Powers of Attorney
Ordinarily, when we use the word “attorney,” we think of a trained, licensed attorney-at-law. But the law recognizes another type of attorney that is not necessarily a licensed lawyer. This type of attorney is called an “agent”. Their legal status as an “agent” or an “attorney-in-fact” is created by a written document called a “power of attorney.”
Financial Powers of Attorney
A power of attorney (POA) is a written legal document by which one person (the “principal”) gives to another person (the “agent”) the authority to make decisions with respect to the management of their financial affairs.
A POA allows you to plan for potential incapacity resulting in an inability to manage your financial affairs. Specifically, it allows you to name someone to act on your behalf in the event incapacity actually occurs. If you become incapacitated and do not have a POA, often the only alternative is for someone to request the probate court to appoint a conservator to manage your financial affairs. But establishing a court-ordered conservatorship takes time and involves expense, and the court rather than the incapacitated person decides who gets to manage the incapacitated person's financial affairs.
Advantages of a POA
A POA can serve as a planning tool, and is simple and inexpensive to prepare. A POA allows you to determine who will handle your affairs and who will make decisions for you if you become incapacitated. Examples of how a durable POA might be used are: You could designate an agent to handle your banking and bill paying presently, and the agent would continue to take care of those matters after you become incapacitated; or, you can continue to handle your own affairs, but specify in your POA that a specific agent is authorized to handle your personal financial affairs upon your incapacity.
How to Make a POA
- In order to create a valid POA, the following elements must be present.
- The principal must be competent (rational and capable of making their own decisions).
- The POA must be in writing. It can be handwritten or typed, or preprinted forms can be used.
- The POA document must:
- Name the person authorized to act as your agent.
- Be signed by you, the principal, or another person in your presence and at your direction.
- Be acknowledged before a notary public or other individual authorized to take acknowledgements.
- In order to avoid conflicts of interest, a prospective agent is prohibited from signing on behalf of the principal and from notarizing the principal’s signature.
- If the POA affects real estate, the document should include the legal description of the property and it should be filed with the office of the county recorder where the property is located.
- If recorded, you may obtain certified copies of your POA document from the county recorder and make them available to persons affected by them, such as your doctor, your banker, etc.
It is not necessary to have a lawyer write your POA document, but it would be wise to do so.
Agent Selection
You may designate any competent adult or an organizational entity such as a bank as an agent. The agent may be either a relative or a non-relative.
The agent may begin exercising their authority under the document immediately without the need for court authorization. Because annual accountings are not required, it is essential that you implicitly trust the authorized agent and you should choose an agent very carefully. It is a good idea to consult with the individual you intend to appoint as your agent. The ideal agent should be:
- Trustworthy,
- Sufficiently knowledgeable and experienced to make needed financial decisions,
- Willing to handle the responsibility,
- Available now and in future to serve as agent,
- Willing to carry out your wishes and preferences, not their own,
- Able to manage possible conflicts among family members and others.
You may designate more than one person as an agent. However, when there are co-agents, difficulties in communication and conflicts between them can arise.
You can designate a successor agent or agents to serve if the original agent declines to serve, resigns, dies, becomes incapacitated, or is not qualified to serve. Unless the POA states otherwise, a successor agent has the same authority as that given to the original agent.
Agent Powers and Duties
You may give the agent very broad general powers or narrow specific powers. You should carefully consider what powers to give to the agent.
There are certain powers that an agent can exercise only if they are expressly stated in the POA. The exercise of these powers pose a particular risk to the principal’s property and estate plan and are susceptible to POA abuse. They are: creating, amending, revoking or terminating an inter vivos trust, making a gift, creating or changing a beneficiary designation, designating authority granted under a POA , waiving the principal’s right to be a beneficiary of a joint and survivor annuity, exercising fiduciary powers that the principal has authority to delegate, making gifts, and disclaiming property.
An agent’s duties and responsibilities include (but are not limited to) acting in accordance with the principal’s reasonable expectations to the extent known and, if unknown, otherwise in the principal’s best interest, acting in good faith and acting within the scope of authority granted in the POA.
When A POA Begins and Ends
A POA is effective immediately and remains effective if you, the principal, become incapacitated unless the POA expressly states otherwise.
