Sun. Jan 16th, 2022

English common law understood that agents were sometimes needed in business and commerce. The president of Ford Motor Company obviously cannot be everywhere. You need agents to do business. Also, someone who is on vacation out of the country and cannot sign a contract could appoint an agent to sign that important paper.

But under common law, an agent no longer had the ability to act when the principal he was incapacitated (the “principal” is the person who confers the power). If the director had dementia and couldn’t sign an agreement, his agent couldn’t sign either. His agent could not have greater power than the principal.

Now if you haven’t figured it out all set, we will all feel the effects of aging, if we’re lucky. The symptoms are well known and do not require explanation. One of those particularly difficult symptoms to cope with is memory loss; the ability to think as clearly as when we were younger. While this is not always disabling, it is during this natural aging process that people often need help. But English common law helped little if someone was in a coma or had dementia.

Here comes the durable power of attorney.

But because defenseless people obviously need the help of an agent more, most jurisdictions now recognize a “durable” power of attorney (abbreviated “DPOA”). A DPOA is “durable” because it is in effect even when the “principal” is mentally incapacitated.

While a non-durable power of attorney simply authorizes the agent to act as long as there is no incapacity, a DPOA solves this problem by allowing a trusted agent, or designee, to act. even if the director lacks legal capacity, or in other words, when that person cannot legally make decisions on his or her own behalf due to a mental disability.

In California, a DPOA must have specific words to be “sustainable.” You must declare, as provided in California Probate Code §4124, that: “This power of attorney will become effective in the event of the principal’s disability,” or words to that effect.

Some benefits of a DPOA

A DPOA has specific benefits; in fact, I would go even further by stating that almost everyone with a formal estate plan should consider having one. Here are some of the benefits:

  • Often one can avoid the guardianship of an adult. A primary benefit of having a DPOA is that it can often substitute for a formal guardianship, which is often an expensive court proceeding that requires ongoing judicial oversight. Therefore, if a person has a disability and has a properly worded DPOA, their agent can write checks, manage finances, or take action regarding that person’s estate plan (such as funding a trust) without specific court oversight. .
  • It can be quickly effective. A DPOA can be effective immediately, or virtually, without going through lengthy Probate Court procedures.
  • Should be accepted in other states. A valid DPOA must be accepted in other states. California has a specific statute, Probate Code §4053, that specifically recognizes valid DPOAs enforced in other states. However, in some states, this may not be the case if the document gives an unauthorized power of attorney in that state. However (And this “however” is important!): The IRS does not facilitate the recognition of a power of attorney prepared by an attorney. There are obstacles established in specific Treasury Regulations. [See, for instance, Treas. Reg. §601.503] and IRS practice makes it difficult for an agent to sign tax forms. [IRS Deskguide (Publication 1514)]. However, a California taxpayer with a valid and properly executed power of attorney should have no problem signing the California Franchise Tax Board on a state tax form.
  • DPOAs are flexible. Specific authorizations or “powers” can be added or restricted in the governance agreement. Specific provisions are up to the director.

Of course, not everything is perfect …

While very useful, the DPOA is by no means perfect. A major problem is the possibility of abuse.

While guardianships are voluminous legal procedures, at least there is judicial oversight. The DPOA lacks oversight and abuses have occurred too often. While conservators must go through many legal hurdles, there is no active judicial oversight or “roadblock” for an agent under a DPOA. For example, California requires conservators to provide a court-approved accounting of their financial activities. It also requires conservatives to be linked. But without a specific court order, there are no such requirements for a simple agent.

Legal proceedings can be instituted, but this is often not practical. While the legal proceedings can instituted to compel (for example) the agent to file an accounting or revoke the agent’s authority, this is done infrequently. There is a big difference between a court-supervised guardianship and filing a petition in court.

In any case, who is going to file the petition with the court? Remember: The director is mentally incapacitated! People in a coma generally cannot file probate petitions to hold their agents accountable!

Sure, there are risks and they can be addressed in some way (but not completely) through a well-written document and a few common-sense precautions. A DPOA may not be for everyone. However, everyone should at least consider a DPOA as an element of their estate plan. An effectively written DPOA can “fill in” a comprehensive plan and fill in the blanks that are not covered in trusts and wills.

Disclaimer: The information in this article is not legal advice and its use does not create an attorney-client relationship. Any liability that may arise from your use of or reliance on this article or any link in this article is expressly disclaimed. This article should not be acted upon as legal advice and is subject to change without notice, or it may include outdated or dated information, or information that is not relevant to your jurisdiction. If you need legal services, you should consult an attorney.

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