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131: Drafting a Comprehensive Power of Attorney: What You Don’t Know CAN Hurt You

Typically, when we think of estate planning, we only consider planning for after death. But what happens if you become incapacitated? That’s where a Power of Attorney enters the picture. Incapacity planning is a significant component that is just as important, if not more important, than most other aspects of estate planning. Think about it. If you’re in the hospital, you don’t want to wait for your loved ones to go to court to access your funds to pay for care. You want care right away! So, in this episode of Absolute Trust Talk, we’re addressing all the major ups and downs we’ve seen our clients face when navigating Powers of Attorney. Listen in to learn how to avoid the most common mistakes and ensure your Power of Attorney is ready to go if it is ever needed.

Time-stamped Show Notes:

0:00 Introduction
0:55 To start, we’re covering the basics: What is a Power of Attorney?
2:55 There are two types of Power of Attorney – springing and immediate. Here’s what you need to know.
3:40 Did you know that many Power of Attorney agreements include requirements such as getting two doctors to sign off on your incapacity “under penalty of perjury”?
5:35 You can have more than one Power of Attorney, but it’s best only to have one.
8:45 An Institutional Power of Attorney only applies to a specific financial institution for which you sign the papers.
10:11 Next, let’s discuss how to make updates if you have multiple Powers of Attorney and want to change who has access to what.

Well, we don’t have any celebrity estate plans to talk about today, but we do have, we’re going to be talking about Powers of Attorney, and this comes out of a recent client situation that we sort of thought was something new, something we really need to share. And so welcome, everyone. I am Kirsten Howe, and this is Madison Gunn; we are Absolute Trust Talk. And as I said, we’re going talk a little bit about Powers of Attorney – not “you should have one,” “you need to do it,” “you need to update it,” but really, we’re going talk about problems that we have seen with people – clients – trying to use them. And maybe some of these things will help you reconsider some of the things about your Power of Attorney.

Madison, let’s get the basics out of the way. What is a Power of Attorney? What are we talking about? Yeah, a Power of Attorney is a legal document that you sign naming someone who can act on your behalf in legal or financial matters, or you can be very specific about it. But typically, it’s legal or financial matters when you’re incapacitated. So, if you can’t act on your behalf, you’ve named someone else who can. Typically, it’s banking and things like that.

Yeah, and Powers of Attorney are critical. We talk about this all the time: planning for your own incapacity is a part of estate planning. It’s a very important part of estate planning. It sometimes is not as carefully done or as thoughtfully done as planning for your death. People put a lot of energy into planning for their deaths but don’t so much tend to focus on planning for their incapacity, which we work very hard to make our clients. We would beg to differ that that is more important than the after-death part because if you’ve already passed away and they’re fighting over your stuff, God help them. But if you’re alive and you’re suffering because there is no incapacity plan, somebody is suffering—no one’s suffering if they’re fighting over your money. You know, they brought that upon themselves. Yeah, if they’re fighting over your money, they should suffer. Right, but you shouldn’t suffer as an individual because you have people fighting over who should manage your money, or heaven forbid, someone’s mismanaging your money, and you’re not getting the care you need. Right. Right, so you are the victim of a failure to plan for your incapacity, whereas your children, your beneficiaries if you don’t plan for your death, that’s their problem, not your problem.

It is very, very important. The Power of Attorney is one of the key instruments we use to plan for incapacity. There are a couple of different ways to do it: Springing versus Immediate. Let’s talk about what that means. So, an Immediate Power of Attorney means precisely what it sounds like – the minute you sign it, it’s valid. The person you named can use it on your behalf to act. A Springing Power of Attorney means that there are specific language and requirements within the document that must be met for the document to become active for that person to be able to act on your behalf.

The typical gold standard is 1) you have to be incapacitated, and 2) the person has to get two doctor’s notes stating that they are incapacitated. These could be customized to what you would like, but that’s the generalization. That is the gold standard of what these documents say.

Right, so that’s a critical point. The default tends to be the document will say, “This Power of Attorney becomes effective only when I’m incapacitated,” and incapacitated means two doctors in writing have said that I can’t manage things for myself. But your Power of Attorney does not have to use two doctors. Sometimes, that is very difficult, and we have seen clients struggling to get those two doctors’ notes even though everybody in the family knows this person cannot manage for themselves. But getting a doctor to spend enough time with their patient to figure that out, write those statements, and get two doctors to do that can be a challenge. So, we encourage our clients to think, “Maybe there’s a different path that makes more sense for me and my family.”

Right, and just because somebody is vulnerable doesn’t mean they’re incapacitated. It could just be that you never get a doctor’s note because there is no dementia or capacity issue, but they just might be vulnerable. They might be super-duper generous to their own fault, you know, to a fault of their own. They’re giving their own money away. And the doctors aren’t going to see that. They’re not looking at your financial records; they’re looking at your medical records. Right. Right, right. So that’s an important point to think about. I’ve even seen a requirement that the two doctor’s notes be signed under penalty of perjury. For some reason, in the last year, I’ve seen that several times in documents written by other people. And I always thought, “Oh, my gosh, why are we making it so hard?” But I also recently saw two doctors’ letters signed under penalty of perjury. So, I’ve seen two doctors’ letters signed under penalty of perjury. It’s possible. It’s not impossible, but it’s not recommended.