This means, by default, a POA becomes effective immediately. However, you, the principal, may override this default rule through express language in the POA that creates a “springing” POA, contingent on a future date or an event such as your incapacity. The rationale for the default status of “effective immediately” is that any agent who can be trusted to act for the principal under a springing power of attorney should be trustworthy enough to hold an immediate power. But, you may prefer “springing” powers, for example, to maintain privacy in the hope that you will never need an agent to act.
Similarly, the default rule is that a POA is “durable”, meaning the power of attorney will survive your incapacity and your agent would retain the ability to make POA authorized financial decisions on your behalf. The rationale for this default rule is that a principal who becomes incapacitated generally would prefer to have the agent designated in the POA rather than a court appointed conservator make financial decisions for the principal.
A competent principal can revoke a POA at any time. If the POA has been recorded, the document revoking the power of attorney also should be recorded. Under some circumstances, you may wish to provide a copy of your revocation to those with whom your agent had authority to transact on your behalf.
A POA automatically ends when the principal dies.
Challenge an Agent’s Potential Misuse of Authority
To reduce POA abuse, the law allows an agent’s actions to be challenged. The law lists a number of persons who can request a court to review the actions of an agent if they believe the agent is misusing their authority. The listed persons include anyone who can demonstrate “sufficient interest in the principal’s welfare.”
An agent may be held liable for losses resulting from violation of their duties and responsibilities under the law.
Acceptance of POA by Banks and Other Financial Institutions
The law creates a broad mandate (subject to a few exceptions) for banks and other financial institutions to accept a POA presented by an agent provided the POA has been “purportedly” acknowledged before a notary public. They may not require an additional or different POA form unless one of the exceptions applies. If banks or financial institutions refuse to honor a POA, they may be subject to a court order requiring acceptance, and they may be liable for attorney fees and costs.
Financial POA Versus Health Care POA
A financial power of attorney does not apply to health care. The principal should also consider completing a durable power of attorney for health care in which a person gives the authority to an attorney-in-fact to make health care decisions for the principal at a point in time when they are unable to consent due to incapacity. While a person authorized to make financial decisions under a financial POA is called an “agent", a person authorized to make medical and health care decisions under a POA for health care is called an “attorney-in-fact".
Durable Powers of Attorney for Health Care
Iowa law allows individuals to confer upon an attorney-in-fact the authority to make medical and health care decisions on behalf of the person granting the powers. A health care power of attorney essentially takes the place of a guardianship and allows the attorney-in- fact to make daily health care decisions without court supervision. Federal law requires medical facilities to inform all patients, prior to admission, of the right to sign a living will or a health care power of attorney.
By executing a durable power of attorney for health care, you authorize the attorney-in-fact to make “health care decisions” on your behalf if your attending physician or physician assistant determines you are unable to make those decisions. “Health care decisions” means the consent, refusal to consent or the withdrawal of consent to “health care.” “Health care” means any care, treatment, service or procedure the purpose of which is to maintain, diagnose or treat an individual’s physical or mental condition.
It is a good idea to nominate an alternate attorney-in-fact, in case your first choice is not able or is no longer willing to serve as your attorney-in-fact. However, it is not recommended that you appoint co-attorneys-in-fact. This will avoid potential deadlocks or disputes over health care decisions.
You may revoke a power of attorney for health care at any time. To make an effective revocation, you must communicate your intent to revoke. This communication may be oral or written. The communication should be made to the attorney-in-fact. However, if a health care provider currently is providing health care services, then you may effectively revoke the power of attorney by communicating your intent to the health care provider.
The health care power of attorney allows you to grant to the attorney-in-fact the authority to make decisions regarding the use of life-sustaining procedures. However, it is important to realize that the execution of a living will memorializes your intent and desires regarding the use of life-sustaining procedures, and not what your attorney-in-fact thinks you desire.
To be valid the Durable Power of Attorney for Health Care document (DPOA-HC) must explicitly name and authorize the attorney-in-fact to make health care decisions; contain the date of execution and be witnessed or acknowledged by at least two individuals (witnesses) or a notary. Health care providers attending the principal may not serve as witnesses. The DPOA-HC is on the Iowa State Bar Association website.
An attorney-in-fact has the same right as a principal to receive and review medical records and to consent to the disclosure of medical records. The attorney-in-fact is to carry out the healthcare wishes of the principal. If those wishes are not known, the attorney-in-fact should act in the best interests of the principal, taking into account the principal’s overall medical condition and prognosis.
The DPOA-HC is only triggered to be effective when the principal does not have capacity as determined by an attending physician or physician assistant.
Death of the principal terminates the DPOA-HC.