Durable Powers of Attorney: An Analysis of State Statutes

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2 Copyright 1992 by the National Clearinghouse for Legal Services. All Rights Reserved. 25 Clearinghouse Review 690 (October 1991) Durable Powers of Attorney: An Analysis of State Statutes by Lori A. Stiegel, Assistant Staff Director at the American Bar Association, who works on joint projects of the Commission on Legal Problems of the Elderly and the Commission on Mental and Physical Disability Law, Sally Balch Hurme, who is now with the AARP Legal Counsel for the Elderly, and previously was an Assistant Staff Director at the ABA, and Michael Stone, law clerk at the Commission on Legal Problems of the Elderly, 1800 M St., NW, Washington, DC 20036, (202) Case 1. Mrs. Smith, a 68-year-old widow, comes to your office to inquire about those "powers of attorney" she heard about recently from a neighbor. She wants to be sure that her children are able to pay her bills if she becomes sick. Her two children live in different states; she has extended visits with both of them. Case 2. You serve on your state bar association's committee on legal problems of the elderly. One of the committee's priorities for the coming year is to analyze the durable power of attorney statute and determine whether amendments are necessary. I. Introduction Legal services and private attorneys working with older persons face these or similar scenarios regularly. This article addresses such situations by discussing the development of general durable power of attorney (DPA) statutes, the common and unusual provisions contained in those laws, and the concerns that they raise. It also examines the effect of guardianship on a DPA. Included with this article are two charts analyzing the statutory provisions for general DPAs used to delegate decisionmaking. Chart I covers provisions governing the formalities of executing and extinguishing the document, and Chart II looks at other characteristics of DPAs, such as enforcement and the effect of a guardianship. Although Chart II indicates which general DPA statutes explicitly authorize health care decisionmaking, other statutes concerning special health care powers of attorney or proxies are not included. II. Evolution of Durable Powers of Attorney Mrs. Smith's request for a "power of attorney" provides an opportunity to explore the development of durable powers of attorney. It also illustrates the importance of clarifying a client's wishes concerning three different documents: power of attorney, durable power of attorney, and health care power of attorney.

3 Under common law, a power of attorney (PA) is a document in which one person, the "principal," grants authority to another, the "attorney-in-fact" or "agent," to act on the principal's behalf. For a PA to be valid, the principal must be competent when the PA is executed and must remain competent. By law, the PA is extinguished if the principal becomes incapacitated and is unable to revoke it. Thus, although intended to protect an incapacitated principal from abuse by an agent, a PA is of no use to persons who seek to plan for possible future incapacity by selecting someone to act on their behalf. A PA can be useful, however, if the principal needs an agent to do a specific act. For example, a PA might be useful for Mrs. Smith if she wants her agent to sell her car while she is out-of-state visiting one of her children. In response to the problem of a PA's becoming useless just when it may be needed most, all states and the District of Columbia have enacted laws authorizing general durable powers of attorney. DPAs remain valid even after the principal loses the capacity to revoke the power. They are thus a useful planning tool for persons concerned about later incapacity. Naming an agent through a DPA may avoid or delay appointment of a guardian if the principal becomes unable to make decisions. /1/ Using DPAs as a tool to maintain autonomy raises a variety of problems, the most prevalent being acceptability and abuse. As one commentator noted, "any power of attorney is useful only to the extent the agent is able to persuade third persons to permit him to transact business on behalf of the principal." /2/ Many attorneys have carefully drafted a DPA only to learn later that a bank will accept DPAs only on its own form. Moreover, the relative ease with which one can transfer broad authority to an agent raises fears about the potential for abuse of that authority by one's agent. Nevertheless, creating barriers to making, using, and enforcing DPAs may result in loss of individual autonomy, increased reliance on community resources, and premature or unnecessary guardianship. III. Characteristics of Durable Powers of Attorney Three versions of model durable power of attorney acts have provided some uniformity among the various state statutory provisions. The first model DPA was promulgated in 1964 to provide a less expensive alternative to guardianship. /3/ The Uniform Probate Code in 1969 and the alternative Uniform Durable Power of Attorney Act (UDPAA), introduced in 1979, have provided guidance to states interested in drafting such legislation. Although even a brief examination of current legislative provisions reveals that DPA laws still vary widely among the states, all have certain characteristics of importance to those who counsel about, draft, or rely upon these documents. A. Execution Requirements All jurisdictions require that the principal be a competent adult when the DPA is executed. Since a DPA is based upon a contractual relationship between a principal and an agent, at the time of execution a principal needs to have capacity to contract, rather than the lower standard for testamentary capacity. /4/

