Q. My sister recently discussed the topic of power of attorney with her family at a family meeting. She is planning to use an online service (which I know is a bad idea from one of your recent articles on this subject) and is considering doing a springing power of attorney, where the power would take effect only if and when she is declared incompetent by a doctor and unable to act for herself. We have a power of attorney done by your office as part of the comprehensive Level 2 Planning we did with your firm, and it is not springing, but rather became effective the moment we signed it. Now I’m questioning whether we should do a springing power of attorney instead — as this sounds a lot safer. What do you think about a springing power of attorney as opposed to the immediate powers of attorney that we signed? Thanks for your help!
A. There are many types of power of attorney (POA) documents. What you are asking about is a general durable power of attorney — a legal document that allows someone else to act on your behalf as your agent. All general POAs done as part of Estate Planning and Incapacity Planning are “durable,” meaning that your agent can continue to act for you if you should become incapacitated at some point in the future (which of course is the whole point of having a power of attorney in place). The power of attorney may take effect immediately — called an “immediate power of attorney” — or only upon the occurrence of a future event, usually a determination that you are unable to make legal and financial decisions for yourself due to mental incapacity — this type is called a “springing power of attorney.”
With a general durable POA, the kind of POA discussed in this article, your agent can perform almost any act that you can, such as opening and closing bank accounts, paying your bills and otherwise managing your personal finances, selling your cars, real estate, etc. A POA can be terminated at any time, and is automatically terminated when you die.
When Does the Power of Attorney go into Effect?
The authority granted by you to your agent is effective immediately in over 95% of properly-drafted general durable POAs. In other words, over 95% of POAs are immediate POAs. However, as a general rule, you do not intend that the powers be exercised by your agent until some future point in time when, because of mental incapacity or forgetfulness or other factors sometimes accompanying aging, you need help managing your legal and financial affairs.
A “springing” POA doesn’t become effective unless and until you become incapacitated. This kind of POA “springs” to life when it’s needed.
Problems with Springing Powers of Attorney and Why We Almost Never Recommend One
As just explained, a “springing” power of attorney is one that becomes effective (“springs” into effect) only when a specified event occurs, typically when you become incapacitated as determined by one or two physicians or by one physician and a licensed clinical psychologist.
Many people like the idea of a springing POA when they first hear about it because they want to control their situation and circumstances for as long as possible. After all, why should you hand over responsibility for your legal and financial affairs while you’re still able to handle them yourself?
While that makes sense at first glance, significant problems can arise over the definition of “incapacitated,” and significant differences of opinion can arise over whether you are in fact “incapacitated.”
- You Have Memory Problems But You Think You’re Fine: What if your memory starts failing but you don’t recognize that you have memory problems? This is a very common problem with a springing the power of attorney. Maybe you develop mild cognitive impairment or dementia, and you start forgetting to pay your bills and/or start falling victim to lottery scams or any of the dozens of other scams targeting seniors and people with memory loss, but you think you’re fine and you refuse to go see a doctor. Because of your refusal to see a doctor, your agent will not be able to get a doctor’s opinion certifying that you have become incapacitated, and therefore your agent will not be able to use the power of attorney to take over paying your bills and preventing you from falling victim to scams.
- You Have Good Days and Bad Days: Another common problem arises if you have dementia, but you have “good days and bad days” — meaning some days you can handle certain things, but other days you may be totally confused and overwhelmed and make serious financial and/or legal mistakes or fall victim to scams. In this situation, even if you do visit a doctor to be evaluated, if you happen to go to the doctor on one of your “good days,” the doctor mat evaluate you as not being incapacitated, meaning your agent under power of attorney won’t be able to start helping you, even though you truly do need the help.
- Certification from a Doctor Can Cause Delays: If the POA is springing, the person you choose to make financial decisions for you will act only if you become disabled or incapacitated. A medical doctor (or doctors) would need to certify in writing that your mental and/or physical condition is impaired to the extent that you can no longer personally make financial decisions for yourself. Only after a physician or physicians certify you are no longer capable can the person you choose begin using the powers given in your financial POA. Even if you truly are totally incapacitated and willing to go to the doctor, getting certifications from physicians can take weeks, even months, and no one will be taking care of your affairs during this time if you’re unable to do so yourself. The delay could result in unpaid bills and other serious financial issues.
- HIPAA Considerations: Another complication can arise because physicians are bound by the Health Insurance and Portability Act (HIPAA). They may not be able to provide some information regarding your medical condition due to HIPAA’s privacy constraints unless your agent can provide authorization to do so. You can sign and provide a release at the same time you create your POA to safeguard against this eventuality, but other issues might remain.
- Compliance Issues: A banker or other financial entity might not accept the agent’s authority, even if physician(s) sign the document. The institution might want some confirmation that the signatures of the physician(s) are genuine, and maybe even some reassurance that the physicians have made the correct diagnosis, or the institution might even question whether your incapacity is permanent or whether perhaps you have gotten better since the doctor signed the statement.
