A general durable power of attorney (GDPOA) is often suggested as a means to avoid guardianship, or “living probate.” Although such a document is an important tool in a comprehensive estate plan, the GDPOA alone, or coupled with only a Last Will and Testament, may not provide the protection the maker seeks.
A GDPOA is a legal document that allows the “principal” to appoint another person (the “agent” or “attorney-in-fact”) to conduct the principal’s business and financial affairs on the principal’s behalf. This document is intended to help in the absence of a principal or during a time when the principal may be physically or mentally unable to conduct business. Since the document is “durable,” it will continue to be in force and effective even if the principal becomes legally incapacitated. In order to be effective for real estate transactions, the GDPOA must be recorded in the county clerk’s office where the property is located. A GDPOA is distinguished from a health care power of attorney, and a limited power of attorney by its broad scope and application to a wide range of financial matters.
A power of attorney that is not durable does nothing to aid in planning for diasability, incompetency, or incapacity, and does little, if anything, to avoid guardianship. A power of attorney that is not durable becomes void when the principal becomes incompetent of incapacitated. Consequently, of the differenct forms of powers of attorney available, it is the GDPOA that holds the most promise in planning for disability, incompetency, or incapacity.
Practically, though, GDPOA’s can be quite weak and ineffective. Even though powers of attorney are very common and the notion of a GDPOA has become very popular, agents bearing powers of attorney documents have not always been treated as if they stand in the principal’s shoes. Individuals and institutions routinely reject GDPOA’s upon presentation. Elderlaw Attorney Scot Selis writes at SeniorLawToday.com:
“If you’ve ever been frustrated by an organization’s refusal to honor a Durable Power of Attorney, you’re not alone. A power of attorney allows an individual to select another person or people to handle their financial affairs. However, many financial institutions frequently refuse to honor a properly signed and witnesses power of attorney.”
It is, indeed, frustrating for an agent to find his or her powers refused or disregarded in transactions on a principal’s behalf. But, refusal of properly executed a GDPOA also undermines the intent of the principal, who, in making the GDPOA, typically assumed he or she was making things easier for his or her family. Although an agent can petition a court of appropriate jurisdiction to enforce his or her legitimately exercised powers, the prospect of having to litigate transactions that should take place in the ordinary course of business is more than just frustrating. Litigation is expensive and time-consuming, and never the intent of the principal making the GDPOA.
The problem is so widespread that groups of attorneys have complained to legislators, Attorney General’s offices, and Departments of Commerce about banks requiring the use of bank’s own power of attorney forms and banks refusing to honor powers of attorney generally. While these complaints, over the years, have resulted in more uniform legislation governing the GDPOA, the practical problems remain.
There are a variety of reasons that an individual or institution might reject a GDPOA. The most common reason given is that the GDPOA is “stale,” or too old. This reason is not, however, based upon any legal right, privilege or responsibility of the bank or institution. Most states permit a GDPOA that has no expiration. Banks commonly reject these documents, purportedly, on the basis of their age.
Another reason given is that the GDPOA is not recorded. Recording a GDPOA is, as mentioned, necessary for conducting transactions involving real estate, but is generally not required for other financial transactions. Nonetheless, an individual or institution may demand that the document be recorded. Recording may not be in the client’s best interest, however, particularly if it is unnecessary. Once recorded, the GDPOA becomes a public record, available to anyone who might request same. A recorded GDPOA, certified by the county recorder, can be a dangerous instrument in the wrong hands.
Another reason that is often given for rejecting a GDPOA is that the GDPOA does not permit the agent authority to conduct the intended transaction. This reason is based in the law, because an individual or institution may be liable if the GDPOA is accepted to perform a transaction not authorized by the GDPOA. Moreover, if the individual or institution is put on notice that the agent is doing anything that is not permitted by the GDPOA, the individual or institution facilitating the transaction by accepting the GDPOA may be liable.
This potential liability is, of course, a major disincentive for individuals and institutions being asked to accept a GDPOA. This disincentive is particularly acute when the agent seeks to close an account or liquidate a policy or asset using a GDPOA, because the individual or institution cannot know the ultimate disposition of the proceeds. For example, if the GDPOA does not permit the agent to make gifts to the agent or to third parties, or if the law of the state prohibits such transactions, the institution may fear that closing an account or liquidating an asset may facilitate an improper gift.
