A springing power of attorney is one that only becomes effective upon the occurrence of an event. Often this triggering event is your mental incapacity caused by a medical setback such as a stroke or dementia.
We find that it is more difficult for the person named as agent in the power of attorney document to use it with third parties than a power of attorney that is effective immediately. A doctor’s note is often required by the financial institution being asked to honor the power of attorney, and it is not always easy to secure the doctor’s note.
Clients who ask for the document to be springing wish to maintain control over their financial affairs as long as possible. Sometimes fear that the agent they name may act inappropriately, too soon, or without them knowing. A springing power of attorney does not prevent an agent from acting inappropriately, it just delays the bad behavior to a date when you no longer have mental capacity to be aware of the malfeasance or do anything about it. For this reason, we do not view the springing power of attorney as your first line of defense.
We believe that the most important thing you can do to make sure your financial affairs are handled properly in the event of your mental incapacity is to name the right person as your POA. The right person is not going to act too soon. If they do act inappropriately, you can revoke the document and remove the person as POA if you still have mental capacity.
The main thing is to name somebody to serve as POA who is trustworthy and capable. A capable agent does not need to know how to do everything himself or herself. Rather, the most capable agent will bring in the right people to help when expertise is needed. An accountant and financial advisor can provide guidance on tax and investment matters. A lawyer can protect the agent from financial liability, and a real estate agent can help make sure rental properties and sales of real estate are handled correctly.
Making the power of attorney “springing” and effective only upon your incapacity makes it more difficult for the agent you name to step up and take action when needed. Your chosen agent will need to secure a doctor’s note to prove to your financial institutions that you are not capable of handling your financial affairs. Is it bad to make a power of attorney springing? Not necessarily, but thought should be given to why you wish to make the document only effective upon your mental incapacity.
A power of attorney is handy not just when you are incapacitated, and sometimes it is useful as a matter of convenience. You might be able to take actions yourself, but might want your son, daughter, or trusted person who you have chosen to help by being able to take action as power of attorney. For example, if you were getting older and were unsteady on your feet, maybe you’d prefer to have your son or daughter as POA travel to a real estate settlement on your behalf on a snowy winter day. You could stay on hold for hours working your way through the customer service department of the IRS, bank, or phone company, but maybe your POA could do this for you at a certain point in your life, just to help even though you could do it yourself.
Also, incapacity is not always so clear to document, and it can be difficult to determine when the springing event has been triggered. It has been said that mental capacity is sometimes more like a dimmer switch on a light than an on and off switch. Sometimes with dementia we become slightly forgetful, and we may or may not realize it. A doctor may not want to get in the middle of this legal and family matter.
The decision to make a power of attorney document effective immediately or spring into effect only upon your incapacity is a personal decision. We tend to favor the document that is effective immediately if you have an agent who you trust completely. If you don’t trust the person completely, of course you should not name him or her as your agent.
We believe the best way to address the concern about bad actions by a power of attorney is to build accountability into the document. Trust but verify, as they say. Require the agent to provide financial statements to another trusted person or require a co-agent so that two signatures are required. Prohibit gifting and limit the authorities set forth in the power of attorney if they concern you. Checks and balances are good business, and the agent under power of attorney is essentially running a business, yours!
If you are still concerned about an agent acting too soon, or over your objection, you can opt to make the power of attorney springing. We do draft power of attorney documents that are springing for our clients who wish for them to read this way. However, when we hear these concerns, we ask whether the right person is being named as POA, and whether these concerns could be addressed by drafting checks and balances in the POA document along with other safeguards to prevent mistakes and overreaching. In our experience it seems that a springing power of attorney is more of a challenge for your named agent than a protection for you. Give us a call and we can discuss!
Disclaimer: The above article is provided for general informational purposes only. Please do not rely on this article as a substitute for legal advice for your specific situation.