4 Except for Georgia, all jurisdictions mandate that a DPA expressly provide that it is durable by stating that the principal intends that the power outlasts or becomes effective upon incapacity; in Georgia, all powers of attorney are durable unless otherwise indicated. Most statutes provide clauses regarding durability that must be followed exactly or replicated in substantially similar form. Missouri also requires that the document be titled "Durable Power of Attorney" and that the agent agree in writing to serve. Disparity in execution requirements exists. While 35 statutes are silent as to whether a DPA must be witnessed, notarized, or recorded, 19 state laws contain specific execution requirements (note that California, Connecticut, and Oklahoma have more than one general DPA statute). For example, Maine law requires that a DPA be notarized if health care decisionmaking is authorized; North Carolina law requires that a DPA be recorded in the county of the principal's residence or the county specified in the document; and South Carolina law states that a DPA must be executed in the same manner as a will. Attorneys should be aware that even if the DPA statute is silent on execution requirements, other state laws may mandate certain action. For example, a DPA that will be used for real estate transactions will probably have to be executed with the same formalities as a deed. The laws of other states may need to be consulted if, as in the case of Mrs. Smith, a DPA may be needed in another jurisdiction. Although an attorney should discuss with a client how and where the DPA will be used, one can never predict what might occur or where it will happen. The safest route may be to execute a DPA with at least two witnesses and a notary. B. "Springing" Powers To make a DPA effective when planning for incapacity, the principal must give broad authority to the agent. Since durable powers are generally effective upon execution, principals are often concerned about the agent's exercising such authority prematurely while the principal has capacity and desires to make all decisions. Thus, 45 statutes have language authorizing "springing" DPAs. (Statutes in nine states are silent; none expressly precludes use of a springing DPA. See Chart I.) These derive their name from the way in which they come or spring into existence at a certain time or when a specific event occurs. Most statutes give the principal the prerogative to indicate when the document becomes effective, while Alaska specifies that two doctors must establish disability. Some practitioners oppose use of springing DPAs because of concern that determining whether these conditions have been met may prove as onerous as or actually result in a guardianship proceeding. /5/ The Uniform Penal Code option under which the DPA becomes "effective upon the disability or incapacity of the principal" /6/ provides little guidance as to the standard of incapacity and how that determination is to be made. In response to these concerns, some practitioners have begun "escrowing" DPAs. To do this, the principal signs the document, but, instead of delivering it to the agent, gives it to another (the escrow agent) with instructions as to when or under what conditions to give the DPA to

5 the agent, who then begins to act. However, as with springing DPAs, this practice forces someone to determine whether the intended event or condition has occurred. C. Reciprocal Recognition The issue of whether other jurisdictions recognize the validity of DPAs made in another state is of concern to people such as Mrs. Smith who travel regularly and could become incapacitated in or move to another state. As indicated in Chart I, 40 statutes are silent on reciprocal recognition. The states that follow the UDPAA provide that the statute should be construed to make the law uniform among other states that have also adopted the UDPAA. Indiana has addressed this problem specifically by providing for recognition of DPAs that have been validly executed according to the laws of other states. Missouri has a choice-of-law provision that a power of attorney is durable if it is considered durable in the state where it was executed, where the principal resided when it was executed, or where specified in the document. In those states with no provision for reciprocal recognition, a choice of law clause should be included in the DPA to clarify under which law(s) the DPA should be interpreted. D. Automatic Termination Some disparity also exists among the states about when the powers automatically terminate. Under common law (when the statute is silent) and in nine statutes, the DPA terminates when the principal dies. In the other states, the DPA remains valid until the agent learns of the principal's death. As discussed more fully below, the appointment of a guardian may also terminate a DPA. Three statutes terminate a DPA upon divorce if the agent is the former spouse. Some statutes contain unusual provisions; for example, Missouri's and North Carolina's laws terminate the power if the agent is "unsuitable" to act, and Louisiana DPAs terminate upon the bankruptcy of the principal or if the object of the power is accomplished, destroyed, or becomes impossible to attain. E. Revocation Although it is commonly stated that a principal can revoke a DPA at will, revocation is not always that simple. Most statutes provide little guidance on how to revoke the delegated powers, although destroying the document and notifying the agent, or both, are commonly used methods. Some statutes contain specific procedures, such as Minnesota's requirement that the principal revoke a DPA in writing and provide actual notice of revocation to all parties. Mississippi requires that revocation be in writing and acknowledged and recorded as a land conveyance, and Missouri requires that revocation be in writing and recorded in the county of the principal's residence, the county where property mentioned in the DPA is located, and the county of the agent's residence if the principal is not a Missouri resident. Practical revocation problems include the principal's need to gain access to all copies of the DPA and identify all third parties who may be relying on the document. Absent any statutory

