A Power of Attorney (POA) is one of the most commonly used documents in estate planning. It is, when used correctly, very versatile.
But it is also often misunderstood.
In this article, we take a closer look at what exactly is a POA.
What is a Power of Attorney?
A Power of Attorney is a legal document that creates an agency relationship between two parties:
- The principal or the person granting or delegating authority; and
- The agent or attorney-in-fact or the person to whom authority is granted or delegated
The POA document defines the terms by which the agent or attorney-in-fact is empowered to act on behalf of the principal.
It might be good to note here that the term “attorney-in-fact” does not necessarily mean that the agent is a licensed attorney. Using the term attorney-in-fact is, in fact, a way to distinguish between non-lawyers appointed or authorized to act as an agent for another, as opposed to attorneys-at-law, who also do act for another person but are primarily authorized to engage in the practice of law.
The POA Document is Controlling
A POA is essentially a contract, so the terms by which the agent or attorney-in-fact can act on behalf of the principal is determined by the extent and limits of authority granted to him or her by the contract.
Some of the most common reasons why people execute a POA include:
- Handling real estate transactions
- Managing finances
- Overseeing investments
- Making heath care decisions
Traditionally, the main objective of a POA is to imbue the agent with authority to act on behalf of the principal if the principal is, for whatever reason, absent. They may be in a different state or country, or they may simply be too busy and are unable to oversee a certain transaction themselves. It is the ultimate way of delegating.
Of course, it presupposes that the principal has capacity to act otherwise. A minor, for instance, who lacks the capacity to enter into contractual relationships themselves, cannot delegate authority that they lacked in the first place.
This brings us to one of the most widely used, most controversial, and also sometimes one of the most misunderstood types of POA: the Durable Power of Attorney.
A Closer Look at Durable POAs
While lack of capacity argues against the creation of an agency relationship through a POA, a Durable POA is unique in that it is intended to function should the principal become incapacitated later on.
The difference from the first example above is that there was capacity to begin with, when the POA was executed and the authority delegated.
A durable POA is intended to continue if the principal later on becomes physically or mentally incapacitated. Some of the common instances where it becomes useful includes:
- A Durable POA for health, to make decisions regarding health and long-term care for the principal
- A Durable POA for finances, to protect and safeguard the principal’s financial interests, should they later on become unable to make those decisions for themselves
Having a Durable POA is an exercise of foresight for the principal because he or she would have carefully selected the person they trust the most to act for them when they are no longer capable of doing so in a meaningful way. Coupled with this are instructions often left to the agent or attorney-in-fact about their wishes with respect to their health care and finances.
But the reason that Durable POAs are also one of the most widely misunderstood type of POA is because agents often mistakenly believe that they are authorized to act for the principal in the event of the principal’s death.
However, in California, a POA automatically terminates upon death. Any action taken pursuant to a POA, whether durable or not, after the principal’s death, is invalid and unauthorized, and can open the agent to potential personal liability.
The Legal Shift at Death
The reason for this automatic termination is that any type of agency relation presumes that there is a principal from whom authority derives, empowering the agent to act.
For a Durable POA, this may mean that the principal no longer has legal capacity to act, but the law allows for the continued validity of a Durable POA that is intended to function in precisely this situation.
But even for a Durable POA, the principal is still alive, or there is still a source for the agent’s authority.
This ceases at the moment of the principal’s death.
Once the principal dies, the source of authority automatically shifts from the decedent to the estate.
From that point, all actions must be taken on behalf of the estate, by the authorized or duly appointed personal representative.
The repercussions of the principal’s death include the following:
- The agent no longer represents a living person; and
- The authority granted under the POA becomes legally void
The Myth of the “Grace Period”
Some might think that there is a natural transition period – where immediately after death, when the personal representative has not yet been confirmed, nor received any letters of authority, and there is no one who can act to protect the decedent’s interests.
The agent or attorney-in-fact who had been doing so might believe it necessary to continue until there is a duly authorized personal representative to whom the responsibility for the decedent’s assets can be passed.
But it doesn’t work that way. And this wrong assumption may drive some agents to act without authority, for which they may be held personally liable. That the agent was acting with good intentions is not a defense.
Of course, there are some exceptions.
For instance, agents or attorneys-in-fact in health care may, if empowered to do so by the POA, make decisions even after the principal’s death, but only with respect to organ donation or the disposition of the decedent’s remains. This authority is very limited, however, and does not extend to other types of decisions, nor does it allow the agent access to any of the decedent’s accounts or properties.
***
Are you wondering to what extent you can act pursuant to a POA naming you as agent? If you would like some assistance in reviewing your legal rights, don’t hesitate to contact us. We’ll help you get some clarity on your authority, and provide guidance on how to act within the terms of the POA and any applicable laws to protect both yourself and the principal.