Jenny Rozelle, Host of Legal Tea
Cautionary Tales - Issues with POAs - Episode 63
Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is a cautionary tale, where we talk about real-life cases with real-life clients with real facts – they’re things me or my office have worked on. For today’s episode, we’re going to be talking about an issue I keep seeing with a document called Financial Power of Attorney … but before we talk about said issue, let’s talk about WHAT a Financial Power of Attorney is and when it’s most often gets used. And if I have time, I may dive into a few extra things on POAs, but we’ll see how we do time-wise! Alrighty, so for starters a Power of Attorney is informally referred to as a POA sometimes – for sake of not getting tongue-twisted, I’m going to refer to it as a POA from here on out on this episode. I think what causes much confusion about POAs is that there are many TYPES of them … like:
1. Health POA vs. Financial POA
2. General POA vs. Limited POA
3. Durable POA vs. Springing POA
And we’re going to talk about each – with the latter, Durable POA vs. Springing POA, being “the issue” we are going to talk about today.
Oh, and something else, just because it has the word “attorney” in it, does not mean you are in any way appointing your attorney. I actually secretly wish it was titled something else because sometimes people get confused by the title of this document. It is WISE you have an attorney create this document – but you are NOT appointing said attorney in the document. Does that make sense? Okay moving on…
Starting with Health POA vs. Financial POA – oftentimes, people refer to the document that appoints your health care decision-maker as a health care POA. That’s fine, of course. For sake of clarification, though, today we’re talking about a Financial POA. The Health POA is sometimes referred to as an Appointment of Health Care Representative, like here in Indiana. I often tell clients, if the document appoints a person to make health care decisions for you if you are unable to do so, that’s what’s important. I don’t care what it’s really titled – just that you have one!
However, a Financial POA is someone that you designate to make financial-based decisions on your behalf, and they also have the ability to, quite literally, sign your name. It’s a powerful document, but a very important and necessary document too. I often tell clients, “Just because you have fallen ill or become incapacitated does not mean the bills stop coming … it doesn’t mean the IRS will give you a pass on filing taxes … etc.” That’s THIS person – the Financial POA. They “step into your shoes” financially-speaking and take over financial decisions. This person often closely works with your Financial Advisor and Accountant when they “step” into this role.
Next up on the “types” of POAs – there is General POA vs. Limited POA. Also, from here on out, assume we’re only talking about Financial POAs – this episode is about Financial POAs, primarily, rather than Health POAs. Figured it was important to note that!
Inside a Financial POA document, you’ll usually find a section that discusses “powers.” What this is, is say, you, the person signing the POA, giving the person you are naming as POA various powers to act on your behalf. To name a few, there are: Banking Powers (so the authority to act on your behalf with banks); Real Property Powers (the authority to act on your behalf with real estate – say buying or selling property); Estate Transactions Power (the authority to, say, deal with Estates and Trusts); etc. etc. Currently, here in Indiana, there are almost 20 “powers” you can give your POA – so, back to General POA vs. Limited POA – a General POA is you giving your POA all powers, generally speaking. Another way to say that – is you’re not really restricting them from any powers. Limited POA, conversely, is giving maybe 1 or 2 powers to do a limited transaction.
When would this apply, you ask? Say you’re selling your house and the closing gets set on a day that you’ll be on vacation or something. The last thing you want to do is 1) reschedule your vacation or 2) push the closing to another day … instead, you could sign a Limited POA and say, “I appoint my son, Johnny, as my Limited POA and he has the Real Property power only.” Rather than giving Johnny an “open” General POA, we gave him a Limited POA to go to the closing, sit his rear down at the closing table, and sign off on the transaction as your POA. It’s kind of a handy thing to know/understand in case you ever get yourself in a pickle. There are other examples, too, of when a Limited POA could come in handy. The thing you have to remember about a Limited POA is you’re restricting your POA from having all the POA powers a General POA offers. Make sense?
Alrighty, and now on to the last “type” of POA – Durable POA vs. Springing POA. This is the one that I wanted to bring up today – the “issue” I mentioned at the beginning of this episode. We’re going to talk about it FIRST, then discuss the issue after.
