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The Power of a Power of Attorney
Often the first time people hear of a power of attorney is from a story in which it was used to swindle an unsuspecting person out of their life savings. After hearing one of these stories, it is very easy to jump to the conclusion that one should never grant the power of attorney. Unfortunately such a decision is more likely to leave your assets vulnerable if you become incapacitated or are out of contact.
To begin, let’s explain exactly what we mean by “power of attorney.” A power of attorney is a contractual relationship between a principal, or the person who is granting the power, and an agent, or the person to whom the power is bestowed upon. In granting a power of attorney, the principal is giving the agent the authority to make financial decisions for the benefit of the principal. While this arrangement allows the agent to access the principal’s financial assets, it also creates a fiduciary relationship which in turn creates a duty on the part of the agent to act in accordance with the principals best interests. Accordingly, an agent’s breach of the fiduciary duty is actionable by the principle or their estate. In fact, for every story in which an unscrupulous agent drains the principal’s bank account, there is a legal remedy for the return of the funds.
So, what are the advantages to granting the power of attorney? First of all, there are occasions where someone may desire to have another person make financial decisions for them. A common example is married couples who may have separate retirement or savings accounts. Often one spouse is able to devote more time the management of those accounts or may simply have more knowledge in their management than the other spouse. As is often the case, just because one may be the husband or wife of the named account holder, does not give them the authority to access the account or to make any decisions regarding the management of the account. This situation often comes to a head when one spouse is overseas, deployed with the military, or for any reason out of contact and the remaining spouse needs to access an account for an emergency medical, mortgage, or travel payment. The frustration and helplessness of such a situation could easily be avoided with a power of attorney.
Additionally, in New York State, a properly executed power of attorney is considered “durable.” What this means is that the power of attorney survives the principal’s incapacitation. This “durability” is critically important since due to the incapacitation, the principal is not able to handle their own financial decisions including granting a power of attorney. Unfortunately, without a valid power of attorney, the family or caretaker of the principal is forced to go through a guardianship proceeding which is not only costly, but can be quite lengthy. Accordingly, this means that exactly when the incapacitated person needs someone to oversee their finances, no one is authorized to do so, and therefore the assets are left unattended and are not available to provide care for the incapacitated person or pay their bills.
For these reasons many spouses grant a power of attorney to each other and while it may not need to be immediately utilized, it is available and operational before an emergency arises. While this may make it seem as though a power of attorney is only appropriate for married couples, there are actually a few ways in which someone can grant a power of attorney even if they don’t have anyone that they implicitly trust to handle their financial matters. Two possibilities for someone in this situation include: (1) granting a limited power of attorney, for example, granting the power only for a limited time or for a specific purpose, or (2) by appointing a monitor whose job it is to oversee the actions of the agent.
So, whatever your personal situation is, a power of attorney is a valuable and powerful tool to protect your assets and assist those who may be caring for you in the event of a serious and incapacitating injury.