What Issues Should I Consider In Preparing a Durable Power Of Attorney For Financial Assets

1. Who Will be the Agent? A maker (or principal) can appoint one or multiple agents (called attorney in fact) for his financial power of attorney (“POA”).  It is best to name only one person or entity as the agent.  Otherwise the person receiving the power of attorney could refuse to honor the document unless all agents are present.

2Who Will be the Backup Agent? The maker can designate a back up agent and an ultimate back up.  The maker can allow the agent to delegate obligations.  In addition the agent can name a successor to the first named agent if he or she is unable or unwilling to serve.

3. When Does the POA Become Effective? A POA can be effective immediately on execution of the document, when some future event occurs such as incapacity or a person can hold the POA until the person believes it appropriate to release the document.  There are wide differences of opinion among practitioners on whether to make the POA effective immediately or at some event in the future.  The best practice is to have the POA take place immediately.

4. What Powers Does My Agent Have? The general powers an agent under a POA has under law are the following:

  • Generally the attorney in fact can do any action not prohibited or that requires it to be specifically stated.
  • General powers granted will allow the attorney in fact to execute powers of attorney required by any government agencies.
  • Granting general powers will allow the agent or attorney in fact to deal with property and to hire attorneys and others on behalf of the principal.
  • General powers “shall include . . . all power which an adult who is not disabled may carry out through an agent.”

5. What Powers May Be Given to My Agent? The following powers have to be specifically granted in order to be effective:

  • Gifting Because of the many abuses an attorney in fact can commit under the power to make gifts on behalf of the principal, the power to make a gift under a DPAF must be specifically stated and is interpreted strictly.  One option is to allow gifts the same as done in the past.
  • Make or Amend Trust, Life Insurance and Retirement Accounts Kansas and Missouri require specific language to create or change language in trusts and amend provisions and beneficiaries in retirement accounts and life insurance contracts. These powers are strictly construed to prevent abuses by the attorney in fact.
  • Transfer Homestead Transfer of a homestead in a DPAF requires specific language and can be set aside if a breach of the agent’s fiduciary duty.
  • Medical Consents A DPAF can contain rights to consent to certain medical procedures. However it is better to have a health care power of attorney to handle these matters.
  • Change of Residency The ability to change the principal’s residency or domicile can be very important when seeking public benefits, seeking to appoint a guardian or conservator or other issues. Since residency is a matter of intent, the attorney in fact can create residency by moving the principal to a location intended as the new residence of the principal.

6. What Powers that Can Never Be Given to My Agent? A  principal cannot grant an attorney in fact the right to make or amend a will or living will, to force the principal to take an action against his or her will or take any actions forbidden by the principal while he or she is not under a disability.

7. How Can I Create a POA?

  • The POA must state that it is a “durable”.
  • The POA must contain language in the document similar to the following: the POA “does not terminate if I become disabled or in the event of later uncertainty as to whether I am dead of alive.”  (In Missouri the language must be in all upper case letters.)
  • Formalities The document must be signed, dated and notarized.

8. What Terminates or Modifies a POA?

  • Death Death of the principal or attorney in fact terminates the DPAF.
  • Disability or Divorce Disability of attorney in fact or divorce if principal and attorney in fact are married terminates the DPAF.
  • Terminate or Modify The principal can modify or terminate the DPAF by orally stating that the DPAF is terminated or modified or by stating that the DPAF is terminated or modified in writing.
  • Court Power A court can order the DPAF be terminated, suspended, modified or the attorney in fact removed.

9. Issues in Implementing DPAF

  • Who can Execute DPAF In Kansas and Missouri competency to execute a DPAF is assumed.  Presumably the competence to execute a durable power of attorney is similar to the competence to execute a contract, less than a will or trust.
  • What Are the Duties of an Agent Under a POA
  • Attorney in Fact Must Agree to Serve The person or persons named attorney in fact must agree to serve in that capacity.
  • Fiduciary Duty to Act in Best Interest of Principal The duty to act in the best interest of the principal is required by statute.
  • Statutory Requirement to Act in Investments as a Prudent Person Statutes require the attorney in fact to invest assets as a prudent person.
  • Consultation with Principal of DPAF Required To fulfill statutory requirements and to fulfill the fiduciary duty the agent must consult with the principal to the extent possible.

10. Does a Financial Institution Have to Honor a POA?

  • Reliance by Third Parties Statutes in both states allow third parties to rely upon DPAF so long as formalities are followed, the attorney in fact provides proof of his or her identity and the DPAF allows the proposed act.
  • No Knowledge of Change in DPAF Third parties can rely on DPAF so long as it does not have actual knowledge that DPAF has been suspended, modified or terminated by affirmative act or death.
  • No Investigation Required A third party is not required to investigate the purpose or impact of the transaction initiated by the attorney in fact.
  • Limited Liability of Third Party The third party can only be held liable to the principal for actual knowledge relating to the non-enforceability of the DPAF, misappropriation of principal’s funds or the employee of the third party does not take a reasonable time to act on the information in the normal course of business