When you think of Durable vs. Springing, what you have to know is this “type” deals with WHEN the POA has authority to step into their role. Let’s start with the Springing type – a Springing POA “springs” into action on some type of triggering event and oftentimes, it springs into action once the person (who created the POA) has been declared incapacitated by a medical professional. Conversely, a Durable POA grants the POA authority to “step in” immediately – even if you are not incapacitated. So, again, Durable vs. Springing, deals with WHEN the person can act on your behalf.
Intuitively, many think that when they sit down to get their estate plan created, a Springing is what they want – that, they don’t want anyone to be able to step in while you’re perfectly fine. Though, dare I say that it is a classic case of something that is too good to be true? I say this because medical professionals do not exactly enjoy declaring people incapacitated – so they’ll often be somewhat delayed in doing so. Not in a bad way, but because they want the person to have complete autonomy and independence … until it’s absolutely necessary to declare “this person cannot make any more financial/legal decisions for himself/herself.” However, from my seat, the amount of times I see people start to slip and make inadvertent mistakes … is astonishing.
In fact, (talk about timing!) I JUST got an email from a financial professional talking about his Aunt, who, for a very long time, had NOT been declared incapacitated by her Doctor, but she had 1) inadvertently stopped making payments for her health insurance and lost her supplemental coverage for expenses that Medicare Part A and B would not cover; and 2) inadvertently stopping filing taxes and now owes back taxes. THANKFULLY, she had a Durable POA that allowed her nephew to step in, as Financial POA, since she had not been officially declared incapacitated. Now, he’s in the process of signing up for a new private insurance plan AND working with an Accountant to straighten out taxes. Had she NOT had a Durable POA, we would have been waiting on the Doctor to declare his Aunt incapacitated before he could step in and truly … help. THAT right there is the problem of Springing POAs.
Now, as I mentioned earlier, I said this whole General POA vs. Springing POA is the one I wanted to discuss. Ironically, what I just talked about is not even the issue I wanted to bring up. Instead, I was bringing that up, so when it’s time for you to analyze what is good and appropriate for you, you’ll understand the differences and consequences of both “types.” The issue I DID want to bring up is actually quite sad – it’s that I have seen so, so, so, so many Financial POAs be TITLED (at the top of the first page) as “General Durable Power of Attorney” but when you look at “when” the authority is granted … the POA has no authority until the person has been declared incapacitated. In other words, it’s actually Springing … even though the document is titled Durable.
I say that it is “quite sad” because not only have I seen these, let’s call it like it is, crappy documents pulled online, but I’ve seen these documents actually be prepared by attorneys. By practicing attorneys. I could make up POSSIBLE reasons for this (i.e. maybe the attorney doesn’t regularly practice estate planning), but the reasons and excuses, to me, do not matter. What matters far, far more – is getting this squared away … and making things right. If you have a Financial POA, I’d HIGHLY encourage you to pull it out, check to see what it is titled, and then go into the document to see when it becomes effective. Oftentimes, there’s a section or separate paragraph that talks about WHEN the POA has authority – and if it’s titled Durable and really Springing in nature -OR- you have a POA and it’s Springing, it may not be the worst idea in the world to discuss with an estate attorney.
Especially before it’s too late. Like, in the case of the financial advisor and his Aunt – IF she had a Springing POA, they would either have to wait for the Doctor to finally declare her incapacitated (to be able to clean up the health insurance issue and issues with not filing taxes) and if the Doctor continued to not pull the trigger, they may have to seek guardianship over the Aunt, which is like pushing all the way down on the accelerator (it’s like “worst case scenario” and costly) … and heck, the Judge may think it’s inappropriate and premature. So, then you may have paid an attorney to seek guardianship … to not even get your way. MANY bad things could end up happening … all because a silly “type” of POA. As I always tell my team at the office, “we are a product of our choices…” And that seems quite appropriate to say to wrap this episode up.
Alrighty … shifting to next week. We are back to the current events/current trends topic – where we talk about something I’ve seen or run across, maybe on the news or social media, that I think would be interesting on here. During next week’s episode, we are going to be talking about how inflation has impacted long-term care, generally speaking, and how it has directly impacted the COST of long-term care. A very pertinent and real issue that all too many don’t think about – even when inflation is NOT a factor. Anyway, yeah, tune in for that next Tuesday, Legal Tea Listeners! Until then, be well and talk soon!