Friday, August 14, 2015

Durable (Financial) Powers of Attorney, “General”

Background.  You will want to consider a durable (financial) power of attorney when you engage in estate and disability planning.  You will be giving your agent the ability to do much that you, if personally present, could do.  You may appoint your agent under a “general power of attorney” – with lots and lots of authority -- or a “limited” or “special” power of  attorney; for example, a special power of attorney may authorize your agent to sell a car or your home only.  Do not ever appoint as an agent someone you do not trust.  Some people do appoint a relative who is not really trustworthy as agent – this is probably magical thinking: “If I become incapacitated, surely Johnny Boy, my son, will see the light and behave properly.”  Really?  Would you tell your best friend to do this?

Texas has adopted the Uniform Power of Attorney Act (set forth in the Estates Code), including a form (suggested) and the “short form” powers.  For example, the short form power “real property transactions” which is on the actual power of attorney is defined in the Estates Code as granting to the agent a great deal of authority, including the power to: “sell, exchange, convey with or without covenants, quitclaim, release, surrender, mortgage, encumber, partition or consent to partitioning, subdivide, apply for zoning, rezoning, or other governmental permits, plat or consent to platting, develop, grant options concerning, lease or sublet, or otherwise dispose of an estate or interest in real property or a right incident to real property”.

If you choose all of the short forms, you will have granted so much authority to your agent that, colloquially, you will be said to have a “general power of attorney”.  (Starting January 1, 2013, you must initial before each power you want or initial at the end if you want your agent to have all of the listed powers.) 

Unless you choose, using the statutory form or a variation, to make your agent’s authority last beyond your incapacity (effective when you sign it and good even if you are incapacitated – “durable”) or become effective on your incapacity (“springing”), your agent’s authority ends if and when you become incapacitated.  Your Power of Attorney is not effective after your death.

Discussion.  Co-Agents?  Living Revocable Trust?  If you do not have someone who is trustworthy who you can appoint as an agent, consider a revocable trust (also called as a “management trust” and a “living trust.”)  With a revocable trust, you can appoint Co-Trustees and require them to act jointly or allow each to act separately.

If you have someone you trust, you also may appoint one agent or more a Co-Agents and require the Co-Agents to act jointly or allow each to act separately.

BUT,  please note that banks and other financial institutions may not want to be responsible for making sure that Co-Trustees or Co-Agents actually act together.  Recently, two children of a client of our firm were required under the power of attorney he had done years ago to act jointly.  The bank refused to honor the direction that they act jointly (apparently, due to concerns about liability).  Instead, before the bank would allow them to act at all (even jointly), the bank required that each sign an indemnification agreement confirming that the bank was not responsible for making sure that each signed checks or jointly gave transfer and other instructions and also required each to indemnify the bank against any complaints one might have against the other as a Co-Agent.

What do you do to plan for your Co-Agents and/or Co-Trustees refusing to act jointly, especially when the bank is likely not to require joint actions?  Consider asking your attorney to draft in your Power of Attorney or Revocable Trust a plan to be triggered if this happens, like granting to the Agent or Trustee who is following the rule the right to go to  court without notice to the Agent or Trustee who is taking unilateral actions and get a temporary restraining order (“TRO”); authorize the Agent or Trustee who is following the rules to invoke a mandatory mediation or arbitration to be paid for from funds of the principal (who signed the power of attorney) or Trust; include a provision that if a Co-Agent or Co-Trustee who is required to act jointly acts unilaterally, that the Agent or Trustee will be treated as having resigned and an alternate treated as succeeding as Co-Agent or Co-Trustee; and look into whether a bank will allow the Co-Agents or Co-Trustees to pen a so-called safekeeping account (by court order or otherwise) where nothing will be released to pay bills unless both have signed.