- Definition of Incapacity: If you make a springing power of attorney, your document will have to define incapacity and your doctor will have to agree that you meet that definition. But how do you know now what health changes will cause you to need help managing your finances? What if you want help before you become incapacitated as defined by your document? What if you have some good days and some bad days? What if your agent believes you no longer have capacity, but your doctor disagrees? These grey areas will may make it difficult, if not impossible, for your agent to help you when you need it.
- Family Members Have Different Opinions: Another common scenario is where different family members of yours have different opinions regarding your mental status. Perhaps your spouse is in denial and thinks you are fine, but your adult children recognize the fact that both you and your spouse have failing memory or other problems affecting your ability to handle your legal and financial affairs. These family conflicts could last weeks or months or longer, resulting in disastrous financial consequences.
- Just Because the POA is Effective Doesn’t Mean Your Agent Will be Using it: Another very important thing to understand is that just because an immediate power of attorney allows your agent to act for you as soon as the paperwork is signed doesn’t mean that that your agent is going to start acting for you. On the contrary, the intent is that your agent is not going to use the power of attorney unless and until it is needed. In fact, when you sign your immediate POA, we give you a Memorandum of Understanding to give to your agent, to have your agent sign, acknowledging that you are giving them the power of attorney document but that you are expecting that your agent will not use it unless and until it is absolutely necessary that they use it.
- If You’re Really Concerned, Don’t Give Your Agent the POA Document: Another option if you are really worried about your agent abusing their power is you just don’t have to give them the document. If they don’t have the actual power of attorney argument, then they can’t use it. The downside of not giving them the document, especially if you don’t let them know where it is, is that if and when they do need to use it, they may not know where to find it, and then you might find yourself in court being subject to a petition for guardianship and conservatorship, and the lifetime of probate that accompanies that process.
All of these scenarios above can make it very difficult for your agent to get your springing power of attorney activated so that your agent can actually use it when needed.
Because of all the above problems and more, most experienced elder law attorneys, including all of us here at the Farr Law Firm, recommend you sign an immediate power of attorney. And of course you always need to name someone you trust. If you don’t have someone that you trust to act in your best interest when you need them to act, then you may not want to sign a power of attorney at all. In fact, if you are really worried that the person you name as your agent might abuse their power, it is much more likely that they will abuse their power after you have become incompetent than while you are still fully in control of your mental faculties and able to check your bank balances at any time and see that something is amiss.
A Recent Case Teaches Us Two Things about Powers of Attorney
In a recent case, Mercedes Goosley owned a home in Pennsylvania. In 2013, she named one of her six children, Joseph, as her agent under a Power of Attorney using a boilerplate form that Joseph downloaded from the internet. Mercedes’ POA document was “springing” in that the power of attorney required her to be declared incompetent for Joseph to act as her agent.
In this case, Joseph began acting for Mercedes without getting a declaration of her incompetency. After she moved into a nursing home, Joseph listed her home for sale and accepted a purchase offer as agent for his mother under the power of attorney. At the time, Joseph’s brother, William, was living in the home, and Joseph instructed William to move out. This resulted in a dispute that ended up in court, with William arguing that Joseph did not have authority to act as his mother’s agent.
A Pennsylvania appeals court eventually determined that Mercedes had intended to execute an immediate power of attorney as evidenced by the fact that Joseph had held himself out as Mercedes’ agent since 2013 and routinely conducted affairs on her behalf without Mercedes restricting or objecting to his agency.
A mistake that Joseph and Mercedes made was doing it themselves. While the court ultimately ruled in Joseph’s favor, Joseph and Mercedes could have saved lots of time and money by consulting with an attorney before signing the power of attorney, and clarifying how and when it was intended to be. An attorney would have been able to explain the difference between an immediate and springing power of attorney and tailor the power of attorney to Mercedes’ needs so no vagueness would have ensued and no expensive and time-consuming and family-fracturing litigation would’ve been needed. This is why you should always talk with an experienced estate planning and elder law attorney, such as those of us here at the Farr Law Firm, and understand what you are signing before creating any estate planning or incapacity planning documents.
Why Every Adult Needs a Power of Attorney
Whether or not you believe you will be sick or unable to make important decisions someday, you never know what can happen or when it will happen. That’s why every adult should have both a general durable power of attorney and an Advance Medicaid Directive (incluiding a medical power of attorney) in place. And of course, as explained in this article, we recommend an immediate POA rather than a springing POA.
Signing these documents is called incapacity planning, and is also an integral part of all comprehensive estate planning. POAs offer the peace of mind that someone you appoint can step in if and when needed to handle your legal and financial affairs, and healthcare decisions. If you have not done incapacity planning or estate planning yourself, or if you have a loved one who has not done it, the time to plan is now. Please contact us at any time to make an appointment for an initial consultation:
About Evan H Farr, CELA, CAP
