BY ELIZABETH MCMASTER
In my practice, we get calls every week from folks who want a consultation regarding a will. When we ask the potential client if he or she has a power of attorney or an advance medical directive, the answer is usually no.
So what do the POA and AMD have to do with estate planning? The two documents have nothing to do with your estate per se, as they are revoked upon death. But they have everything to do with your incapacity planning.
This type of planning is as important as estate planning, in my opinion, and most attorneys encourage their clients to include these documents when they are updating or drafting their first will. In this column, I will address the POA and its importance for incapacity planning; I will discuss the AMD in my Live Well column next month.
The POA is a legal document which enables an adult (the “principal”) to appoint someone he or she trusts (an “agent”) to make decisions or conduct personal and financial transactions for him or her. In order for the POA to be valid, the principal must have the mental competency to understand what he or she is authorizing.
The POA is critical to incapacity planning because it allows the principal to appoint someone he or she trusts as the agent.
The POA becomes invalid upon the resignation of the agent; upon revocation of the agent’s authority by the principal; or upon the principal’s death. In no circumstance can the agent act for the principal after the principal dies.
People who do not have a valid POA and are incapacitated often have a guardian and conservator appointed for them by the circuit court for the county in which they reside. This process can be expensive and burdensome to the family members of the incapacitated person.
HISTORY OF POAs
The POA developed from the common law of “agency.” Agency is a fiduciary relationship created by oral or written contract in which one party (the agent) may act on behalf of another party (the principal). It has now been codified in many state statutes, including the Code of Virginia.
Those clients of mine who do ask that I draft a POA will often ask for a durable general power of attorney, and this is where I get to use my undergraduate degree in history.
Under the common law of agency, a power of attorney became ineffective upon the principal’s incapacity. Well, this made no sense because the majority of folks need an agent upon their incapacity—not when they have full capacity to conduct their own affairs.
In 1954 Virginia became the first state to provide for the continuation of the relationship beyond the principal’s incapacity by adding language to the POA indicating that the document survived the principal’s incapacity—and that is when the durable general power of attorney came into existence.
A durable general power of attorney is simply a power of attorney that remains in effect during the principal’s incapacity (making the POA durable). With that said, the use of the durable language is no longer necessary with the passage of Virginia’s Uniform Power of Attorney Act in July 2010.
Virginia is now one of thirteen states and territories that have passed the UPOAA. I could write a dissertation on this new law but will not bore you with the minute details; instead, I will pick the most important functions of the UPOAA as it pertains to the reader.
HOW DO THEY WORK?
First, under the UPOAA, a power of attorney is durable unless it states otherwise in the document. As a matter of practice, I continue to use the durable language in my POAs since so many people are unaware of the new law.
The goal is to make the POA acceptable to third parties who are to accept the agent’s role under the POA. In the past, many third parties refused to accept a POA at will. Some excuses included that the POA was “stale,” meaning that if an agent enacted her authority as agent on a POA in 2009, but the document was signed by the principal in 2000, that made the document stale.
The UPOAA now provides sanctions against third parties for the unreasonable refusal of an acknowledged POA.
Second, the act allows the recognition of POAs created under the laws of other jurisdictions, so they become more portable.
Finally, the UPOAA provides protection for the principal—with fiduciary duties for the agent, liability for an agent’s misconduct, and a judicial process in order to hold the agent responsible for his or her misconduct.
The more things change, the more things stay the same, as the saying goes. An agent under a POA is still considered a fiduciary and is in a fiduciary relationship with the principal. This means that the agent must exercise a high standard of care in managing another’s money or property. An agent cannot use the principal’s money or assets for his or her own benefit.
AN AGENT’S DUTIES
Under the UPOAA, an agent’s duties must still be listed as specifically as possible in the power-of-attorney document, since Virginia strictly construes a POA. In layman’s terms, if the document does not say the agent can do something, then he or she cannot do it.
The Supreme Court of Virginia has been very consistent on this point of strict construction regarding POAs, with the most litigation occurring in the area of the agent gifting the principal’s money to him- or herself. The gifting power must be listed specifically in the POA, granting the agent the authority to do so.
In order for the principal to execute a POA, he or she must have the capacity to contract. This means that he or she must be capable of understanding the document and what the consequences are of signing the document. This can be a very gray area, especially with people diagnosed with dementia or Alzheimer’s disease.
A diagnosis of dementia/Alzheimer’s does not mean that someone is automatically disqualified from executing a POA; however, the person drafting the document will have to determine whether the principal has the capacity to understand what he or she is signing.
Elizabeth McMaster is an elder-law attorney in Fredericksburg. Email her at email@example.com.