There are risks associated with using a Power of Attorney
Risk management practices are wide and varied
Insurance as a risk management strategy
There are risk management practices unrelated to the terms of the Power of Attorney
There are risk management practices involving the terms of the Power of Attorney
- promoting access to the Power of Attorney may reduce risks
- promoting access to records and disclosure of information may reduce risks
- using notification regimes may reduce risks
- imposing review requirements may reduce risks
- good record keeping is important
- broad risk management processes may reduce risks
- in Florida a specific notice regime operates in Respect Of Powers Of Attorney
A Power of Attorney is a very powerful legal document.
Creation of a Power of Attorney presents a series of significant risks.
For practical reasons:-
Only a properly instructed, suitably qualified lawyer could properly advise as to appropriate risk management practices associated with any given Power of Attorney.
Instructing a lawyer to confirm a Power of Attorney is fit for purpose before it is signed is always appropriate.
The mere instruction of a lawyer has natural consequences including opening of a lawyer's file so as to present an obvious basis to suggest that for example, that no question ought be raised as to whether the principal was adequately advised or otherwise with respect to the Power of Attorney. Instructing a lawyer making it inherently more difficult for anyone seeking to dispute that the principal's well-advised intentions.
Instructing a lawyer is the only way any view might be formed as to the suitability of any Power of Attorney for the purposes of any given principal.
Determining what is fit for purpose would invariably require the principal being interviewed to gauge their level of understanding, familiarity with their affairs and competence to create a Power of Attorney, inquiry being made to understand and advise upon the principal's objectives including alternatives, review any Power of Attorney, tailoring of its terms as required to meet the principal's needs and similar.
It is this process that substantially separates a Power of Attorney bought for example on the internet and a Power of Attorney settled (i.e. reviewed and advised upon with instructions to do all work necessary to render it fit for purpose).
Accepting that instructing a lawyer is the only way to genuinely manage risks associated with a Power of Attorney, it may be helpful to consider some options that might for example, feature in advice received from a lawyer.
These risk management processes seem best considered in two parts, risk management practices that are unrelated to the terms of the Power of Attorney and risk management practices related to the Power of Attorney.
Insurance As A Risk Management Strategy
Agents (prof, PI insurance)
monitors insured for review (see Monitor page -
Risks might be managed for example, by:-
Provisions that might usefully be included in a Power of Attorney to manage risks might deal with matters like:-
All of these options might discourage any agent from dubiously involving themselves in the affairs of their principal.
Inability to access a Power of Attorney may be a source of problems and particular care and attention should be paid to the question of whom and in what circumstances any and all appropriate persons should have access to a Power of Attorney.
Where a copy of the Power of Attorney cannot be accessed this may frustrate better outcomes.
Options might include directions included in the Power of Attorney specifying that a copy of the Power of Attorney should be produced upon demand from certain persons in conjunction with matters ‘outside the terms of the Power of Attorney’ such as storage and access arrangements.
Directions or other terms in a Power of Attorney might for example, go beyond merely specifying to whom the Power of Attorney may be released so as to also deal with clear release of the agent from any duty of confidentiality that might otherwise require the agent to act in a manner that would not result in disclosure of any pertinent information requested from certain persons, in conjunction with relevant documents and similar.
Access to records and disclosure of information can be a problem where for example, an agent feels that a duty of confidentiality prevents them from releasing certain documents or information.
Clear terms relieving an agent from any duty of confidentiality that might be counter-productive are appropriate.
In addition, it may be beneficial for example, to include express authority in favour of an agent that enables an agent to resolve any claims of confidentiality made by a third party who may hold relevant information or documents, so as to for example in oversimplified terms, expressly delegate authority to deal with all matters pertaining to retention of confidentiality, waiver or variation of terms as between a third party in possession of relevant information and documents and similar.
Notably in California, §4235 provides in respect of any Power of Attorney that if the principal becomes incapacitated or any question relating to the principal's capacity arises, an agent may consult with certain persons and obtain information from them (i.e. spouse, physician, attorney, accountant etc) and authorizes such persons to disclose information. Reviewing §4235 may be an interesting starting point for anyone looking at this issue.
Notifications by agents for example, intention to perform certain important transactions or appoint a sub-agent or similar etc.
Some states such as Florida, have specific notice regimes included in their legislation.
§709.2121 states:
(1) A notice, including a notice of revocation, notice of partial or complete termination by adjudication of incapacity or by the occurrence of an event referenced in the power of attorney, notice of death of the principal, notice of suspension by initiation of proceedings to determine incapacity or to appoint a guardian, or other notice, is not effective until written notice is provided to the agent or any third persons relying upon a power of attorney.
(2) Notice must be in writing and must be accomplished in a manner reasonably suitable under the circumstances and likely to result in receipt of the notice or document. Permissible methods of notice or for sending a document include first-class mail, personal delivery, delivery to the person's last known place of residence or place of business, or a properly directed facsimile or other electronic message.
