Cautions to Observe in Using Powers of Attorney in Estate Planning
A power of attorney (POA) is a legal document that allows one person to authorize another to act in their behalf in specified circumstances. There are several different types of POAs and the scope of authority granted can vary. While a POA can be a fundamental part of a comprehensive estate plan one must be careful in the use of a POA.
In Arizona, a durable power of attorney can be made to take effect upon the disability or incapacity of the person creating it, known as the principal. Alternatively, it can take effect immediately and not be interrupted by the principal’s subsequent disability or incapacity. A POA can grant another person or entity, known as the agent, authority to attend to the principal’s healthcare decision making and/or to manage the principal’s financial affairs, either indefinitely or for a set period of time.
While POAs can serve important estate planning purposes, there are some risks and potential issues to consider, such as these:
- Scope of authority — The agent’s powers may be broad or narrow. A healthcare POA can direct the agent to make life or death decisions for the principal or simply to see that their healthcare needs are attended to. Also, a POA may allow the agent to take over all of the principal’s financial affairs or may limit the agent to very specific actions on a single matter.
- Acceptance — There are no uniform laws governing an agent’s acceptance of a POA, meaning whether and how they agree to the obligation. Some entities, particularly financial institutions, have their own rules about recognizing POAs. Some will only accept certain formats and/or POAs executed within a certain time frame prior to presentation. A dispute concerning the acceptance of a POA can be time-consuming and costly.
- Agent availability —If the named agent is unavailable or unwilling to serve, then the POA fails in its intended purpose. One way around this is to name one or more alternate agents or to name a business entity. A potential problem with alternates, however, is that the principal may not fully trust more than one individual to handle his or her affairs.
- Agent misconduct — In some cases the agent does not fully and faithfully adhere to the terms of the POA and the principal’s wishes. Misconduct can range from minor deviations from authority to outright theft of property. A dispute between or among an agent, living principal and/or interested third parties can be complicated and costly.
The POA is unquestionably a useful estate planning tool. That said, people should be aware of its limitations and take measures to limit the risk if the POA fails.
Jeffrey P. Hall, PLLC provides estate planning services throughout the Maricopa County, Arizona area from offices in Phoenix, Chandler and Peoria. Contact us online or call 480-409-5174 for a free initial consultation.