DURABLE POWERS OF ATTORNEY - PREPARE THEM CAREFULLY

Powers of Attorney are routinely used as part of financial planning for clients. The most common type of Power of Attorney in an estate planning or elder law planning context is a General Durable Power of Attorney in which a person, usually known as the principal, designates an agent and gives them certain authority to act on behalf of the principal.

The General Durable Power of Attorney is a written document in which a long list of powers are given to the agent, known as the Attorney-in-Fact, which authorizes the agent to act with reference to the stated powers. Virtually all Powers of Attorney of this type are made durable, meaning that a statement is included in the written document that provides that the powers granted in the document will not expire upon the disability of the principal. The authority will expire upon the death of the principal. The grant of general authority is normally a good idea since the Power of Attorney gives the agent the authority to act on all aspects of the principal’s financial life, without the intervention of third parties or a court.

A recent case in Virginia decided in 2007 highlighted the need for careful drafting when preparing a General Durable Power of Attorney. In that matter the Attorney-in-Fact for a principal, using the Power of Attorney as his authority, converted Certificates of Deposit from individual ownership into joint ownership between the principal and his new wife. The Certificates were converted into a joint status with survivorship which usually means upon the death of the principal that the survivor is the owner of the jointly owned asset and that the asset is not subject to probate or oversight by the appropriate court.

The beneficiaries of the estate contested the actions of the attorney-in-fact after the death of the principal, arguing that the explicit language of the Power of Attorney did not give authority to the agent to change the Certificates of Deposit. All parties agreed that the Power of Attorney did not make specific reference to the authority of the Power of Attorney to make changes to Certificates of Deposit. The trial court concluded that the widow was entitled to the Certificate of Deposit proceeds even though the Power of Attorney lacked any specific authority to make gifts or change beneficiaries under Certificates of Deposit. 

Upon appeal to the Supreme Court of Virginia, a majority of justices in the Supreme Court ruled in favor of the widow, concluding that while the Power of Attorney did not expressly mention making gifts or changing beneficiary designations, that the Power of Attorney did authorize making contracts, signing instruments, withdrawing money from accounts and instructing entities having control of the principal’s assets. A minority of the court argued that the agent had exceeded his authority and that the funds should be returned to the estate. The Supreme Court observed on the basis of the facts of the case that the principal was entitled to assume that the Power of Attorney did give sufficient authority by implication to authorize the transfer by the Attorney-in-Fact. 

The court did state that Powers of Attorney are to be strictly construed in Virginia and that the power given in a Power of Attorney is susceptible to abuse, especially given the health of the principal at the time the authority was exercised.

This case highlights the necessity for a properly drafted Power of Attorney. It is important that the client discuss his goals with his attorney and it is important for the attorney to use his experience and skill in drafting a document that is consistent with the goals of the principal. In this particular case, the ambiguity of the Power of Attorney caused family members to be forced into a lawsuit against other family members, spend a great deal of time in court and spend significant sums of money in interpreting the actions of the deceased principal. If the principal had discussed the matter with the attorney drafting the Power of Attorney, the attorney could have easily written a specific power in the Power of Attorney authorizing the transfer of the principal’s assets to include Certificates of Deposit. The family members would have avoided litigation and would have saved money if the power had been written with the principal’s goals clearly stated.

The General Durable Power of Attorney is only one instrument that is used as part of a successful estate plan. It is important that the attorney and the client take sufficient time to understand the needs of the client and implement those needs with proper documents. 

Author: Thomas D. Duling

Contact Information for Mr. Duling: TDuling@comptonduling.com