Powers of Attorney

March 16, 2012

Let me tell you a little bit about Powers of Attorney. These are legal documents where one person [the principal]delegates certain authority to another [the Agent or Attorney in Fact]. They’re pretty commonly used

And can be very dangerous if not properly drafted or if you use the wrong kind.

There are three major types of POAs: those that are effective upon signing, Durable POAs, and “springing” POAs. Each has a specific use and is done for a particular reason. Their clauses and drafting requirement are different as well.

An ordinary POA, effective upon signing, stays in effect until it’s specific expiration date, or until the principal becomes incompetent. If you’re incompetent you can’t delegate authority anymore. The POA ceases.

A “springing” POA goes into effect only if you become incompetent or disabled.

A durable POA is usually effective upon signing and stays in effect even if you become incompetent. Got it?

A Power of Attorney is basically a contract between the principal and the agent. The agent is required to act in the principal’s best interest and is, in general, prohibited from self dealing. That means not using the POA to dip into the till.

One of the major drawbacks to using a POA, aside from the danger the agent will misuse it, is that third parties, like banks, might simply refuse to accept it. If you get a POA and then walk into the principal’s bank intending to empty their bank account, the bank will probably either refuse or give you a pretty thorough grilling about your authority. Hospitals may do the same.

Some governmental agencies like Social Security simply refuse to accept a POA and require that a court appoint a Conservator or Guardian to deal with them. Which brings us to the best way to deal with people who areunder a disability because of age [too young or too old], Alzheimer’s, or Physical handicaps that make handling their financial affairs difficult.

Michigan law establishes two different kinds of people to deal with other folk’s money and make decisions for them. A Conservator is appointed for mentally competent people who need supervision of their finances.

A young kid, for example, who gets a large accident settlement. Or an elderly person who is bedridden and needs help with bills.

Guardians are appointed when someone is incompetent and can’t make good life decisions. A Guardianship requires an affidavit from the person’s doctor that a Guardian is necessary, and a Guardian Ad Litem [a lawyer] is appointed by the Court to represent the Wards [the ward is the person getting the Guardian]interests in Court. Frequently both a Guardian and a Conservator are appointed. There’s a full scale hearing in Probate Court and if the Judge is convinced someone needs a Guardian or Conservator, or both they will sign Letters of Guardianship/Conservatorship. Everyone accepts Court orders where they might not accept a POA.

Guardians and Conservators are supervised by the Probate Court and have to submit annual accountings showing what the ward took in and how it was spent. They may have to post a bond as well. They are fiduciaries and are required to act only in the wards best interest..

OK, there are the rudiments of Powers of Attorney and their alternatives. If you try to do these kinds of things off the internet or with something like

Legal Zoom, it’s like walking into a hospital and asking for an “operation.”

Legal documents come in a bewildering variety, each with its own use and requirements for drafting. Remember the law presumes you know what you’re doing. If you don’t know, have a lawyer do it for you. It’s usually costs about 1 ½ tanks of  gas to have it done right.

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