Durable General Powers of Attorney

A “Power of Attorney” is an instrument by which one person (the Principal) authorizes another person (the Agent) to act on his or her behalf. Powers of Attorney may be general or limited.  A “General” Power of Attorney authorizes the Agent to do anything the Principal can do. In contrast, a “Limited” Power of Attorney limits the Agent’s authority to certain acts specified in the instrument. Not all Powers of Attorney are so-called “durable” powers of attorney. A simple power of attorney — e.g., one spouse names another spouse to sign documents as part of the purchase of a residence — is not a “durable” power of attorney, which means that the authority of the Agent to act is revoked upon the incapacity of the Principal. In contrast, a “durable” Power of Attorney continues to be effective even in the event of the subsequent disability of the Principal. (Under any Power of Attorney, the Agent’s authority to act on behalf of the Principal terminates at the Principal’s death.)

In an estate planning context, it is typical to use Durable General Powers of Attorney for financial matters such as accessing bank and brokerage accounts, paying bills, selling assets, etc. Often, these Durable General (“financial”) Powers of Attorney do not even become effective unless or until the Principal actually becomes incapacitated. If and when that happens, the Agent then has authority to act on behalf of the Principal and there likely will be no need to to have to involve the Court to have a Conservator appointed for the Principal. Unfortunately, there is no guarantee of this, since a Durable General Power of Attorney is only as good as the Agent’s ability to convince a third party (e.g., a bank, a brokerage house, a title insurance company, etc.) to accept the Agent’s authority under the Durable General Power of Attorney — and many such third parties make this more difficult than it ought to be. A Durable General Power of Attorney is relatively easy and inexpensive to prepare. It can be convenient to use — particularly if it has been made effective unconditionally (i.e., the Agent may use the Power of Attorney without having to establish that the Principal is incapacitated). As a result, however, there is a significant risk of abuse — e.g., an Agent may exceed or abuse his or her authority under a Durable General Power of Attorney and, by the time the Agent is held to account (whether to the Principal or to a court), the Agent may have already caused permanent harm to the Principal or the Principal’s finances. Therefore, a Principal needs to exercise great care in determining whom to name as Agent and how and when the Agent should have authority to act on behalf of the Principal.