Helping your client understand a power of attorney.

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Over the last few years, services offered by accountants and the
services demanded by clients of accountants have greatly expanded.
Today, it is often just as likely clients will seek help in regard to
financial planning as they are to seek help in the preparation of
financial statements. As clients develop trust in their
accountants' judgment, clients even come to accountants for
suggestions and support when they are faced with personal problems. As
the population of the United States ages, many of these personal
problems concern financial decisions that affect the health care of the
clients, their dependents, spouses or parents.
Today, clients may ask an accountant questions such as "If my
mother becomes incapacitated, can I pay her bills?" "Can I
cash my spouse's check?" "My father is in the hospital.
Do I have the right to decide if his life support system can be turned
off?." Answers to these questions have legal and financial
implications, but unless an accountant is also a licensed attorney, an
accountant cannot give legal advice. However, an accountant can help a
client understand many of the commonly used legal terms. Moreover,
accountants can use certain legal procedures to help clients resolve the
financial aspects associated with these questions.

One of the most commonly used legal procedure that addresses these
questions is known as a "power of attorney." Nearly all
accountants at some point in their careers will be faced with a
situation in which the proper advice for the client is to establish a
power of attorney. The purpose of this paper is to provide an accountant
with a basic understanding of what a power of attorney is, to explain
how a client may establish such a power, and to examine some of the
problems that may occur with a power of attorney.

All states have some form of a power of attorney, but many states
have unique laws in regard to such powers. Therefore, our discussion
here is in general terms and does not specifically apply to any
particular state. When establishing a power of attorney, the client must
ensure that the specific laws of his or her state are followed, which
may require the assistance of an attorney.
Background

The power of attorney has been around for decades. Originally, the
power of attorney was given to an agent (i.e., attorney in fact) to act
for the principal to do a designated task. For example, an attorney in
fact would be appointed to pay the principal's bills while the
principal was out of the country. Upon the principal's return, the
power of attorney ended. The power of attorney also permitted the agent
to handle the principal's financial affairs when the principal
became incapacitated. Initially, powers of attorney were used for

financial reasons.

Today, because of changing family units, complex health

reimbursement arrangements, extensive treatment options, and the
maintenance of life possibilities, a power of attorney is more often
needed for health care reasons than for financial reasons. As a result,
over the last few years, states have created a new type of power of
attorney, the durable power of attorney for health care, to address the
special needs that health care decisions require.

Four Types of Powers of Attorney

According to Black's Law Dictionary, a power of attorney is

"an instrument in writing whereby one person, as principal,
appoints another as his agent and confers authority to perform certain
specified acts or kinds of acts on behalf of [the] principal . . . The
agent is attorney in fact and his power is revoked on the death of the
principal by operation of law. Such power may be either general (full)
or special (limited)"(1) Today, powers of attorney are often placed
in four categories, each of which expand upon the above definition.

Standard Power of Attorney. The basic power of attorney gives the

attorney in fact (the agent) the temporary right to act on the
principal's behalf, often in regard to financial affairs. The
principal can even restrict the agent's right to act on his/her
behalf to only one transaction. This form of the power of attorney

usually terminates at a specified time, or when the principal becomes

incapacitated, which is when an agent is needed the most.

Durable Power of Attorney. Unlike the standard power of attorney

where the agent's power terminates when the principal becomes
disabled or incapacitated, a durable power of attorney continues until
the principal dies or until the principal revokes the power. Here, even
if a client is unable to make a decision, he or she has appointed
someone who has the authority to make decisions for the client. If the
power is not durable or if a client has not appointed an agent, the
court normally will establish a conservatorship or guardianship to act
on the client's behalf in the event of incapacity. These court
procedures can be quite costly. In contrast, a durable power of attorney
is normally more cost effective and more efficient in carrying out the
principal's wishes.
Springing Power of Attorney. With a springing power of attorney, a
"springing" event must occur in order to trigger the
agent's power or to terminate the power. Normally, the springing
event is the principal's incapacity, but the principal may specify
in the document any event that will activate or terminate the power. If
the principal never becomes incapacitated or the specific event never
occurs, a springing power of attorney never goes into effect, and the
principal retains total control over his or her financial affairs.

