Do You Have the Wrong Power of Attorney?

used_000009129801_LargeIf you have ever consulted with your financial advisor or estate planning attorney you have probably heard the phrase “Will Package”. A Will Package typically refers to a Will, Healthcare Directive and a Power of Attorney offered at a discount if purchased at one time. Some attorneys have recently added a fourth document to the “package” called a HIPPA Authorization which permits a release of medical records to certain individuals. But what some may not realize is that there are two types of Powers of Attorney and it is possible you might have the wrong one to suit your needs or desires.

The most common Power of Attorney (“POA”) is titled a “Short Form” POA. This is a form document where you simply check the appropriate blank line on the form to choose certain features. This “Short Form” POA is normally six pages in length. NOTE: if you have a “Short Form” POA and it is less than six pages then you likely have an older version.

The other POA is referred to as a “Common Law” POA. This POA has a lot of content and can be 20 + pages long. Some people refer to this POA as a Durable Power of Attorney but that is not quite correct. In actuality both the Common Law and Short Form POAs can be “durable” power of attorneys. A “durable” power of attorney is simply one that continues to operate IF the person creating the POA (referred to as “Principal”) becomes incapacitated. Both POAs can have this feature.

So what makes having one type of POA wrong?

Well, consider your intentions.

If your intention is to NOT give an incredible amount of power to your agent or “attorney-in-fact” UNTIL you become incapacitated but you signed a Short Form POA, you have the wrong POA. Why? Because a Short Form POA activates the moment you sign it. The only option you have with it is to discontinue that power once you become incapacitated, likely just the opposite of what you want. Bottom line– all authority vests in your attorney-in- fact the moment you sign the document.

With a Common Law POA the authority lies dormant until incapacity is determined. Some refer to this feature as a “springing” power of attorney. Another way to activate this POA is to include a “certification” form which triggers the grant of power when signed in the future. Either way, the power vested in your “attorney-in- fact” or agent need not be granted right away. Some people prefer this option as they don’t want their control thwarted prematurely by other members.

Another instance of whether it is wrong for you to have a certain POA is one where you attempted to alter the language of a Short Form POA. It cannot be altered in any way from its template form without essentially converting it to a “common law” POA. And the Short Form POA template options (“A” through “M” powers granted) are limited to some degree. While a Short Form POA grants sizable authority over financial matters it is largely silent on authority granted for many nuanced issues including dealing with digital assets (social media, emails, login info), taking care of your mail, appointing a guardian or conservator, creating future Wills or Trusts, or simply taking care of your pets. A comprehensive Common Law POA (I refer to this as an “enhanced durable power of attorney”) can incorporate these concerns.

But a Common Law POA is not without its faults too. For one it is lengthy to read and may confuse or frustrate certain business or governmental entities. And there is no penalty that attaches if a business or governmental agency refuses to honor it. With Short Form POAs there are penalties in place for non-recognition of the document. And, of course, Short Form POAs are easier to read and understand.

Lastly, if you have signed a newer Short Form POA but never revoked the prior one, they are both in effect. This is likely contrary to your intentions and is a shortcoming of the Short Form POAs. Signing a new one does not automatically revoke the prior one. Most Common Law POAs on the other hand contain language stating that the newly signed POA revokes all prior POAs.

To best understand which Power of Attorney serves you best you should meet with your trusted and experienced estate planning attorney.