A recent article in the Wall Street Journal, entitled “Power Grab!”, discusses the perils of powers of attorney. The article was published on May 14, 2011.
A power of attorney is a legal document in which a person (the “principal”) names another person (the “agent”) to act on his or her behalf. According to the article’s authors, Kelly Greene and Jessica Silver-Greenberg, powers of attorney are an emerging vehicle for fraud. There are some points in the article that I agree with and there are others that I do not.
According to the article, the lesson for anyone entering into a power of attorney is vigilance. I agree that vigilance is very important. However, what is most important is the selection of the agent. Be very careful who you select to act on your behalf. If you don’t have anyone who you can trust, then don’t execute a power of attorney. It is as simple as that. Overall, a power of attorney is common estate planning tool and is very useful.
Using a “springing” power of attorney is one way to limit fraud according to the article. However, I tend to disagree with this short-sighted analysis. The key is access. Don’t give the power of attorney to the agent until it needs to be used. A careful attorney will keep an original power of attorney in his or her file for possible future use by the family. What I find most perplexing about the “springing” power of attorney argument is: what makes you think you can trust the person while you are incapacitated if you cannot trust them while you are competent? To me, you picked the wrong agent if you do not have sufficient trust.
I also find that a “springing” power of attorney is not as easily accepted by banks and other third parties. Adding the springing power means you have to get a physician to sign off that you are incapacitated and some doctors may be reluctant to do so under the circumstances. Some doctors fear repercussions if something bad happens.
I do agree with the point made in the article about building in some controls. One of the things I find helpful is to require the agent to account to the family on an annual basis or upon reasonable request. Also, if you give the power to make gifts, you want to be careful about the amount of the gifts and to whom a gift can be made. In Michigan, a power of attorney must be specific about gifting powers.
If you spend a lot of time in different states, it is a good idea to have a power of attorney executed in each state. It is more likely to be accepted if it is drawn up specifically for the state where it is intended to be used.
Overall, this is a good article to read. Final point, don’t forget about health care powers of attorney. They are as important as the regular or financial power of attorney. By the way, a health care power of attorney in Michigan must be a “springing” power of attorney.
This post originally appeared on Ryan Wilson’s blog, Estate Planning Guru. Fore more information, please contact Ryan at email@example.com.
See article http://online.wsj.com/article/SB10001424052748704681904576315662838806984.html