Quite apart from the reasons given, the motivations for rejecting a GDPOA are many, and range from the proper to the ignorant to the improper. Proper motivations are many. Institutions may prefer the legal certainty and protection of probate court approval. In such a case, presentation of the GDPOA may actually cause or influence to cause an application for guardianship. The institution may, in good faith, suspect improper use of the GDPOA. The institution may even suspect that the agent is incompetent or otherwise impaired.
Improper motivations causing rejection of a GDPOA include a desire to keep and maintain control of an asset, impeding discovery of improper management of assets, undue influence of persons other than the agent, and disagreement with an agent’s intended use of the assets where the intended use is lawful. There may be, however, no way to distinguish the proper from the improper motivation, because one rejecting the GDPOA will never admit of improper motivation.
Compounding the difficulties in getting institutions to accept a GDPOA are the motives of family members seeking to control a senior’s estate. Many GDPOA’s are simply preempted by a family member filing for guardianship. Diane Armstrong, PhD, testifying before the Senate Special Senate Committee on Aging wrote:
“The majority of these [guardianship] petitions are filed by adult children who are seeking some form of control over the personal and/or financial affairs of their aging relatives. They are sibling battles rooted in issues of inheritance and control, often described as ‘thinly veiled pre-death will contests.’ Anyone who reaches 62 with coveted assets is at risk. As one forensic psychiatrist noted about these so-called protective proceedings, ‘For every $100,000 in a given estate, a lawyer shows up; for every $25,000, a family member shows up; and if there isn’t any money, then nobody shows up’ (quoted in Harold T. Nedd’s Fighting over the Care of Aging Parents, USA Today, July 30, 1998).”
Equally disturbing is the fact that courts often ignore GDPOA’s! The very document upon which most people rely in order to reduce the chance of a court-appointed guardian is often simply ignored by the probate court. Diane Armstrong testified before the Special Senate Commitee on Aging that:
“When an elderly individual is brought into court and forced to prove his or her competence, we soon see that the system does not work. We have a system rife with court-sanctioned elder abuse. Why? Judges override protections that have been put in place in the codes. It happens every day. Judges disregard durable powers of attorney – the single most important document each of us can create to determine our care should we become incapacitated…Judges ignore our lists of preselected surrogate decisionmakers. The current system does not work.
Consequently, GDPOA’s do not provide complete protection from guardianship. Particularly if a person foresees a need for such protection due to the size or composition of their estate, or due to the composition of their family, or due to a lack of unity in their family, he or she should consult with an estate planning attorney familiar with trusts designed to keep and maintain control of assets and decision-making outside of court involvement or control. Such trust planning, as part of a comprehensive estate plan, can afford a more comprehensive solution than a GDPOA and a Last Will and Testament.
Regardless, there are some strategies that can help increase the chances that a GDPOA will be accepted by an individual or institution. First, have the estate plan reviewed annually, and periodically re-execute the GDPOA. Second, provide institutions with copies of the GDPOA in advance of any illness. Request a letter from the institution acknowledging receipt of the GDPOA, and the result of its review. With a letter from the institution that the GDPOA document will be accepted, there is a greater possibility the GDPOA will be accepted in the future. At a minimum, there is always hope that the person who provides the letter is still at the institution when the GDPOA is used.
Third, execute the institution’s proprietary GDPOA. Some banks and brokerage houses require customers to sign their own power of attorney form to allow others to deal with customer accounts. There is, typically, nothing wrong with these short-form powers of attorney so long as they don’t revoke, but simply enhance, the provisions of the GDPOA. If there is any question or concern, simply obatain a copy and have it reviewed by an estate planning attorney. Finally, add the agents’ names to all accounts as an “agent” or “attorney-in-fact” before an illness strikes. Titling assets accordingly does not vest ownership rights in the agents, but increases the chances of the GDPOA being accepted without reservation when needed.
But, perhaps, the best strategy for planning for incompetency, incapacity and disability is a comprehensive estate plan including a trust.