(3) Notice to a financial institution or broker-dealer must contain the principal's name and address and the last four digits of the principal's taxpayer identification number and be directed to an officer or a manager of the financial institution or broker-dealer in this state.
(4) Notice is effective when given, except that notice upon a financial institution, brokerage company, or title insurance company is not effective until 5 days, excluding Saturdays, Sundays, and legal holidays, after it is received.
Arrangements for review of the principal's affairs (ie. conduct of regular meetings and similar) are one means by which confidence may be improved in terms of the risk of misappropriation of funds and similar.
The mere inclusion of such arrangements in a Power of Attorney seems likely to reduce the risk of some kinds of potential problems, including failure to maintain adequate records, lack of clarity in relation to issues like dates of appointment or cessation of appointment in respect of any agent and similar.
Keeping records in relation to the appointment and cessation of officeholders is a key function.
It is a task which arguably takes on additional significance in US States like Texas (§751.022) and Florida (§709.2113), where an agent may accept appointment without acting signing the Power of Attorney and in particular Florida where unlike Texas, legislative states “the scope of an agent's acceptance is limited to those aspects of the power of attorney for which the agent's assertions or conduct reasonably manifests acceptance”.
Whether or not this is also the case in Texas is a matter for the Courts of Texas.
It seems fundamental for example, when you consider that:-
This is particularly the case for example in Texas §751.023(b), California §4205, Illinois §2-10.3, Pennyslvania §5602(b) with respect to the designation of a protector who may in turn, designate successor agents, posing an immediate need for a scheme to manage designation. How else could anyone possibly be confident as to for example, who the protector has or has not designated as a successor agent?
A strong record keeping systems might for example, include requirement for any party to the Power of Attorney providing a copy of any execution, appointment, resignation or similar instrument to every other party.
This might seem unruly or unwieldy, but perhaps particularly in the context of abuse, the need to be very clear about who was or was not in office at any time is an issue every principal would prefer to avoid at all times.
In a litigious sense, it simply adds many potentially substantial heads of costs associated with proving who was or was not appointed, in conjunction with advising on a wide range of risks based upon whether certain legal entity were or were not appointed at given times and similar - all of which could have been very easily avoided with a suitable record keeping system.
Consider for example, serving a copy of the executed version of a Power of Attorney signed by a sub-agent on every party (agent, successor agent etc) named in the Power of Attorney would have multiple advantages, including the adoption of a practice which sees multiple persons receiving written notice (which is inherently difficult to dispute), bringing to the attention of those persons of the appointment of the sub-agent and similar.
In short, the advantages seem to clearly outweigh the disadvantages.
Notably, in states like New York and Pennsylvania, more particular requirements exist, for example:-
There is nothing to prevent a principal including provisions requiring the signing of a Power of Attorney in states like Texas (with respect to durable Powers of Attorney) and Florida where agents may accept appointment by conduct, if the principal prefers.
Broad risks management processes are in order.
Principles of risk management include processes to manage review of the risk management processes on a regular basis.
§709.2121 states:
(1) A notice, including a notice of revocation, notice of partial or complete termination by adjudication of incapacity or by the occurrence of an event referenced in the power of attorney, notice of death of the principal, notice of suspension by initiation of proceedings to determine incapacity or to appoint a guardian, or other notice, is not effective until written notice is provided to the agent or any third persons relying upon a power of attorney.
(2) Notice must be in writing and must be accomplished in a manner reasonably suitable under the circumstances and likely to result in receipt of the notice or document. Permissible methods of notice or for sending a document include first-class mail, personal delivery, delivery to the person's last known place of residence or place of business, or a properly directed facsimile or other electronic message.
(3) Notice to a financial institution or broker-dealer must contain the principal's name and address and the last four digits of the principal's taxpayer identification number and be directed to an officer or a manager of the financial institution or broker-dealer in this state.
(4) Notice is effective when given, except that notice upon a financial institution, brokerage company, or title insurance company is not effective until 5 days, excluding Saturdays, Sundays, and legal holidays, after it is received.
Risks arise in various contexts in respect of a Power of Attorney.
Risks may arise from wording or error or be associated with abuse of the Power of Attorney, as well as many other factors.
Risks may arise from words chosen to be included in the Power of Attorney.
A poorly drafted condition, direction or limitation, inconsistent terms, wording that offends a legal principle, misdescription, spelling errors, ambiguity, overlapping provisions and other possibilities are problems of a kind only a lawyer is qualified to solve.
Risks in the nature of an error might include any form of mistake in the content of a Power of Attorney, such as overstating or understating the authority delegated to the appointed agent or agents, failure to adequately define matters, mistakes based upon a misconception of the law, misstating or inadequately defining basic facts like names and addresses, failure to take into account the contents of other relevant documents and any manner of other possibilities that only a lawyer is qualified to manage.
Risks involving malfeasance primarily involve either an agent or third party acting improperly, for example to an agent deriving an unauthorized benefit or pressuring someone to sign a Power of Attorney, or a third party taking deriving an improper benefit where an agent for example pays monies for the benefit of a third party outside the scope of their authority.
