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Durable Power of Attorney

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Pursuant to the Massachusetts Uniform Probate Code

A power of attorney is the grant of legal rights and powers by a person, the “principal,” to another, the “agent” or “attorney-in-fact”. Under common law, a power of attorney is no longer effective if you become disabled. At that point, a court process would be required for someone to be able to step in and handle the principal’s financial affairs. To allow a power of attorney to be effective even after the principal’s disability, the Massachusetts Uniform Probate Code (MUPC) creates what has come to be known as a “durable power of attorney,” permitting the principal to create an agency in another that continues in spite of the principal’s later loss of capacity. The durable power must contain language showing that the principal intended the agency to remain effective regardless of incompetency.

Any durable power of attorney is only as effective as the willingness of a third party to honor that power of attorney. A third party will sometimes refuse to honor a durable power of attorney when there has been a long passage of time between when the power of attorney was executed and its use, claiming that the power of attorney is “stale.” The MUPC addresses this problem by stating that no durable power of attorney ever becomes stale. Another reason a durable power of attorney might be rejected is based on the specific powers granted to the agent or attorney-in-fact. Theoretically, the power of attorney need only state that you want to give your agent the power to do absolutely anything. However, most financial institutions want to see detailed powers that specifically pertain to them before they are willing to respect a durable power of attorney. A well-drafted durable power of attorney is often several pages long and the most important document in a person’s estate plan.

When does the power of attorney take effect?
Unless the power of attorney is “springing,” it takes effect as soon as it is signed by the principal. A “springing” power of attorney takes effect only when the event described in the instrument itself takes place. Typically, this is the incapacity of the principal as certified by one or more physicians. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used until he or she becomes incapacitated.

Does the power of attorney take away a principal’s rights?
No, absolutely not. Only a court can take away a principal’s rights in a conservatorship or guardianship proceeding. An attorney-in-fact simply has the power to act along with the principal. The attorney-in-fact stands in the shoes of the principal and acts for him or her on financial and business matters. The attorney-in-fact can do whatever the principal may do, except as limited in the power of attorney. This does not mean that the attorney-in-fact can just take the principal’s money and run. The attorney-in-fact must use the principal’s finances as the principal would for his or her benefit.

Can an attorney-in-fact be held liable for his or her actions?
Yes, but only if he or she acts with willful misconduct or gross negligence.

Can the principal change his or her mind?
Certainly. A principal may revoke a power of attorney at any time. All a principal needs to do is send a letter to his or her attorney-in-fact telling them that their appointment has been revoked. From the moment the attorney-in-fact receives the letter, he or she can no longer act under the power of attorney.

The importance of Gifting Powers and Self-Dealing Authorization!
The Principal will frequently name a family member as agent; and for Medicaid Planning purposes, a transfer of assets is sometimes called for under the Durable Power of Attorney. The Principal normally wants to see the transfers (gifts) made to family members of which the agent is a part. Therefore, by specifically including a Gifting Power and a Self-Dealing Authorization, the agent can transfer (gift) assets to family members and be a participant in that gifting program.

Can an attorney-in-fact be compensated for his or her work?
Yes, if the principal has agreed to pay the attorney-in-fact. In general, the attorney-in-fact is entitled to “reasonable” compensation for his or her services. However, in most cases, the attorney-in-fact is a family member and does not expect to be paid. If an attorney-in-fact would like to be paid, it is best that he or she discuss this with the principal, agree on a reasonable rate of payment, and put that agreement in writing. That is the only way to avoid misunderstandings in the future.

What if there is more than one attorney-in-fact?
Depending on the wording of the power of attorney, you may or may not have to act together on all transactions. In most cases, when there are multiple attorneys-in-fact the power of attorney document specifies that they can each act independently of one another. Nevertheless, it is important for them to communicate with one another to make certain that their actions are consistent.

Can the attorney-in-fact be fired?
Yes. The principal may revoke the power of attorney at any time. All he or she needs to do is send the attorney-in-fact a letter to this effect. The appointment of a conservator or guardian does not immediately revoke the power of attorney. But the conservator or guardian, like the principal, has the power to revoke the power of attorney.

What kind of records should the attorney-in-fact keep?
It is very important that the attorney-in-fact keep good records of his or her actions under the power of attorney. That is the best way to be able to answer any questions anyone may raise. The most important rule to keep in mind is not to commingle the funds the attorney-in-fact is managing with his or her own money. Keep the accounts separate. The easiest way to keep records is to run all funds through a checking account. The checks will act as receipts and the checkbook register as a running account.