These three preceding types of powers of attorney traditionally

have been used to handle financial decisions, not health care decisions.

In some states, these forms of powers of attorney cannot be used to make

major health decisions for the principal. So, even if a durable power of
attorney has been established, some states may require that the
principal establish a durable power of attorney for health care.

Durable Power of Attorney for Health Care. In a durable power of

attorney for health care, the principal gives the attorney in fact the
authority to make all decisions in http://estate-planning.laws.com/ regard to the principal's health
care. This includes decisions to be hospitalized, to be transferred to
another hospital, to select medical treatments, and even to terminate
methods of life support. Normally, this power becomes effective only
with a medical certification of a principal's incapacity, unless
the durable power of attorney provides otherwise.

General and Limited Powers

Once your client decides to establish a power of attorney, one of

the most important issues to address is what specific powers should the
client convey to the agent. The agent can be given limited powers or
general powers. In a power of attorney with limited powers, an agent
cannot take any action that is not specifically listed in the power of
attorney. In contrast, under a general power of attorney, few
restrictions are placed on the actions an agent can take.

Some state statutes, however, impose restrictions on the actions

that agents can take, even if the power granted is general. For example,

in many states, an agent cannot give gifts on the principal's

behalf, unless that power is expressly authorized in the power of
attorney. Also, there are certain rights that cannot be conveyed to an
agent, even if they are expressly granted in the power of attorney. For
example, a principal normally cannot convey to an agent the right to
make, amend or revoke the principal's will.
Whether the purpose of your client's power of attorney is for
financial reasons or for health reasons, advise your client to be
careful to ensure that all potential problems or decisions that an agent
might face are addressed in the power of attorney. This is particularly
true for the durable power of attorney for health care because certain
actions, such as requesting that artificial life support be terminated,
must be explicitly stated in the power of attorney.

Triggering Event
Another issue that clients may ask questions about is what events
trigger a power of attorney. This issue is especially important if a
client has a springing power of attorney or a durable power of attorney
for health care.

Health Care. There is no uniform event among the states that

activates the durable power of attorney for health care. In some states,
the durable power of attorney for health care becomes effective
immediately upon its signing unless a limitation is placed upon the date
of implementation. In other states, the powers and duties of the agent
to make health care decisions are triggered by a medical certification

issued by a licensed physician(s) stating that the principal is

incapacitated and will remain incapacitated for an extended period. For
example, in Missouri, two licensed physicians are required for
certification unless otherwise asserted in the power of attorney
document. The powers and duties normally end upon certification that the
principal is no longer incapacitated.(2)

Financial. In some cases, your client's physical health may

remain strong and his/her overall mental ability may be sound, but
prudent financial decisions many have become more difficult for the
client. In that case, a client will need a general durable power of
attorney so that a designated agent can handle the client's
financial affairs. The trigger, scope and duration of the powers given
must be identified in the power of attorney document.

Who Should Should Not Be Given The Power of Attorney

One of the most important decisions that must be made, and

sometimes the most difficult, is who should serve as the attorney in
fact. It is important to remember that establishing a power of attorney
conveys tremendous power to your agent.(3)

There are several instances where the appointment of an agent

resulted in major financial loss to the principal. In some cases, the
loss was unintentional; the agent simply was not qualified to handle the
required financial transactions. In other cases, the agent intentionally defrauded the principal.

As for health decisions, there are reported cases where the

decision of whether or not to terminate life support needed to be made,
and the decision that was made was not in compliance with the
principal's desires. Moreover, when a principal establishes a
durable power of attorney for health care, the agent is given the
authority to make decisions for the principal, even if those decisions
conflict with suggested medical advice. So, the choice of agent is a
critical factor in the success or failure of carrying out the
principal's wishes.

Often, the agent selected is a spouse, a daughter, or a son.