6 provision, recording a revocation document may be the safest and simplest way of notifying third parties of revocation. Another problem to be noted is that statutes are silent about what happens if a principal who has become--or is believed to be--incompetent attempts revocation. IV. Statutory Enumerated Powers A significant problem in drafting a DPA is determining what powers should be given to the agent. As illustrated in Chart II, 19 statutes list the powers that the principal may grant to an agent. Eight of those statutes specifically note that the principal may alter this list by supplementing or deleting some of the powers. Typical lists include power over real estate, personal property, stock, banking, business, insurance, estate, litigation, and government benefit transactions. The drafting attorney must balance the competing needs of the principal, agent, and third parties. A DPA that simply authorizes an agent to do anything that the principal might do is short and inexpensive. However, third parties might be reluctant to rely upon it. On the other hand, a lengthy, detailed DPA may be unwieldy and expensive and could raise the problem of expressio unius est exclusio alterius (if an item is left out of a detailed DPA, the presumption would be that the principal intended to leave it out). A. Health Care Decisionmaking Powers The general DPA statutes of 14 jurisdictions explicitly authorize the principal to grant health care decisionmaking powers to the agent. Since California enacted its health care DPA statute in 1983, /7/ the trend among state legislatures has been to enact specific statutes for health care durable powers of attorney; as of July 1991, 29 jurisdictions had such special powers. Florida has both a special health care power of attorney statute /8/ and specific health care decisionmaking authority in the general DPA statute. For those jurisdictions that are silent about medical decisions, most attorneys advise that a principal may authorize an agent to make health care decisions pursuant to a general DPA. /9/ Some states may have other authority allowing delegation of health care decisionmaking, such as a medical consent or living will statute. In determining whether to include health care decisionmaking authority in a general DPA, the drafter and principal should consider whether the principal wants the same agent to make medical and financial decisions. A person who is qualified to handle financial matters may not be the appropriate person to be involved in medical issues. The principal should also consider whether third parties concerned with financial and property matters need to know of the principal's health care concerns, and vice versa. /10/ Two separate documents, one for financial matters and another for medical matters, may be appropriate.

7 B. Statutory Forms As indicated in Chart I, ten statutes provide a model DPA form. The states that have enacted a short-form power of attorney, such as New York, allow the use of a simple form that incorporates by reference powers detailed in the code. Unfortunately, lay persons using such forms without the advice of counsel may not understand the extent of the delegated powers. /11/ Moreover, a major benefit of DPAs--that they can be tailored to meet the specific needs of individual clients--may be lost with the use of statutory forms. At the same time, deviation from the form may call into question the document's validity. However, all states with statutory short forms have some provision for modification. C. Limits on the Agent's Authority Six jurisdictions place statutory limits on the agent's authority under a DPA. In the District of Columbia, for example, an agent may not convey real estate. /12/ Agents in Florida must obtain written consent from the principal's spouse or the spouse's legal guardian before selling the principal's homestead property. In Illinois, an agent may not amend or revoke the principal's trust(s). Colorado places the same limits on an agent's authority as are placed on a guardian. California, the first state to enact a special health care power of attorney law, prohibits an agent under a general or short-form DPA from making health care decisions, while Washington provides that an agent with health care decisionmaking authority is subject to the same restrictions as those imposed on a guardian. D. Agent's Delegation of Powers A common concern to drafters and principals alike is the question of what happens if the designated agent becomes unable to act on behalf of the principal after the principal has lost the capacity to name a new agent and execute a new DPA. For example, the agent may become ill, die, or simply want to resign. As indicated in Chart II, two statutes in Alaska and Missouri explicitly allow the agent to delegate authority to another individual. Statutes in Florida and Georgia specify that the agent's authority is nondelegable, while the remaining laws are silent on this issue. The two statutes that authorize delegation of the agent's authority also state that the principal may name successor agents to take over if the original agent becomes unable to act. The principal's naming of at least one successor agent is acceptable--and highly recommended--in the other 49 jurisdictions. /13/ V. Effect of Guardianship on a DPA Although DPAs are widely touted as an alternative to guardianship, they are not foolproof. The preceding paragraph illustrates some reasons for which a DPA might fail to meet the needs of a principal for a surrogate decisionmaker, resulting in a petition for appointment of a guardian for the principal. Other reasons might include the following: (1) the agent may not have authority to make certain decisions or take actions that become necessary; (2) the agent may abuse

