Legal & Financial

An Overview of 'Power of Attorney' Part 1: Business and Financial

Listen to Ms. Campisi's discussion

"Power of Attorney" is a familiar term for a legal document, but most people who have never required one don't know much beyond that fact. Elder Law attorney Lynn Campisi gives this brief user's guide:

"We generally divide Powers of Attorney into two areas: One type pertains to financial and business decisions, the other type pertains to health care decisions. You certainly don't want to tell the doctor what to do with your bank accounts and properties, and you don't want to tell the bank which medical procedures you want under certain circumstances. So we like to divide the financial type from the health care type.

"One recommendation, for financial Powers of Attorney. Don't name someone as your agent unless you trust them, and trust them with your checkbook and your business decisions. Because at some point in your life, they may be taking over. And if they show poor judgment now, it likely won't change. It might be best that some of those cases fall to supervision of the court, when there's no one out there who can really take over.

"Also, Powers of Attorney have to be consistent, as to real estate, brokerage accounts, bank accounts. Many times we have a General Power of Attorney that allows the agent to do anything the principal can do, which is pretty much too general. The bank may look at this Power and say, "Look, you don't have the power to open this safe deposit box. We need a court order."

"Or you try to sell property, manage property, or lease property. Or rent it, or handle any other legal issues that pertain to property. The Power of Attorney may not be specific enough. That's where you have to do some very tedious and proper planning, with a trained professional. Hopefully your family lawyer is very knowledgeable, or with a trained estate or Elder Law attorney who has the understanding of how these documents work.

"On the flip side of the Power of Attorney, often I see that husband and wife will name each other as their prospective agents. Most of the time, husbands and wives are close in age, so that if one becomes ill and is no longer able to act, it's not very long until the wife is no longer able to act. So they're looking to a second person, a successor. So that's very important to think about.

"Again, you have to trust the business decisions to this person. If that person doesn't display good judgment, don't appoint them.

"In a more formal relationship than Power of Attorney, a person may move to a Living Trust. That's a trust where an individual may move the title to their assets into a contractual relationship under a trust agreement, where the beneficial is their own trustee, they're the beneficiary of their own trust, and they make the decisions.

"In that trust document, they may appoint a successor trustee to handle the management of the property. They may also name a successor beneficiary. This type of arrangement works as a 'testamentary device.' That is, it passes the property on at the individual's death, and only at death. So many times kids like to say, 'When am I getting my inheritance?' I'm in favor of the little sticker on the back of the car that says, 'I'm spending my kids' inheritance as quickly as I can.' And this is where children are very involved with their parents' estate planning. That's fine, but the parents need to be more involved. It's all about managing your assets during your life and taking care of them as you need them taken care of, and making sure you've got the funding and the asset base to take care of needs.

"If it's in a trust, that works out a little better sometimes than Power of Attorney because it's a more restrictive agreement. It comes when there's no one named in a family, or no one capable of acting, no close friends or business relationships to be named as successor trustee.

"We may move to a more professional relationship, where we name a bank or a trust company who's in the business and very experienced, and can manage your money very well if you can't manage it.

"So these are the options the individual has to think through, whether we have a more informal delegation of powers to someone else in a Durable Power of Attorney, or a more formal delegation in a trust relationship."

A downloadable audio file of Ms. Campisi's article is also available.