Although it may be reassuring to have a loved one act on a client's
behalf, sometimes loved ones should not be selected as the attorney in
fact. Before appointing an agent, you should advise your client to ask:
Does the loved one actually have the education, knowledge, skill and
ability to make major financial decisions? Can the loved one be
manipulated by another person? Does this potential agent and your client
have similar views on maintaining the quality of life, or terminating
medical treatment to end life? If your client questions the
person's trustworthiness, or his/her ability to manage finances, or
the person's philosophy toward maintaining the quality of life,
then your client should reconsider designating that person as the
attorney in fact.

In addition to designating the agent, your client should designate a different person to be the
successor agent in case the primary agent

becomes incapacitated or decides to withdraw as primary agent. Also, the

client should be aware that certain individuals may not be permitted by
law to serve as agents. For example, in a durable power of attorney for
health care, those who normally cannot serve include: the client's
doctor, the doctor's employees, or the owner or employees of a
health care facility in which your client is a resident. In some states,
however, these individuals can serve as an agent if they are directly
related to the client.

How To Establish A Power Of Attorney

Establishing a power of attorney usually does not have to be

difficult or costly. Standard forms may be used in most states.

To create a durable power of attorney, most states require that the

word "durable" appear in the document title. Also, often a
statement similar to this must appear in the document: "'This
power of attorney will continue to be effective if I become disabled,
incapacitated, or incompetent.'"(4) For all types of powers of
attorney, the principal must sign the documents, as do the witnesses. In
many cases, the signatures must be notarized. If the principal conveys
powers to the attorney in fact to handle real estate transactions, in
some states, the durable power of attorney must be notarized and
properly filed with the appropriate state or county office.

Although many states have developed standard forms that allow a

person to establish his/her own power of attorney, you should advise

your client to remember that a standard form cannot serve
everyone's needs. To convey specific rights to the agent, the power
must be made explicit in the power of attorney. An important step in
establishing any power of attorney is to determine and list the specific
powers to be conveyed. The following is a partial list of powers that
may have to be granted in the power of attorney in order for the agent
to be authorized to perform such acts:

1. To execute, amend or revoke any trust agreement.

2. To make or revoke a gift of the principal's property.

3. To name or change the principal's beneficiaries.

4. To exercise power of appointment.

To avoid future problems, it is advisable to have a lawyer prepare

your client's power of attorney. Be aware that certain interested
parties, such as a spouse or child, can ask the court to set aside the
power of attorney. Therefore, seeking legal advice when creating the
document reduces the chances of successful subsequent challenges.

Another way to avoid problems is to have your client discuss

his/her power of attorney with the client's financial institutions,
doctors, potential nursing homes and hospitals of choice before the

client becomes incapacitated. As a result of these discussions, the

client may learn that the language in the documents does not authorize the client's agent to act in
the manner the client desires. If that
is the case, the client can modify the documents to meet the
requirements of the institutions or interested parties so that the
client's directives can be carried out.

Financial. Often, a financial institution will require its own

special forms to be completed before it will accept a power of attorney.
Some forms require signatures of both the principal and agent.
Sometimes, the forms must be notarized, while at other times a signature
guarantee is required. Some financial institutions will require the
principal to sign both an indemnification and power of attorney
agreement. In that case, the principal is agreeing to indemnify and hold
harmless the institution from actions "believed" to have
originated from the principal's agent. Other institutions may
require the agent to sign an affidavit declaring that he or she is the
actual agent named in the power of attorney. Some institutions require
an original copy of the document, while others will accept duplications.
If the client has accounts in several financial institutions, it may
take weeks to complete all the necessary paper work.

One potential problem is the fact that some financial institutions

do not accept powers of attorney established in other states.
Consequently, if your client's out-of-state financial institution
has such a policy, once the client becomes incapacitated, it is often

difficult to fulfill the institution's requirements for

establishing a power of attorney. Therefore, a power of attorney should
be established with all out-of-state institutions before anything
happens to the client which would result in your client's
incapacity.

