- The power of attorney (PoA) most people execute is a so-called durable power of attorney.
The durable part is a legal innovation. Let me explain. Previously, an attorney-in-fact, also called the agent (the person named in the PoA), could not have any more powers than the principal (the person nominating the attorney-in-fact). If the principal lost such powers, for example, the power to enter into contracts, because of incapacity, the agent could also not have such powers. The legal concept was that you can only give away what you yourself possess.
The innovation consisted in letting the initial transfer of powers (while having capacity) endure beyond the principal’s incapacity, therefore, durable power of attorney.
- How it works
While you still can, you nominate an agent who can act on your behalf when you can’t, either temporarily or permanently. The agent has all the powers you had, and you gave to the agent when you signed the document. There are two versions of this durable power of attorney, one which is immediately effective, and one which becomes effective only when you are declared incapacitated.
- State law details matter
Powers of attorney are a matter of state law, and attorneys must pay close attention. While most states have adopted the 2006 version of the Uniform Power of Attorney Act, some states, California is one of them, are still using the 1988 revision of the original.
- A springing PoA is a variant of the durable PoA
California Probate Code Section 4124 provides for an optional feature of the durable power of attorney briefly mentioned above, under (b) (see also the quote below), it provides: “This power of attorney shall become effective upon the incapacity of the principal.”
Becoming effective upon incapacity is sometimes called a springing power of attorney: The PoA only becomes effective (springs into action) when the principal is declared to lack the capacity to make her own decisions.
“4124. A durable power of attorney is a power of attorney by which a principal designates another person as attorney-in-fact in writing and the power of attorney contains any of the following statements:
(a) “This power of attorney shall not be affected by subsequent incapacity of the principal.”
(b) “This power of attorney shall become effective upon the incapacity of the principal.”
(c) Similar words showing the intent of the principal that the authority conferred shall be exercisable notwithstanding the principal’s subsequent incapacity.
(Added by Stats. 1994, Ch. 307, Sec. 16. Effective January 1, 1995.)”
Based on the above, it should be clear that the ‘springing PoA’ (b) is a variant of the durable PoA and not something entirely different, as is sometimes misunderstood, even by banks, see for example, “Do you need a durable or springing power of attorney?” The correct (and more explanatory) phrasing would be, “Do you need a durable power of attorney that is effective immediately or one that only becomes effective when you lose capacity?” There is virtue in brevity, but only to the extent that the concept is adequately captured.
- The California Statutory PoA form
California has a PoA form called “Uniform Statutory Form Power of Attorney,” based on California Probate Code Section 4401. Statutory means that the form closely adheres to the requirements of the state law, as opposed to being a private or out-of-state version. While the latter may be legally valid, the wording or appearance may frustrate people unfamiliar with them, such as bank clerks.
It is, therefore, best to use the statutory forms when possible, and the ‘fill-in-the-blanks’ version may be the most recognizable to third parties. Make sure you use the most up-to-date version, as state law may change. Your attorney will assist you.
When you examine this form more closely, you will see a “Special Instructions” section. The form warns: “UNLESS YOU DIRECT OTHERWISE ABOVE, THIS POWER OF ATTORNEY IS EFFECTIVE IMMEDIATELY AND WILL CONTINUE UNTIL IT IS REVOKED”. To prevent the preceding, you would add instructions that make the PoA ‘springing’, i.e., only effective when your disability (incapacity) has been determined.
Whether you should opt for a springing power of attorney rather than the ‘effectively immediately’ version goes beyond the purpose of this blog post to explain. Most of the time, the ‘effective immediately’ version is preferable. You should talk to your estate planning attorney.
- When can my bank refuse to honor the POA?
One last word, even though you, as the agent, can provide a properly executed durable PoA, a bank or other third party may refuse to recognize it. This is often the case when the PoA is older than five years or from out of state. Some title insurance companies may only accept six months old documents. Or, the institution insists that only PoA’s executed using their own proprietary forms are acceptable. Here, as always in life, you need to pick your battles. Suppose you think what the third party demands is unreasonable or impossible for you to comply with (the principal cannot execute a new PoA). In that case, you should contact an attorney to help you. It is unreasonable for a California bank to refuse the Uniform Statutory Form Power of Attorney solely because their in-house form was not used. This unreasonable refusal could have expensive legal consequences for the bank. If they lose in court, which is likely, they also have to pay your attorney’s fees.
