One of the most commonly used and frequently misunderstood estate planning tools is a power of attorney. In fact, almost everyone executes a power of attorney at some point during their lifetime. When used appropriately, a power of attorney can be a very effective legal tool; however, the authority granted in a power of attorney, or POA, is frequently misunderstood. This is often to the client’s detriment.
Though intended as a useful tool, a misused or abused POA can do more harm than good. It can be dangerous to assign a POA without fully understanding the power granted in the document. At the end of the day, your best option is to consult an experienced Texas estate planning attorney on the matter. However, we have provided 5 common power of attorney mistakes for you to keep an eye out for. First things first, what is a POA?
What Is a Power of Attorney?
A power of attorney is a legal agreement that allows someone (known as the “Principal”) to grant the legal authority to someone else (known as the “Agent”) to act on the principal’s behalf in legal matters or transactions.
A POA can be general or limited. A general POA grants the Agent virtually unfettered power to act on behalf of the Principal. If you give your Agent a general power of attorney, your Agent can likely withdraw funds from a financial account, sell assets of yours, and even enter into contracts on your behalf. Suffice to say, you should only grant a general POA to someone whom you trust unquestionably.
A limited, or special, power of attorney only grants your Agent the specific authority listed in the POA agreement. For example, you might give a person the authority to buy or sell a house for you, while you are out of the country.
5 Common Mistakes People Make in a POA
Naming the wrong person as your Agent.
This is the single most importan issue. It may be your natural instinct to name a spouse or an adult child as your Agent; however, is he/she truly the best person for the job? Maybe…maybe not. You should never name someone because you feel obligated or pressured. To avoid this mistake, take the time to understand the power you are granting and contemplate the best person for the position. The agent will be handling your finances. So, make sure the person you appoint actually knows how to handle finances.
Granting too much power.
Failing to understand the difference between a limited and general POA could present serious ramifications. People frequently sign a general POA without understanding the breadth of powers granted in the document. They often cannot imagine that any legal document would allow someone to sell their car or clean out their bank account; however, that is entirely possible if the wrong individual is named as an Agent in a POA. To avoid making this mistake, stick to a limited power of attorney unless having a general POA is crucial.
Failing to revoke.
Though, there are other situations in which failure to revoke incurs, this most frequently applies to divorce. During the emotional upheaval of a divorce, people often forget they even executed a POA, only to remember months, or even years, later when the ex-spouse uses it. To avoid this mistake, plan to review your entire estate plan on a regular basis. You will be more likely to catch and revoke the no longer desirable POA before it comes back to bite you.
Using the wrong type of POA.
Using a general POA when a limited POA will suffice is certainly a mistake. The converse is also true. Using a limited POA when a general POA is needed can also create problems. In addition, if you are counting on your POA to be used as an incapacity planning tool it will need to be “durable.” Typically, a POA terminates upon the incapacity of the Principal. Making the POA “durable” resolves this problem as it means that the Agent’s power will survive the Principal’s incapacity. Avoiding this mistake requires a clear understanding of all the various types of POA’s. As such, the assistance of an estate planning attorney is likely needed.
Failing to name a successor Agent.
What happens if your Agent is unavailable, or refuses to serve, when the POA is needed? If you have named a successor Agent, this should not be a problem. However, people often forget to name a successor agent. Some don’t even realize you can name one. This mistake is easily avoided by remembering to name at least one successor Agent and/or including a process for appointing one should one be needed.
If you have additional questions or concerns about creating Powers of Attorney, contact the experienced Texas estate planning attorneys at The Mendel Law Firm, L.P. by calling 281-759-3213 to schedule your appointment today.