There are an inordinate number of other risks, associated with matters like changes in the law, how a Power of Attorney came to be executed, the creation or existence of other documents and other matters.
Risks arise where a Power of Attorney is created, irrelevant to whether it is ever signed.
For example, in Texas or Pennsylvania a person creating a durable Power of Attorney in Texas might want to take extra care with an unsigned durable Power of Attorney because §751.0022 and §5608(c)entitle a third party to assume a signature purporting to be the principal's signature is genuine, subject to compliance with §121.004 in Texas and in absence of actual knowledge the signature is irregular, which tends to heighten the risks associated with an unsigned durable Power of Attorney being improperly signed and used for untoward purposes.
A printed, unsigned Power of Attorney left in a drawer may for example, lead to debate as to whether the Power of Attorney is evidence of particular preferences, perhaps an intention to revoke an earlier Power of Attorney or anything else.
An unsigned Powers of Attorney might for example, be said to somehow inform as to preferences or intentions of the principal, as if to say ‘if they wrote this, they probably wanted certain things to happen’.
Particular care should be taken when creating, storing or disposing of a draft Power of Attorney, that is any unsigned Power of Attorney, to ensure any draft is not a source of problems in the future.
Useful steps might include writing clearly on the front of the Power of Attorney that it is a draft and that the principal does not intend its creation to have any legal effect or consequence and for example, that its contents are not to be taken into account when determining any matter relevant to the principal's affairs.
Destroying a draft, unsigned Power of Attorney may be a better approach, to avoid any confusion, however there is often situations where it is desirable for drafts is to be retained, in which event suitable options might include for example, keeping all drafts in a folder boldly marked boldly with words to the effect “Draft Power of Attorney For Discussion With Lawyer Only” together with words like those mentioned in the previous paragraph, or similar.
An unsigned Power of Attorney might be relied upon in other contexts, outside the immediate operation of the Power of Attorney.
For example, in a dispute as to whether the principal had capacity at the time they wrote their will, evidence of their ability to create a Power of Attorney at the same time, albeit unsigned, might show that the principal had capacity to understand and structure their commercial affairs, which may be relevant to any determination of whether the principal had capacity at that time to create a will. It has been recognized that in many respects, the concepts and principles required to be understood by a principal when creating a Power of Attorney are considerably more sophisticated than the concepts relevant to a will and so, such evidence might well be persuasive on the question of whether the principal had capacity to write a will.
Risks associated with a signed Power of Attorney include a Power of Attorney being used for an unintended purpose, or being partly or wholly ineffective to achieve its intended purpose.
Risks arise for example, where a principal signs a Power of Attorney and retains the Power of Attorney in a desk drawer, or in a safety deposit box. It may be unclear whether the Power of Attorney is intended to be capable of use by an agent upon an agent accepting appointment.
This is particularly true, given the unique approach taken to Powers of Attorney whereby ordinary assumptions that might attach for example to a common agency agreement that was left for some period of time unsigned, do not apply to a Power of Attorney.
This sort of reasoning is reflected for example in legislation which recognizes that an agent's authority may be exercised until the agent's authority terminates notwithstanding a lapse of time since the execution of the Power of Attorney (see §751.132(b) in Texas, §4127 in California §5-1504 in New York §2-5 in Illinois and §5604(b) in Pennsylvania).
A signed Power of Attorney should be treated with the utmost care.
At least in principle an agent may accept appointment many years after you sign a Power of Attorney which is another distinguishing feature of a Power of Attorney. Most other legal documents if left unsigned by one party for years might well be less binding upon a named party, if it was suddenly signed by one party. In Texas for example, this notion is reflected in §751.132(b) which operates specifically in respect of durable Powers of Attorney and probably echoes in the principles applicable to non-durable Powers of Attorney.
Key considerations relevant to retaining signed Powers of Attorney include access to the Power of Attorney in particular by agents appointed under the Power of Attorney,, awareness of the existence of the Power of Attorney; the making and whereabouts of any copies of the Power of Attorney, together with retention of other relevant documents, such as evidence of an agent having accepted appointment or resigning, evidence pertinent to the certification of the Power of Attorney before a prescribed witness where applicable and similar.
It is often preferable to retain executed Power of Attorney that have been revoked as opposed to for example, destroying them.
Retaining a revoked Power of Attorney in this manner has advantages.
If issues arise in the future that involve the Power of Attorney, its terms can be reviewed, being a somewhat essential step when resolving any dispute involving a Power of Attorney.
It may be worthwhile to write on the front of a revoked Power of Attorney something to the effect ‘“this Power of Attorney was revoked by me on …(date).. and the agent/agents appointed under this Power of Attorney were notified by me of the revocation of this Power of Attorney on … (date)…” and for example, staple the documents evidencing revocation of the Power of Attorney to the back of Power of Attorney.
Risks may only be managed at all stages of the Power of Attorney creation process by obtaining legal advice and using the best quality Power of Attorney.