Health Care. Most states have a standard form for the durable power
of attorney for health care. Some states have a form that combines the
durable power of attorney for health care with a health care directive.
However, hospitals and nursing homes may require special forms to be
completed or specific documents supplied before they will honor a power
of attorney. If there is a likelihood that a client will be admitted to
a health care facility out-of-state, you should advise your client to
determine if that state honors health care documents from other states.
Your client should also inquire whether that state would impose specific
limitations on the appointed agent's actions. In some cases, your
client may need to create documents for each state.

Even with the proper forms, there is one major problem unique to
health care that does not apply when dealing with financial
institutions. That is, what is the hospital, care giver, or
doctor's policy toward providing health care, maintaining life, and
terminating life? Is that policy compatible with your client's
view? If the client's doctor believes that all possible medical
treatment should be given to keep the client alive, and your
client's philosophy is that he or she does not want to live with

severe suffering or in a vegetative state, the agent is placed in the

difficult position of trying to carry out the client's wishes
against medical advice. It is important to note that in some states
health care providers are not required to accept the decision of an
attorney in fact if the decision is contrary to the health care
provider's personal beliefs or conscience.

The best way to ensure that your client's wishes are respected
is to have the client hold flank discussions with the client's
health care providers before medical treatment is needed. If your
client's desires conflict with those of the health care providers,
then your client should reconsider his/her choice of doctor or health
care provider.

Terminating Powers Of Attorney

Certain events terminate a power of attorney by law. For example,

the principal's death normally automatically terminates a power of
attorney, whether the power granted is durable or not. In some states,
however, the principal may authorize the agent to take certain actions
after the principal's death. For example, in Illinois the agent may
be granted the power to make anatomical gifts, to request an autopsy, or
to handle the disposition of the principal's remains.(5) If the
attorney in fact is the principal's spouse, the dissolution of
marriage or a legal separation ordinarily will terminate the power of

attorney by law, unless the original document states otherwise.

If your client has established a durable power of attorney, but he

or she now wants to terminate it, what must your client do? In many
states, the client may revoke a durable power of attorney at any time,
either orally or in writing. Other states only permit termination by
revocation in writing. It is always better to advise your client to
revoke the powers in writing. Normally, revocation of a power of
attorney is effective when an agent is notified of the termination;
however, often specific actions must be taken to help prevent potential
problems that may occur upon revocation.

Financial. If the agent has been responsible for any financial

transactions for your client, the client should immediately notify all
interested parties or financial institutions that the power of attorney
has been https://www.youtube.com/playlist?list=PLEdpUJdRZPylewyLpXch_dDImMeVGu2yb
terminated. Many financial institutions will require that this
notification be in writing. Notification is very important because if a
third party believes the former agent is still acting on the
principal's behalf, the principal may be held responsible for the
agent's actions.(6)

Health Care. Under a durable power of attorney for health care,

revocation may not be effective until the attending physician is
notified of the termination. In states where the agent's powers are
triggered by the principal's incapacity, those powers will often
end upon medical certification that the individual is no longer
incapacitated.

Finally, be sure to advise your client to collect and destroy or

invalidate all copies of the terminated power of attorney. If the client
fails to do this and becomes incapacitated, and a terminated copy
remains, the powers in it may be activated against the client's
wishes to terminate them.

Living Wilds And Health Care Directives

Sometimes, if your clients have already established a living will

or a health care directive, they may ask if there is any need to
establish a durable power of attorney for health care. In both of these
situations, your advice should be that a durable power of attorney for
health care is probably still needed. To understand the reason for this,
your client must understand the purpose of each instrument.

Living Will. A living will is a written document stating that the

patient does not want any extraordinary efforts taken to extend his/her
life when he or she is faced with a terminal illness or condition.
Typically, living wills carry with them certain restrictions. Probably,

the most important one is that the traditional living will is activated
only when the creator has a terminal condition. A terminal condition is
one in which death is imminent despite proper medical treatment. If
medical treatment can significantly prolong a person's life, by
definition the person's condition is not terminal and the living
will normally does not apply; medical treatment must be given.

