One of the most common estate planning documents is a Power of Attorney. At some point in your life you will likely be named as an Agent by someone else in their Power of Attorney. You will also probably need to execute a Power of Attorney yourself for one reason or another one day. Because people are so familiar with the concept of a Power of Attorney, they sometimes fail to take the time they should to read and/or contemplate prior to executing one. That can lead to disastrous – and costly – consequences. Because it is crucial that you fully understand any document you execute, the estate planning attorneys at The Mendel Law Firm, L.P have put together some frequently asked questions and answers relating to a Power of Attorney. If you have additional questions or concerns, please feel free to contact our office to schedule a consultation.
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At its most basic, a Power of Attorney (POA) is a legal document that allows you (the “Principal”) to grant another person (the “Agent”) the authority to act on your behalf in legal matters and transactions. The type and extent of the legal authority you grant to an Agent in a POA depends on the type of Power of Attorney you execute.
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A POA can be either general or limited. A general POA grants your Agent almost unlimited power to act on your behalf. This means that your Agent may be able to do things such as withdraw funds from your financial accounts, sell property and assets owned by you, and even enter into contracts in your name. Most states enforce some statutory restraints on an Agent even under a general Power of Attorney; however, if you execute a general POA you should assume that your Agent will have virtually unfettered control over your assets. With that in mind, you should only execute a general POA if you have complete trust in the person you name as your Agent.
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A limited POA only grants to your Agent the limited, and specific, authority outlines in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf during the closing for the sale of your home because you have to be out of town on business. A limited POA is also frequently used by the parents of a minor child as a way to grant a caregiver the authority to consent to medical care for a child should an emergency arise while the parents are away.
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Historically, the authority granted to an Agent in a POA automatically terminated upon the death or incapacity of the Principal. The problem with that was that the possibility of becoming incapacitated has always been a common motivation for executing a POA in the first place. If your goal is to ensure that the person you name as your Agent has the authority to act on your behalf if you suffer a period of incapacity, but that authority automatically terminates when you become incapacitated, there’s a problem. To resolve that problem, the concept of a “durable” POA evolved. When a POA is made durable it simply means that the Agent’s authority survives the incapacity of the Principal.
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Both a general and a limited POA can be a springing POA. A springing POA has special language in it that causes the Agent’s authority to “spring” into action at a specific time or upon the occurrence of a specific event. For example, you might create a general POA that does not actually go into effect unless you have been missing for more than 48 hours or until you have been declared incapacitated by a physician. If the event occurs, your Agent’s authority “springs” into action.
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Although the authority granted in a Power of Attorney is well established by law, it is not uncommon for a third party to refuse to honor that authority nonetheless. A common reason for refusing to honor an Agent’s authority is claiming that the POA was executed too long ago. A third party may also question the authenticity of the document or refuse to honor a POA unless it is created using their form. Enacted in 2017, the Texas Durable Power of Attorney Law dictates that when a POA is presented to a third-party that third-party now has three choices – to accept it, to request that the agent sign a certificate, or to request the agent provide an opinion of counsel. The new law also imposes time periods within a third part must act and sets forth 11 reasons why a third-party can refuse to honor an Agent’s authority. If the third-party does refuse to honor the POA using one of those 11 reasons, it is required to give the Agent a written Private Reason Affidavit, which is signed under penalty of perjury.
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Yes. Even a general Power of Attorney has limits. Exactly what those limits are will depend on the state; however, most states prohibit an Agent from self-dealing, making gifts in the Principal’s name, and making health care decisions for the Principal.
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Not to worry – you can delegate the authority to make health care decisions for you to a chosen loved one; however, you must execute a different type of document known as an “advance directive.” State law also governs which advanced directives are recognized within the state. In Texas, an advance directive known as a Medical Power of Attorney gives the person you name as your Agent the authority to make any and all health care decisions for you in accordance with your wishes, including your religious and moral beliefs, when you are no longer capable of making them yourself. Similar to a general POA, you can give your Agent as much authority as allowable under the law or you can limit that authority.
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