8 authority and need to be removed; and (3) other interested persons may be dissatisfied with the agent's decisions and seek removal of the agent and appointment of a guardian. In 43 states, the appointment of a guardian does not automatically terminate the DPA. Instead, the agent becomes accountable to the guardian (or, in some states, just the guardian of the property). Of those states, six require court approval if the guardian wishes to revoke the DPA. Colorado's statute is unique among those that continue the agency relationship, in that it provides that the agent shall "consult with" the guardian and conservator. The Colorado guardian must seek court approval to revoke the DPA, but the conservator may do so without a court's permission. In Illinois, the guardian has no authority over the agent without a court order. A few statutes provide that the agency relationship terminates when a guardian is appointed for the principal. Although such provisions seem to counter the aim of using a DPA to avoid guardianship, the Supreme Court of Kentucky ruled that its DPA is "designed to validate the acts of the attorney-in-fact during a period of actual disability prior to a finding of legal disability." /14/ In Florida, a DPA is suspended when a guardianship petition is filed, but may be used in the event of an emergency. If the court rules that a guardian is unnecessary, the DPA is reinstated; however, if a guardian is appointed, the DPA is permanently revoked. Delaware's statute provides that appointment of a guardian terminates only those aspects of the DPA within the purview of the guardian, leaving the agent accountable to the guardian for other matters. In South Carolina, appointment of a guardian terminates all aspects of a DPA within the scope of the guardianship unless the DPA specifies otherwise. Given the possibility that a DPA could fail and a guardian become necessary, it is worthwhile to consider naming someone to act as guardian in the DPA. The principal may prefer to name the agent or another individual. Nineteen statutes specify that the principal may nominate a guardian. Of those statutes, five provide that the court shall appoint the nominee unless good cause is shown. The remaining statutes are silent on this issue; no DPA statute bans a principal from nominating a guardian. VI. Reliance and Enforcement Two common and interrelated problems with DPAs are the reluctance of third parties to rely on DPAs and a concern that the agent may exceed the granted authority. With regard to the first issue, a common statutory provision is that third parties may rely on the validity and viability of the document unless they have actual notice of the principal's death. A few of the statutes provide other means to encourage third parties to rely on DPAs. For example, Alaska, Indiana, and Minnesota strengthen the effectiveness of a DPA by imposing liability on third parties who refuse to honor the document, while New York directs financial institutions to honor them. With regard to the second issue, a frequently voiced concern about DPAs is that they are a "license to steal," because they do not offer a vulnerable principal adequate protection against an agent's abuse or overreaching. The sweeping powers that an agent can exercise when the principal is incapacitated and unable to supervise the agent raise valid concerns that the agent may exceed granted authority. While the axioms of agency and fiduciary responsibility apply to

