Beyond The Will

A sensitive and often complicated conversation that individuals have with their aging parents relates to protective measures in the event of the parents’ incapacity. A power of attorney and the variations of such concerning the relinquishment of financial control require a thoughtful discussion. During these conversations, it is important to keep in mind that your parents’ sense of autonomy is valued and respected. A power of attorney is a document intended to protect their loss of decision-making ability in the event of future incapacity. Having in place a power of attorney may also help to avoid future costly and public court proceedings involving guardianships and conservatorships.

A power of attorney is a written document that appoints an “attorney-in-fact” for a definite purpose, typically related to financial affairs. The individual for whom the attorney-in-fact is acting is the “principal” or, in this case, your parent. The document creates an agency relationship between the attorney-in-fact (agent) and the principal. The document itself specifies all of the powers and duties of the attorney-in-fact and can be as broad or as limited as the principal wishes. Examples of powers include the power to fund or amend a revocable trust; power to buy and sell real estate; power to invest or reinvest the principal’s money; power to contract; power to operate businesses owned by the principal; powers regarding retirement plans or other employee benefits; powers regarding bank accounts; and many more. The document must be signed at a time when the principal has capacity, and the document is typically included with general estate planning schemes. There is no statutory requirement for powers of attorney to be witnessed; however, it is good practice to have two competent adults witness the execution and sign the document. In addition, the document should be under seal or notarized. Powers of attorney typically become effective upon signing.

A variation of a power of attorney is a durable power of attorney. A durable power of attorney is just that: it is durable. The powers remain in effect upon the principal’s incapacity or become effective when the principal becomes disabled or incapacitated. The durable aspect of a power of attorney is critical because the powers remain valid when needed after incapacity. The Massachusetts Uniform Probate Code, G.L. c. 190B replaces the prior statutes on durable powers of attorney. The pertinent sections, entitled “Durable Powers of Attorney,” can be found in sections 5-501 through 5-507. The relevant statutes require that the writing creating this durable power of attorney includes this phrase (or something similar): “This power of attorney shall not be affected by subsequent disability or incapacity of the principal or lapse of time.” Within documents creating durable powers of attorney, the principal may also nominate the person he or she wishes to serve as his or her guardian or conservator. Appealing to those afraid of losing control, this allows the principal to choose his or her guardian or conservator if one were ever needed. This designation closes the door on future litigation in the probate court, where the decision would be left up to disgruntled family members or the Court.

Another variation of a power of attorney is a “springing” power of attorney. These documents typically state that the power of attorney will not become effective until some future occurrence, such as the principal’s mental or physical incapacity. This may be a good option for a parent who is hesitant to grant immediate authority to his or her agent. This also gives your parent the option to relinquish control only when absolutely necessary. These types of springing powers must be durable because they must survive the incapacity of the principal. Issues may arise with this type of power of attorney because the “springing” typically requires proof of some event. For example, if the power does not become effective until mom or dad’s incapacity, a letter from their doctor may be required. It is important to understand your parents’ concerns, and if they have trouble placing a large amount of trust in their agent at the outset, a springing power may be appropriate.

If your parent asks if the power of attorney is forever, they have a few options. Unless durable, a power of attorney will terminate upon the incapacity of the principal. In any event, all powers of attorneys are terminated upon the death of the principal. Powers of attorney may also be revoked by the principal at any time, as long as they are competent to do so. Typically, a written document specifying the revocation is required and will be served on the attorney-in-fact. When and if they decide to execute a subsequent power of attorney, it should explicitly state that it replaces any prior executed powers of attorney.

When speaking with your parent, it is important to highlight that by establishing such protective measures now, they are choosing who may act on their behalf and with what specific powers. Documents creating powers of attorney give guidance as to your parents’ preferences and provide insight as to what their wishes would be in the event they can no longer communicate. Without such prior planning, your parent is placing that decision-making into the hands of the Court.