Health Care Directive. A health care directive is a document

prepared in advance of a serious illness that instructs health care
providers to withhold or withdraw certain medical treatment. The
directive goes beyond the typical living will and provides specific
instructions about what actions should or should not be taken to prolong
the patient's life. If a person is in a persistent vegetative
state, although not a terminal state, a directive may instruct a medical
institution to take action that will result in terminating that life.

Many states have developed standard advance health care directive forms that allow the principal to
designate specific procedures that the
principal wants withheld or withdrawn. These procedures may include:
artificially supplied nutrition and hydration, heart-lung resuscitation,
dialysis, and chemotherapy. Moreover, the principal can direct that all
procedures that merely prolong life without improving the
principal's medical condition be discontinued. The advance
directive must be very clear in stating what medical treatment can or
cannot be withheld or withdrawn.

Need for Both Documents. Even if your client has a durable power of
attorney for health care, he or she still may need to have a living will
and/or an advance health care directive. The living will and health care
directive serve as guides for the agent who must make health care
decisions for the principal. Moreover, if the agent is disqualified or
not available to make necessary health care decisions, a living will or
health care directive will dictate what actions should or should not be
taken to sustain the principal's life. At the same time, a durable
power of attorney for health care is needed to provide authorization for
the agent to act on the principal's behalf.

Once your client creates the appropriate health care documents, the
client should sign several copies. One copy should be retained by the
client's lawyer. Other copies should be given to the attorney in
fact and the client's doctor, and one should go in the
client's hospital records. Additionally, one copy should be kept on
the principal's person, especially when traveling.

It must be remembered that a durable power of attorney for health

care is designed for a special purpose, medical decisions. It normally
does not address the situations in which a client needs an agent to make
or carry out financial decisions. Thus, you should advise your client to
establish two durable powers of attorney, one for health care and the
other for property and financial affairs.

Conclusion

Creating a power of attorney, a living will, or a health care

directive is a relatively easy procedure. The time for your client to
prepare these documents is when they are not needed. Clients should
create these documents before becoming incapacitated so the
clients' wishes can be carried out, and so their loved ones will
not be placed in a position of trying to guess what the clients would do
for themselves. Accountants can provide a valuable service to their
clients by informing them of the importance of the preparation of these
documents.

References

1. Blacks Law Dictionary, 1990, St. Paul, MN: West Publishing Co.
s.v. 'power of attorney', 1171.

2. Mo. Rev. Stat. [section] 404.825 (1991).

3. Under the Uniform Laws Annotated general power of attorney, the

agent has the power to take all necessary financial actions the
principal normally would take including: real property transactions;
tangible personal property transactions; stock and bond transactions;
banking and other financial institution transactions; business operating
transactions; insurance transactions; estate, trust, and other
beneficiary transactions; claims and litigation; personal and family
maintenance; social security, medicare, medicaid, or other governmental
program claims; retirement plan transactions; and tax matters. Unif.

Statutory Form Power of Attorney Act [section] 3-16, 8A U.L.A. 306-18

(1988).

4. Unif. Statutory Form Power of Attorney Act [section] 2, 8A

U.L.A. 305 (1988).

5. Ill. Ann. Star. ch. 755, para. 45, [section] 4-7(d) (Smith-Hard
1993).

6. This potential liability is illustrated by the following

statement set forth in the Uniform Statutory Form Power of Attorney Act,
section one. It reads: "I agree that any third party who receives a
copy of this document may act under it. Revocation of the power of
attorney is not effective as to a third party until the third party
learns of the revocation. I agree to indemnify the third party for any
claims that arise against the third party because of reliance on this
power of attorney" 8A U.L.A. 304 (1988).

Mary Virginia Moore, JD, MBA is an Assistant Professor of Business

Law at the Harrison College of Business at Southeast Missouri State
University, Cape Girardeau, MO.

Charles W. Wootton, DBA is a Professor of Accountancy at the

Lumpkin School of Business at Eastern Illinois University, Charleston,
IL.

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