What Is Durable Power of Attorney?

A power of attorney is a legal arrangement where one person - the Principal - authorizes another person - the Agent - to "stand in their shoes" and act on their behalf. The relationship of Principal and Agent has been around a very, very long time. The best way that I've found to explain this with clients is to use a hypothetical example.

Pretend that I'm interested in buying a condo on the beach in North Carolina. Unfortunately, I'm just too busy to get down there for the closing right now. But, I know your heading down there for vacation. So I sign a power of attorney authorizing you to sign the closing documents for me. The power of attorney will be filed in the land record in North Carolina in front of the deed to show you had the authority to sign for me.

Let's say that while you're on your way, I'm in an accident that causes me to be unconscious. At that point, you can no longer act as my Agent. Because you are merely "standing in my shoes" doing what I am capable of doing, you can't act for me if I'm not capable. An ordinary "common law" power of attorney is terminated when the Principal becomes incapacitated.

Obviously, this makes a power of attorney a poor incapacity planning tool. To create an incapacity planning tool for people, state legislatures across the country have enacted laws that allow for what are known as a "durable powers of attorney". This is done by allowing you to add these "magic words" to the power of attorney, "this power of attorney shall not lapse upon the subsequent incapacity or disability of the Principal".

Probably the single most important document you could have, a durable power of attorney can provide the security of knowing that in a crisis situation, a family member or a trusted friend will have the legal authority to carry out your wishes if you can no longer speak or act for yourself. Without a durable power of attorney, if something happens to you that results in your incapacity or inability to make decisions, your family may face costly and time consuming court proceedings and even ongoing court supervision.

Who you select as the person to be your durable power of attorney requires careful consideration. The person selected not only has authority to act when you become incapacitated, but also immediately upon the execution of the document as well. And, they can essentially do anything that you could do yourself.

Many people ask if they need a lawyer to draft the durable power of attorney for them. The easy answer is "no". The better answer is "it depends". The most important consideration is the complexity someone's financial affairs.

Many clients come to my office with "power of attorney forms" purchased at an office supply store or downloaded off the Internet. Those "statutory short forms" may be fine to transfer real estate or apply for Medicaid. But, many financial institutions are afraid of liability unless the Agent has specific authority to take certain actions for the Principal.

Let me share with you a couple of examples that might surprise you.

Helen came into my office to talk about applying for Medicaid for her mother, Eleanor. Eleanor was in a nursing home under private pay. Eleanor was now incapacitated, but Helen had her sign a "statutory short form durable power of attorney" that she found online some time ago.

Helen knew her mother was nearly out of money and had to make a Medicaid application. When we submitted the application, the Medicaid eligibility worker wanted bank statements going back three years. Helen went to the bank where her mother had one active account and two accounts that were closed a year ago.

The bank manager told Helen he could give her the statements for the open account, but her power of attorney did not authorize her to get the statements from the closed accounts. We ended up having to go to probate court for a conservatorship over Eleanor to access the closed accounts

Let me give you another example.

John bought a "statutory short form durable power of attorney" at Staple's where he named his son, Tom, as power of attorney. John had an IRA that named his wife, Ann, as the beneficiary when he died. Sadly, Ann was living in a nursing home incapacitated with Alzheimer's.

John had always told Tom that he wanted his IRA to pass to his five grandchildren if he should die. But, John never changed the beneficiary designation on his IRA. Before he could make the changes, John suffered a severe stroke and became incapacitated himself.

Tom contacted the IRA plan administrator about using his power of attorney to change the beneficiary designations. The administrator refused to accept the power of attorney because Tom did not have specific authority to change IRA beneficiaries. When John later passed away because of medical complications from his stroke, all of his IRA went to Ann and she lost Medicaid because she was over assets.

Now you can see what I mean by "it depends". Unfortunately, these situations are not unique. Many people feel their power of attorney allows their agent to do anything and everything. Bottom line: the advice and counsel of an experienced elder law attorney should be sought to properly draft a power of attorney.