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WHAT EXACTLY IS A POWER OF ATTORNEY OR POA AND DO I REALLY NEED ONE?
A POA is as important as a Will. A POA is a document that authorizes someone else to step in (the Agent) and make decisions and be an advocate to help protect the person who makes the POA (the Principal). We typically combine financial decision-making powers and medical decision-making powers in the same POA document. A married couple, frequently first designates the other spouse as their first agent, and then designated children or other close family members or friends as a secondary agent. A POA is only in effect during the Principal's lifetime, these powers end upon death.
WHAT HAPPENS IF AN OLDER PERSON NO LONGER HAS THE MENTAL CAPACITY TO MAKE DECISIONS, BUT NO POA IS IN PLACE?
This can be a very serious and costly problem. If someone no longer has the capacity to knowingly sign a POA, the only recourse is to file an expensive legal action to have the person declared incompetent and to have a guardian appointed for that person. The guardian appointed by a court may not be the person the family wants to be appointed and is often a third-party attorney or agency. The good news is, even if someone's thinking is not quite sharp and they are starting to become forgetful, so long as they generally know what is going on, who their family members are, and they are asking that someone step in to help them, they probably have the mental capacity to sign a POA.
WHAT PENNSYLVANIA LAW CONTROLS POAS?
The POA regulations for both the adoption and the fiduciary administration are set forth in the Pennsylvania PEF Code. The Pennsylvania Legislature amended the POA law and new requirements went into effect in 2015. The Legislature was concerned about problems of elder abuse and the potential stealing of funds from older victims, and greater safeguards are built into the law. For the first time, banks and other financial institutions may have reimbursed the victim of a POA breach, if it can be demonstrated that the financial institution permitted someone to act improperly under the POA and if those powers are not explicitly stated in the express terms of the POA.
WHAT IS THE DIFFERENCE BETWEEN A LIMITED AND A GENERAL POA?
When we meet with a family for Estate Planning, we typically prepare a “General” and “Durable” POA. General means that several general powers are authorized under the POA, including financial decision-making powers and medical decision-making powers. Durable means that the POA is in effect and will remain in effect for the rest of the Principal's lifetime unless they either amend or revoke the POA. A Limited POA is limited by scope and time. For example, someone may be out of the country for a 2 months trip, but a real estate closing is scheduled during that time. They can adopt a Limited POA – the Agent is limited in that they are only authorized to sign documents regarding a specific real estate transaction, and the POA will lapse after the person returns from vacation.
WHEN DOES THE POA GO INTO EFFECT? I'M IN GOOD HEALTH RIGHT NOW, AND I'M NOT READY FOR MY CHILDREN TO TAKE OVER MY BANK ACCOUNT?
This is the single most important and frequent question we hear when discussing POAs. The POA is in effect when the Principal signs, however, in most family situations, a smooth transition occurs. When an older person starts to need help, they ask for help, and family members start to step in and take a more active role in helping to manage finances, pay bills, make appropriate medical care decisions, etc. Think of a POA as a safety blanket for the future, the paperwork is in place for when it is needed.
WHAT IS THE DIFFERENCE BETWEEN A FINANCIAL AND MEDICAL POA?
Financial powers typically include the ability to write checks, pay bills, make financial investment decisions, and make decisions regarding real estate, vehicles, and other personal property. Medical powers include the ability to make decisions about taking medicine, and surgery, being able to discuss matters with a hospital, doctor, or nurse without violating HIPPA, decisions about home nursing care, assisted living care, and skilled nursing care. These documents can be divided into two separate documents, but are usually combined into a single document.
WHO SHOULD SERVE AS MY AGENT IN A POA?
An Agent has an important duty of trust. The Agent should be trustworthy, someone who makes sound decisions, and someone who is responsible for handling money. Often, the Agent is a close family member. If that person is not available or there are other problems regarding a family member and how they make decisions or handle money, then someone else should be chosen.
WHAT IS THE FIDUCIARY DUTY OF AN AGENT IN A POA?
A fiduciary duty is a duty of trust. If someone is acting as an agent under a POA, they have a fiduciary duty to act in the principal's best interest and preserve assets for that person's care. They cannot steal or spend this money on themselves, or foolishly waste assets. An agent who breaches their fiduciary duty is subject to both civil and criminal liabilities.