9 the agent, requiring diligent and faithful action, the potential for abuse remains. As long as the principal remains competent, the principal can revoke the document and seek redress from the agent. However, an incapacitated principal not only may be unaware of any problems but also may lack legal capacity to challenge the agent's actions. Thus, it is sometimes said that guardianship may be a better option, because the court monitors the guardian's actions. However, a recent ABA study revealed that, despite statutory provisions for guardianship monitoring, many courts do not do an effective job of supervision. /15/ Individuals who express a desire to resort to guardianship instead of a DPA because of the potential for court oversight should be counseled about the realities of guardianship monitoring, the need to select a trustworthy agent, and the tenets of fiduciary responsibility. Furthermore, monitoring provisions can be drafted into the DPA. For example, the agent could be asked to report to another party, such as an attorney or family member(s). However, this reporting requirement would have to be enforced by civil action. While all courts have jurisdiction to review the actions of any agent, four states--california, Illinois, Missouri, and New Hampshire--recently enacted legislation granting courts special authority over DPAs. The California, Missouri, and New Hampshire statutes provide a list of persons who may ask the court to determine whether the DPA is still effective or has terminated; rule on the legality of the agent's acts; compel reports; or terminate the document because the agent is unfit, the agent has violated the terms of the DPA, or termination is in the principal's best interest. In California and New Hampshire, the list of such persons includes the agent, the principal, or the principal's spouse, child, parent, heir, or beneficiary. California also includes the conservator, court investigator, and public guardian, while New Hampshire adds a treating health care provider or other interested person. The Missouri list includes the principal or principal's legal representative, an adult member of the principal's family, or any other person interested in the principal's welfare. In California, the principal can eliminate this monitoring provision for all but the conservator if the principal was represented by a California attorney when the document was signed and the attorney's approval appears on the document. /16/ Illinois law sets forth a different procedure for oversight of an agent. A court may appoint a guardian to exercise the powers granted under the DPA, following a petition by any interested person, if it finds that (1) the principal is not able to control or revoke the agency, and (2) the agent's action or inaction deviates from the DPA and threatens or has caused substantial harm to the principal. If a guardian is not appointed, the court may enter any other order deemed necessary to serve the best interests of the principal. The court also may interpret, but not amend, the DPA. VII. Conclusion A carefully crafted durable power of attorney can be a very useful planning tool to circumvent or delay guardianship. As such, a DPA is important to individuals and their families and to states seeking to avoid the monetary and emotional costs of unnecessary guardianship. The drafter must consider not only the client's present and potential needs and circumstances, but also the statutory requirements of the principal's state of residence and of any other state where

10 the principal owns property or has potential caregivers. Among other things, the drafter and principal have to decide who will serve as agent, when the document will become effective, how the agent will be monitored, and what powers should be delegated. Bar association committees and other advocacy groups must balance the need for ease in obtaining DPAs with the need to protect vulnerable adults who have lost capacity and have become reliant upon the actions of a designated agent. In doing so, advocates in many states may wish to urge legislatures to reconsider provisions in their DPA statutes governing matters such as reciprocal recognition, reliance of third parties, and enforcement. The following charts should assist drafters and advocates in fulfilling each of these roles. [GRAPHIC CHARTS NOT INCLUDED] footnotes 1. The terms "guardian" and "guardianship" are used throughout this article to include conservator, curator, committee, and any other name used to describe a court-appointed decisionmaker for the person, the property, or both. 2. Huff, The Power of Attorney--Durable and Nondurable: Boon or Trap, U. MIAMI 11TH ANN. INST. EST. PLAN. Paras. 300, 306 (1977). 3. Model Special Power of Attorney for Small Property Interests Act (Prefatory Note 1964). 4. Farnum v. Silvano, 540 N.E.2d 202 (Mass. App. Ct. 1989); Testa v. Roberts, 542 N.E.2d 654 (Ohio Ct. App. 1988). 5. F. COLLIN, J. LOMBARD, A. MOSES, & H. SPITLER, DRAFTING THE DURABLE POWER OF ATTORNEY: A SYSTEMS APPROACH at (2d ed. 1991) [hereinafter COLLIN]. The two volumes of this edition contain detailed discussions of all aspects of DPAs, model forms, and relevant state statutes. 6. U.P.C. Sec (1969). 7. CAL. CIV. CODE Secs (West Supp. 1990). 8. FLA. STAT. ANN. Secs (West 1991). 9. See COLLIN, supra note 5, at 23-25, See Moore, The Durable Power of Attorney as an Alternative to the Improper Use of Conservatorship for Health-Care Decisionmaking, 60 ST. JOHN'S L. REV. 631 (1986) (questioning whether average guardian of the property is suitable to make health care decisions). 11. See COLLIN, supra note 5, at 17-18, for a discussion of other problems with form DPAs.

11 12. See McArthur & Ward, Disabled Planning: How Laws Thwart Planning for Incapacity of Owners of D.C. Real Property, 4 WASH. LAW. 38 (1990). 13. See, e.g., Note, Court Enforcement of Durable Powers of Attorney, 17 U.S.F. L. Rev. 611, 613 (1983). 14. Rice v. Floyd, 768 S.W.2d 57 (Ky. 1989). 15. S. Hurme, STEPS TO ENHANCE GUARDIANSHIP MONITORING (1991). 16. Note, supra note 13, at , and Springs, California Comments, in COLLIN, supra note 5, at 354.