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A financial power of attorney (POA) may be the most important document in your estate plan. A POA is a legal document where an individual (the “principal”) appoints someone (the “agent”) to act on his or her behalf regarding personal, financial and business matters. The POA needs to be signed (and notarized) before the principal becomes incapacitated.
Typically, a POA is used when an individual becomes unable to handle his or her own affairs. A principal can name one agent, or two or more co-agents, each of whom can act alone, unless the POA specifically states that they must act together, by majority, or in any other manner. If the principal names a single agent, it is wise to name at least one successor agent.
If someone becomes mentally incapacitated and has not signed a POA, it is usually necessary for the probate court to appoint a guardian for that person. A probate court guardianship is much more complicated and expensive than the use of a POA. Unless there are co-agents, no one oversees the agent’s conduct once the principal loses capacity. It is extremely important to choose an agent carefully, and only grant those powers the agent may need to exercise.
Ohio’s version of the Uniform Power of Attorney Act (UPOAA), effective March 22, 2012, changed the law governing POAs. A key focus of UPOAA is preventing financial elder abuse, and, when it does occur, uncovering it and providing a remedy. The law now includes a statutory form with language designed to help prevent agents from abusing their power. The form lists actions that an agent may not take and includes a section called “Important Information for Agent,” describing in plain English the agent’s duties and responsibilities.
While most POA agents are honest, some have abused their power, especially in cases where the principal is elderly or suffering from dementia. Third parties such as financial institutions are not required to honor POAs, but the 2012 statutory form may increase their willingness to accept them. A POA created before March 22, 2012, will still be valid, but ask an attorney to review it in light of current law and consider using the 2012 statutory POA form.
Most people intend for a POA agent to handle their day-to-day affairs, but not to make changes to their estate plan. Recognizing this, UPOAA prohibits agents from performing certain acts unless the POA specifically authorizes them. Because financial POA documents give significant, far-reaching powers to another person, they should be granted only after careful consideration. When drafting a financial POA document, it is wise to consult an attorney.
An agent must always act in good faith and follow the principal’s instructions. If the agent has no specific instructions, the agent should follow the principal’s reasonable expectations, to the extent the agent knows them; otherwise, the agent must act in the principal’s best interest, and only within the scope of the authority granted in the POA. Also, an agent must act in a way that preserves the principal’s estate plan, if the agent knows about the plan and preserving it is in the principal’s best interest. For this reason, the principal should tell the agent about his or her estate plan, provide the name of the attorney who prepared it, and perhaps even include the attorney’s name in the POA. Unless stated otherwise in the document, the agent must act loyally, avoid conflicts of interest, cooperate with the principal’s health care agent and keep accurate records of acts performed under the POA.
The principal determines the scope of the agent’s authority. Current Ohio law sets forth the details about various powers. Most principal’s want the agent to have all authority necessary to carry out all of his or her financial affairs.
There are certain things that under Ohio law an agent cannot do. Unless the powers are specifically granted, an agent cannot (1) create a trust for the principal or make changes to an existing trust; (2) give away the principal’s property; (3) create or change rights of survivorship; (4) change beneficiary designations; or (5) let others act in place of the named agent. Such powers are the types most likely to be abused.
The principal who grants any of the above-named powers should consider specifying which persons are eligible to be beneficiaries. Because some of these powers can potentially be abused, the principal might want to name co-agents and require them to act together. Another option is to require the agent to report to another family member or trust advisor about how he or she is exercising the powers. The principal should consult with an attorney before granting any of these powers.
To reduce instances of financial elder abuse, Ohio law now recognizes a number of individuals who may file a motion asking the probate court to review the agent’s actions. Under most circumstances this assumes the principal is incapacitated.
The principal can always change or revoke (cancel) his or her financial power of attorney. It is best to sign a written revocation of the POA and provide a copy to all banks and other financial institutions where the principal has accounts. Simply destroying the original document is not enough.
Under current Ohio law, all powers of attorney are durable, meaning that the agent can act even if the principal becomes incapacitated, unless the document states otherwise. Both the financial power of attorney and the health care power of attorney should be durable.
The agent’s authority begins when the POA says it will begin. If the POA does not state when the powers begin, the agent can begin acting immediately. However, if the principal is competent the agent only has the authority to do what the principal has specifically authorized the agent to do. A Springing Financial POA states that the agent’s authority will “spring” into effect at a future date or upon a particular event. For example, some people want the agent’s authority to begin if and when the principal loses mental capacity. A “springing” POA has many difficult issues and should be discussed with an attorney. It is usually better to allow the POA to take effect immediately, especially since many third parties may not be willing to accept a springing POA. If the agent is not completely trustworthy, the principal should consider naming a different agent, naming co-agents and requiring them to act together, or perhaps not creating a POA. If there is no POA, the probate court will name a guardian if and when necessary.
Most POA do not specify when they end. If the document does not include a specific end date, then the agent’s authority will end only when the POA is revoked or when the principal dies. An agent can never act after knowing the principal has died.