Let’s move on to some of the other things we see people needing help with when trying to implement these Powers of Attorney. How many agents do we want serving under a Power of Attorney? Oh, yeah. Ideally, one. You can have multiple in succession, but only one acting at a time is ideal. There are several banks, including the top four banks, that will not allow two Powers of Attorney to act, or two trustees to act, for that matter. So, it kind of goes to your whole estate plan. But as far as Powers of Attorney are concerned, they do not allow two Powers of Attorney to act; they will not even allow it. They will not allow a Power of Attorney out of state. So, it’s very common for people to want to list all their children, or if you only have two, list both your children as co-Powers of Attorney, co-agents for you. And that’s great, you know, but there’s a lot of times they can run into problems at the bank. And then, of course, there’s the gold standard; everyone gets along till they don’t. And then, if they don’t agree, the only tiebreaker in any of this is going to be a judge. Right, and that is what we’re trying to avoid by doing estate planning: we don’t want families to go to court to help their older family members. So, just name one. You can name the other kids as a backup. Just name one; it’s so much better and easier.

What people don’t necessarily appreciate is that a Power of Attorney is only good if the person you are presenting it to will accept it and honor it. Otherwise, it’s just a piece of paper. And yes, there are laws that say if it’s a validly executed Power of Attorney, they have to accept it. But banks and financial institutions, then – there is no – this is surprising for a lot of people, but there is no standardization across the board regarding financial institutions in terms of what they’re going to accept or not accept or allow or not allow. So, some might allow two co-powers of Attorney, and some might not. Some might not allow any Powers of Attorney; they are going to want their own Power of Attorney on their document, their letterhead, and their big bank form. Or if they won’t take it – what is it? – if it’s ten years old or older. Things like that, they just get very particular, and you can fight it, but remember, if you’re alive and incapacitated, now they’re spending your money to fight your financial institutions. Right, right, so yes, the law requires them to accept it, but if it’s their policy to not accept it, then they can’t accept it. You’re having to hire an attorney to fight, and they’re going to kick it up to their legal department, and that’s going to cost time, money, but most importantly, time. And you don’t necessarily have time. So the point here is that you’re going to make your Power of Attorney as good as you possibly can make it.

Madison, you just mentioned another thing, which is the institutional Powers of Attorney. Yeah. So that’s one of the things we typically recommend is, you know, you have your attorney-drafted Power of Attorney but also go to your banks and make sure that you have something on file with your bank, whether they’ll take the one that your attorney-drafted or if they need their own on file. We typically advise doing that in advance so that there is no crisis issue of the bank not taking a Power of Attorney. So that the time is not – you want to do it when time is not of the essence. You want to prepare in advance, right? That’s what we’re all about advance planning.

Banks sometimes will have their own – not all banks, not all financial institutions – but some do have their own forms and would prefer that. And their forms are only specific to the accounts you have at that financial institution. If you fill out, say, you go to Bank of America and – I’m making this up – and you fill out their form, it applies to the accounts you have there. You still need a Power of Attorney created by your attorney that applies to everything else in your life. Correct. Yes, someone can’t take your Bank of America Power of Attorney to Wells Fargo to access your IRA at Wells Fargo. That’s not that’s not going to work. Wells Fargo is not going to take a Bank of America form, you know, things like that. So, it’s only good for that bank. It’s just an added feature to your estate plan or your incapacity plan.

And so, one final thing about this, I think this might be the last thing, is if you have filled out a Power of Attorney form with your attorney and maybe you’ve gone and also done some Powers of Attorney at various banks and then you decide to change your Power of Attorney. “I don’t want to name this agent. I want to switch to naming a different agent because the first agent I named, I discovered, is stealing money from me or doing something bad.” You can go to your attorney and redo that Power of Attorney. And that Power of Attorney will say, “I revoke my prior Power of Attorney.”

But if you’ve got all these Powers of Attorney out on file with various institutions, what would you say to that? One, you have to be careful because your Power of Attorney may not revoke those specific Powers of Attorney at individual financial institutions. But also, it very clearly says, usually in big, bold letters on the front of your Power of Attorney, that it’s only as good as the bank having knowledge of your Power of Attorney. If you change things and don’t provide an updated Power of Attorney or go fill out an updated Power of Attorney Bank of America, Bank of America is not on the hook for still letting that other old Power of Attorney be effective because you didn’t tell them. You have to give them notice that you changed it.

Typically, we always say you don’t have to notify anybody that you changed your estate plan, but in these situations, you do because you want to make sure you don’t end up with having the wrong people with access to your accounts because now it’s no longer a crime or a fraud if you give express permission for them to access everything. Yeah, how are they supposed to know they should cut off access to your accounts unless you tell them because you’ve given them that permission? You want to ensure that that FDIC insurance is effective. You want to make sure you get that money back because they didn’t have the authority to give that away. You want to tell them they don’t have the authority to let that person access your account.

Anything else you want to say about Powers of Attorney and what we’ve been seeing lately? And this is just going to get more and more. We’re going to see this happening more and more. We just talked before this episode about how every week, we learn new things because clients have new experiences that they share with us or that we see, and we’re constantly trying to do things better and give better advice. And that’s part of why we do this podcast, honestly. We’re still learning because things change all the time, just as everybody else is learning. So, we just have to share it. Right. As soon as we get it. Because the next thing you know, it’ll be different in a month anyway, so we just have to share it in as timely a fashion as we can. Very good. All right, thanks, Madison. That was great. Thank you all for watching and listening, and we look forward to connecting with you next time.

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