Although Powers of Attorney may be inexpensive to set up initially, they tend to suffer from a number of shortcomings. First, if you believe that an important element of estate planning is to maintain control of your property while you are alive and well, the traditional Power of Attorney might not be acceptable to you because most Powers of Attorney give the agent immediate legal power to act on your behalf even though you neither presently need nor want any help.
This shortcoming can be avoided by using a “Springing” Power of Attorney. Unlike most Powers of Attorney that give the agent the right to act for you immediately, a Springing Power of Attorney allows the agent to act for you only after you become disabled.
Second, even the best Power of Attorney may not work just when you need it the most – when you become disabled and can no longer legally make your own financial decisions. This shortcoming occurs with great frequency because many banks and other financial institutions are extremely rigid and will accept only their own in-house Power of Attorney. They simply refuse to accept a Power of Attorney drafted by anyone other than their own attorney.
Moreover, just the mere passage of time from the date you sign your Power of Attorney until the time it is used by your agent, may be enough to cause problems. Financial institutions are often concerned that the passage of time has rendered your Power of Attorney “stale.” An old Power of Attorney runs the risk of becoming stale due to the possibility that many things may have changed in your life since you signed it and the Power no longer truly reflects your present desires.
Rather than risk a lawsuit by honoring a stale Power of Attorney, the financial institution may require a court to establish the validity of the Power of Attorney. Although in most circumstances your agent will win in court, your family will have lost because the whole point of having a Power of Attorney was to avoid a trip to the courthouse in the first place. This problem with “stale” Powers of Attorney is why it is sound advice to update them every couple years, or even more often.
A third shortcoming of Financial Powers of Attorney often arises when not enough legal authority is granted the agent. For example, the typical Power of Attorney gives your agent control over all your assets, including the right to sell your real estate but the document is entirely silent about the agent’s legal ability to use the proceeds of that sale for your benefit.
It is important to leave detailed instructions about how the proceeds from the sale of your property are to be used if you are disabled. Are such proceeds to be used only for your own benefit?
Or alternately, is your agent authorized to also use them to take care of others that you are currently helping, such as aging parents or your minor or adult children who may find themselves in financial or medical difficulties? While such instructions in a Power of Attorney give needed authority to your agent, they simultaneously contribute to the difficulty of getting a financial institution or other third party to honor it.
Conversely, a fourth shortcoming of Financial Powers of Attorney is the danger of giving the agent too much legal authority. Unfortunately, the legal treatises are full of instances where agents used their power to wrongfully abscond with all of the principal’s property.
For all of the above reasons, although Powers of Attorney offer valuable estate-planning opportunities, they also embody several significant shortcomings. Foremost among these is that they dangerously grant the agent broad legal authority over the principal’s property with little in the way of detailed instructions or restrictions to prevent the abuse of that power. The reality is that many times Powers of Attorney are used in an attempt to accomplish more than is wise or prudent.
Fortunately, there is a ready solution to this dilemma. Instead of using Powers of Attorney to grant an agent legal authority to do everything imaginable, a much better approach is to use a Power of Attorney that grants only limited authority in conjunction with a comprehensive estate plan that has at its center a Revocable Living Trust.
Powers of Attorney created for limited and specific purposes can be of great value in estate planning when used with a Revocable Living Trust. For example, as the estate planning centerpiece, the Revocable Living Trust will accomplish what it is expressly designed to do – help the estate escape guardianship proceedings while also providing the Trustee with detailed instructions that authorize only appropriate use of trust funds to help you and your loved ones and no one else.
The Power of Attorney then supplements this authority by authorizing the agent to handle any property or legal issue not controlled by the trust. Such legal issues could include representing you if you become injured in an automobile accident, advocating for you before government agencies, and dealing with insurance or retirement account issues. Other limited powers could include the authority to transfer assets to your trust but not give them away. Using a Revocable Living Trust with a Power of Attorney, you will be more secure in the knowledge that the instructions you leave will actually work as you intend without court intervention or the risk of being victimized by an unscrupulous agent.