don't have a net worth in excess of $22 million. The federal estate tax is no longer the most significant threat to Alabama families. Instead, families are much more likely to see their savings depleted by the cost of long-term care.
We offer advanced long-term care planning for families who predict a need for care in 5-10 years and crisis planning for families when there is an immediate need for care. With advanced planning it is often possible to protect all the family's assets, and crisis planning can protect as much as half. Most of our estate planning clients won't need advanced or crisis planning. However, if the need for advanced or crisis planning arises, we need certain special powers to be included in the power of attorney. The Alabama statutory form does not include the special powers that would later be needed for advanced or crisis planning. Neither do any of the internet forms we have seen.
These special powers aren't right for everyone. We don't include them automatically. After we get to know the family, we can advise the client on the pros and cons of including these powers in their power of attorney.