With a simple paper document, Bill Gates could allow me to enter his safe deposit box, sign on his bank accounts, mortgage his real estate, and a whole lot more. Okay, maybe he's not likely to do so anytime soon, but how would you know that? If I waltzed into your bank bearing an official-looking legal document purporting to name me Bill's attorney-in-fact, would you know what to do? Would you know what precautions to take to guard against fraud? Would you be able to discern what powers I really received, if any, through the document?
A banker called last week and said, "Well, here's the situation. Our customer, George, passed away last week. His brother Elroy came into the bank today with a power of attorney George executed a few months ago naming Elroy his attorney-in-fact. Elroy wanted to get some counter checks so he could pay some of George's bills and get some ready cash for George's wife from George's individual account. Elroy pointed out that this particular POA contains language stating that the power of attorney shall remain in effect following the death of the principal until and unless revoked in writing by a duly appointed executor or administrator of the estate. What should we do?"
This is typical of the types of questions which arise with powers of attorney. The key is to understand the basic concepts behind powers of attorney and how they work. While they are controlled by state law (so there can be differences from one jurisdiction to another), the most basic tenets of power of attorney law are fairly consistent across the country and many states have adopted uniform laws, such as the Uniform Durable Power of Attorney Act or the Uniform Statutory Form Power of Attorney Act.
First, the terminology. The document itself is referred to as the Power of Attorney (POA). The individual (or company) who executes it is the principal. The person the principal appoints to act on his behalf is called the attorney-in-fact.
The purpose of a power of attorney is to appoint an agent for the principal. Powers of attorney can be broad or limited. They can be drafted so narrowly that they simply authorize the attorney-in-fact to access the principal's safe deposit box and its contents, for example. Or, the power of attorney can be written so broadly that it authorizes the attorney-in-fact to exercise basically the same powers as to all the principal's property that the principal himself could exercise. Because of the wide variances, it is always necessary to scrutinize the terms of the POA to determine the nature and scope of the authority it grants.
A POA can be set up to go into effect as soon as it is executed, or can instead be drafted as a "springing" power of attorney. A springing power of attorney takes effect upon a designated date or the happening of a described event. For example, a POA may provide that it shall take effect at such time as two doctors certify in writing that the principal is incompetent or incapacitated, or a POA may specify that it takes effect on a certain date. When a POA is tendered to the bank, the bank should ascertain when it takes effect and not recognize the authority of the attorney-in-fact until the POA is effective.
In most states, it is not necessary to file a POA of record unless the POA affects real estate. Find out what your state requires. If your laws require a legal filing, make sure it has been made before you give effect to the Power.
In order for a power of attorney to remain in effect despite the subsequent incapacity or incompetency of the principal or the passage of time, it must be a durable POA. A durable POA is one that states that it shall remain in effect in those circumstances. If a POA is not durable, its effectiveness will cease when the principal is adjudged to be incompetent or incapacitated and you also run a risk if the POA is old. Some states authorize (and if yours does, you may want to require) an affidavit from the attorney-in-fact attesting to the fact that the principal is not incompetent or incapacitated and that the POA has not lapsed or been revoked.
The principal may revoke the POA at any time for any reason. All powers of attorney terminate automatically upon the death of the principal. The language quoted above in the POA George gave to Elroy will not extend the effectiveness of the POA beyond George's death. What if the bank weren't aware that George had died and they allowed his attorney-in-fact, Elroy, to transact business on his accounts? Most states have statutes that protect a bank if it continues to act in good faith reliance upon the power of attorney after the death of the principal, so long as the bank has no knowledge of the death. Find out if your state has such a law.
Don't allow yourself to be rushed or intimidated when someone presents a POA and immediately demands you allow them to take action under it. You have a right to review the provisions of the document, or have your attorney review them. It is a serious legal document and you must understand it fully before you act upon it. Take appropriate precautions to test the validity of the document. Attempt to contact the principal to verify it is genuine. If the principal is unreachable, compare the signature on the Power with any specimen signature you may have on file for the principal and be alert for evidence of forgery.
One of the greatest developments in recent years has been the Uniform Statutory Form Power of Attorney Act. It provides a uniform form (as the name implies) to be used for POAs that is straightforward and easy to understand. The principal simply initials the powers he wishes to bestow upon the attorney-in-fact and crosses through (or fails to initial) the rest. Its simplicity is a major boon to the third parties who are expected to accept and rely on such documents.
Understanding these simple guidelines for POAs will help you safely and properly deal with them at your bank.
Special Note added 9/17/01: If you have a situation where you are presented with a power of attorney that appears to have been executed by an individual who is now missing, and possibly dead, as a result of the terrorist attacks, consult your institution's attorney to determine the status of the POA in the interim. If the principal is known to be dead, the POA will no longer be in force. In this period of uncertainty, however, you will need to determine what your state law provides about the POA's efficacy.
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