Durable general powers of attorney are part of virtually every estate plan that we create for clients. The purpose is for a principal to designate an agent to act on the principal's behalf in the future. The term durable means that the agency relationship endures the principal's incapacity. Before there were durable powers of attorney, a person could designate someone to act as agent under a power of attorney, but if the principal became incapacitated, the agency relationship lapsed.
By executing a durable general power of attorney the principal generally alleviates the need for his or her loved ones to go to court and obtain a guardianship in order to have the ability to handle the principal's financial affairs if the principal becomes incapacitated.
When our clients sign durable general powers of attorney, they also sign directive letters that instruct the attorney to hold the originals in escrow. The durable general powers of attorney are powerful documents. They authorize the agent to do many things on behalf of the principal, including handling assets in bank accounts and brokerage accounts and buying and selling real estate and other assets.
There are two ways in which a durable general power of attorney is activated. One is that if the client contacts the office and indicates that the client wants the agent to have authority to act on behalf of the client. We instruct the client to send a brief statement in writing directing the attorney to release the original power of attorney to the agent. The second way is if the agent contacts us and states that the principal is incapacitated. In that case, we ask the agent to send us proof of the client's incapacity, usually a letter from the client's physician indicating that the client is incapacitated.
When we release a durable general power of attorney to an agent, we produce a document, called an agent's statement, which is signed by the agent. The agent's statement gets attached to the power of attorney. When the agent signs the agent's statement, the agent acknowledges the fiduciary relationship into which the agent is entering. We also instruct the agent to keep the principal's assets segregated from the agent's assets. The principal's assets should be used exclusively for the principal's benefit. It is important to keep meticulous records and be prepared to give an accounting of everything that the agent has done with the principal's assets. The agent should keep copies of all of the bills paid on behalf of the principal, along with copies of the account statements. The check register should be maintained accurately.
When an agent is signing on behalf of a principal, it is important that the signature reflect the agency relationship. If, for example, Alyssa Graham was acting as my agent, she would sign 'œChristine S. Anderson, by Alyssa Graham, her attorney-in-fact.' Alternatively, Alyssa could sign 'œAlyssa Graham, attorney-in-fact for Christine S. Anderson.' It is also acceptable for a signature that reads 'œAlyssa Graham, POA' or 'œAlyssa Graham, AIF.'
In the event of the principal's death, the agency relationship ends. The agent should not be acting on behalf of a principal using a durable general power of attorney after the principal's death, if the agent knows of the principal's death.
Durable general powers of attorney are among the most basic documents that we prepare for our clients. They are also among the most powerful. If you are serving as an agent under a power of attorney and have questions about your fiduciary duties, or if you have reconsidered who you would like to designate as agent under your powers of attorney, feel free to call the office and schedule an appointment to discuss these issues with Alyssa or me.