Friday, August 12, 2011

Financial Power of Attorney

Financial Power of Attorney
The Georgia statute calls this form a Financial Power of Attorney, which differentiates it from the old Health Care Power of Attorney.  As its name suggests, it is a document that allows another person to make financial decisions.  The statutory form has many choices on it as to which powers to grant, and whether to make it durable or non-durable.  It may be advisable to modify this statutory form slightly particularly for elderly clients so that the most common elements do not require separate signatures, as that may be too burdens on for people with disabilities that impair their ability to sign. (1)  However, if such changes are made it is essential to thoroughly review the document with the client.
In a power of attorney the principal authorizes an agent to act on the principal’s behalf.  Powers of attorney may be general, granting broad powers over financial decisions, or may be more limited to specific transactions.  Powers of attorney are particularly helpful documents as they allow for another to make financial decisions for the principal, which can save the time, cost and expense of getting a conservatorship.  This is particularly true of people with large estates, as it may be difficult to get bonded, which is a necessary part of a conservatorship.  However, this lack of oversight is not without risk.  A power of attorney is a powerful document, allowing another to completely take control of the finances of a principal.  Although there are statutory and common law protections with breach of fiduciary duty and embezzlement claims, it may be impossible to recover the assets and money from a dishonorable agent who has wasted everything away.  If there truly is no one that a client can trust, other options than executing a financial power of attorney should be explored.  Possible solutions include professionally managed trusts or simply allowing for a conservatorship to later be sought, in order to ensure court oversight.  Another problem with powers of attorney is that they require the higher contractual standard of capacity, unlike the testamentary capacity of a will. (2)  Furthermore, a person with dementia, paranoia, etc. may revoke their power of attorney, making a conservatorship necessary anyway.
Under O.C.G.A. § 10-6-36 a power of attorney is considered “durable” unless it specifically states otherwise.  A “durable” power of attorney is one that continues to be effective even during a period of incapacity of the principal.  However, the power of attorney is still cancelled upon the death of the principal.  Under O.C.G.A. § 10-6-6 Georgia does allow powers of attorney to be “springing,” becoming effective upon incapacity.  A common misconception amongst clients is that since a springing power of attorney is only effective upon incapacity, that a less responsible or trustworthy person can be elected.  However, since there is no judicial oversight and typically no bond, the opposite is actually true, since an incapacitated person cannot properly defend themselves.
            Pursuant to O.C.G.A. § 10-6-142 a "notarized signature [is] required for [a] power of attorney [that] authoriz[es] real and personal property transactions." (3)

(1) O.C.G.A. § 10-6-140 (“The Georgia Statutory Form for Financial Power of Attorney set out in Code Section 10-6-142 may be used to create a financial power of attorney, but is not the exclusive method for creating such an agency.”)
(2) SunTrust Bank, Middle Georgia N.A. v. Harper, 250 Ga.App. 300, 306, 551 S.E.2d 419, 425-26 (2001).
(3)  Sambor v. Kelley, 271 Ga. 133, 134, 518 S.E.2d 120, 121 FN6 (1999).